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Originally published Friday, May 10, 2013 at 4:42 PM

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Delta flexes its financial muscles to lure passengers

Better amenities, better service, as airline competes in its post-merger state.

The New York Times

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As Delta Air Lines executives tell it, the carrier’s bright and spacious new terminal at Kennedy Airport in New York reflects the industry’s new priorities.

Rather than compete on the lowest fares — a race to the bottom over the past decade that just weakened them — the airlines are now seeking to lure passengers with better amenities and service. That new strategy points to the improving financial health of the industry, a turnaround that can be traced to both the string of mega-mergers among the big carriers and the industry’s single-minded emphasis on cutting excess capacity since the depths of the recession.

Delta, the first of the major carriers to go into a merger — with Northwest in 2008 — is also in the strongest position to reshape its goals. And the $1.2 billion investment in a new terminal in New York, which will replace two 50-year-old grim and woefully inadequate terminals at the end of the month, is the latest and most visible sign of its new approach.

The airline has already been flexing its muscles. In the past two years, it has focused on improving its balance sheet as well as its operations, expanded its global partnerships, invested in airlines like Virgin Atlantic and even bought an oil refinery. On Wednesday it said it would reward shareholders with $1 billion in quarterly dividends and share repurchases over the next three years.

“The airline industry has been broken for decades,” Edward H. Bastian, Delta’s president, said in a recent interview. “It was fragmented. People worried if the airlines were going to make it or if they were going to be bankrupt. Today, everybody has scale, customers have choices and people have seen that service matters.”

In this new world of fewer airlines and less capacity, airline executives hope to achieve a level of stability that has eluded them since the U.S. government deregulated air travel in 1978. While Delta’s merger is complete, more work remains on United Airlines’ merger with Continental Airlines and Southwest Airlines’ tie-up with AirTran. American Airlines and US Airways, which announced in February that they

At Kennedy, Delta will move most of its flights to Terminal 4, where it is completing a new extension. There will be more gates and security lanes, a large lounge for frequent fliers and an outdoor observation deck. The doughnut-shaped Terminal 3, which has a leaky roof and plastic buckets that collect rainwater, will be torn down.

The Kennedy expansion came after a complex deal that Delta engineered in 2011 to expand capacity at La Guardia Airport in New York by swapping takeoff and landing rights there with US Airways for some of its own slots at Washington’s Reagan National Airport. Delta now has nearly half of all departures at La Guardia, where daily capacity is capped.

Delta is also taking the offensive at London’s Heathrow Airport, another congested airport with limited capacity. In December, Delta spent $360 million to buy a 49 percent stake in Virgin Atlantic. The partnership with Virgin will expand Delta’s daily flights to Heathrow to 23 from nine and increase its market share between New York and London — the world’s top business route — to 37 percent from 10 percent.

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