Margin Points - Arnold Engel

July 13, 2026 · [Essays 118, 119, 120]<br>SK Hynix, Delta, Ridge

→ Delta lets you get first class seats without any extras.

→ Memory chip makers have no memory of the last chip glut.

→ If AI manages inventory, be ready for supply chain surprises.

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Delta lets you build your own bundle<br>Delta Air Lines is now offering scaled-back first and business class1 seats that come with restrictions like checked bag limits, lower mileage rewards, limited lounge access, change fees, and no advance seat selection.

According to Bloomberg:

Delta Air Lines Inc. Chief Executive Officer Ed Bastian said travelers care more about their seat than extras like lounge access or limousine shuttles often thrown into costly tickets, as he defended a stripped-down premium product that has irked some customers.

Sell the seat, cut the rest of the experience. The move is driven by customer priorities:

“What consumers care more about than anything is the seat,” Bastian said. “All the other things are nice, but it’s the seat and the comfort of the seat that’s most important.”

Is Delta in the selling seats on a plane business? Undoubtedly. Is Delta in the selling an airport-to-airport experience? Well, at least for some customers maybe not.

Finer slicing is smart. When the flyer has already figured out the preferred seat and fare, they are likelier to just go back to the same fare on the next flight—a mini-IKEA effect for flyers. With apps like Flighty and content makers like The Points Guy, there is a segment of flyers that really likes to optimize.

Creating a fuller menu of fares and unbundling seats is a good fit for that segment. Finely tuned fare offerings should be more profitable for Delta.

“I paid for this seat” now means two different things simultaneously: _I paid for a bundle which included lounge access, bonus mileage points, early boarding and this seat _and I paid for this seat and nothing else. Will that impact the brand equity for those sitting at the front of the plane? Unlikely. The change might drive the prime seats to be more valuable by encouraging more flyers to make the jump and keeping utilization high.

The change also opens up a different consumer bundle. Flyers could pair Amex Centurion lounge access or Chase Sapphire lounge2 access with the bare-bones Delta First ticket. Add in CLEAR for fast TSA security passage and you have made your own premium airport-to-airport experience.

Delta is simultaneously investing heavily in lounges and removing them from certain tickets:

Bastian’s comments contrast Delta’s recent investments in its ground amenities. The airline has spent years opening and expanding swanky Sky Clubs and Delta One lounges, which remain in such high demand that crowding and lines have prompted tighter access rules.

Some of the travelers with their faces and luggage pressed up against the glass hoping to get into a lounge aren’t flying first class. The first-class-without-lounge-access ticket empties a seat in the overcrowded lounge that would have been taken up by a traveler who didn’t really care to lounge. The new tickets could indirectly enable easier day access for the premium economy flyer with a long layover and a preference for the lounge. The new bundles fit customer demands better than the more rigid prior approach.

Delta likely wouldn’t go so far as to spin off the lounges into a standalone business. The airport lounges are a moat for a segment of travelers who value them highly. Divesting the lounges might be difficult to undo if another operator has success and precludes Delta from getting good locations in the future. Delta’s seat and pricing changes are experimental and incremental. A massive lounge divestment is the opposite of incremental.

The airport lounges give Delta an element of control throughout the flying experience. By controlling access to the lounges and tying them to frequent flier status and fare type, Delta can adapt and experiment much more effectively than if the lounges were run by a third-party operator.

As a flyer, building your own flying bundle where you choose exactly the flavor of what makes an experience premium for you feels novel. Part of that premium experience is choosing what you don’t want just as much as what you do want.

Memory shortage until the next decade<br>SK Hynix, the memory chip supplier, had a successful IPO last week, raising over $25B. In an interview, the CEO said he expects the shortage of memory chips to last into the 2030s. Micron, the close competitor to SK Hynix, has also said they see no end in sight to chip shortages.3

Nassim Taleb summarized the dynamic with “never a shortage without a glut.” So we can expect that at some point, there will be more memory chips floating around than there are customers for.

SK Hynix knows that and is planning for it:

SK Hynix also has lined up more long-term contracts...