The Best of Both Worlds
Richard Anderson, CEO Delta Air Lines, says healthy competition mixed with cooperation is the proven way forward
What are the reasons behind the airline’s financial success, which will even include a payment to shareholders?
It is a combination of factors. Most importantly, Delta employees have done a spectacular job running the airline. Also, we have been very strict about capacity, we run a phenomenal and efficient operation, and we offer a great service. This has combined with an improved industry structure. There has been consolidation on an industry level, both nationally and internationally, and there are now more rational constructs. This has resulted in a far better cash flow for us. Delta made 50% of total North American airline industry profits in 2012 and revenue was up 30% on 2011. And we think 2013 will be even better. That will give us a cash base of some $6 billion and will allow us to further invest in our employees and our product as well as return cash to our shareholders.
Last year was also a great success in operational terms. What was the driver there?
We simply focused on the process and we were motivated to give our employees the tools to succeed. We had a 99.6% completion factor and 87% on-time performance according to the Department of Transportation (DOT) figures. And we had more than 99.8% bag accuracy, also according to DOT. In fact, overall, we were the best performing airline in the world. We need to excel operationally. Our objective is to run the most reliable, consistent airline in the world because Delta is a business traveler’s airline. It is the most admired airline in the world according to Fortune 500, for example. We have a core commitment to serve 160-plus million customers and that allows us to invest in our product on top of running an efficient airline. We recently had five days in a row without a cancellation. It doesn’t sound much but when you have such a massive network it is quite an achievement.
What role will infrastructure play in maintaining this operational efficiency?
This is an infrastructure intensive business. And we are paying great attention to the infrastructure side of the business.
Internationally, at Narita, Japan, we have cooperated with the airport over the past decade and worked hard to consolidate our facilities for Delta and its SkyTeam partners. We are also working at Amsterdam Schiphol and Paris Charles de Gaulle to improve customer service and ease of transfer.
Domestically, we have just spent several hundred million dollars at Los Angeles International Airport and will spend about $200 million more. At Seattle-Tacoma, we are building a new Arrivals Hall and there is already a new Arrivals Hall at Atlanta, which is now a world-class facility. We have just opened a new terminal at JFK in New York, the Minneapolis Arrivals Hall will double in size, and we will completely revamp our hub at Salt Lake City.
So we have made major investments in infrastructure and will continue to do so.As for NextGen, the other part of this puzzle, it has not been as successful as we would have liked. We have been trying for a couple of decades to utilize the technology on modern airplanes in both Europe and the United States and so far we have not really been successful in the adoption of these technologies.
How has the United States market changed as a result of consolidation?
For a start, it is finally profitable! There is the best of both worlds now. There are strong, financially viable carriers that are still very competitive. The United States needs a strong travel and tourism sector, just as it needs a strong agricultural sector and a strong manufacturing sector. And, of course, aviation underpins the performance of travel and tourism. It is good for our country to have strong viable carriers competing in the global
Does there need to be regulatory changes in the United States? The so-called Tarmac Delay rules have been heavily criticized, for example?
The Tarmac Delay rules are in place because of challenges with the air traffic control (ATC) system. ATC doesn’t work well, particularly in bad weather, and it is hard to get confirmed take-off times.
As a general point, the rules have provided a good boundary for the customer. But I do think the customer would benefit even more if there is greater flexibility around the take-off decision.
There have been a number of occasions when we have had to make a decision about whether to return to the gate without having access to all the information that we need to make that decision. There is a lot of unpredictability in the rule as you have to be back at the gate in three hours and the government isn’t giving you any definite times. So we’re turning back to the gate when we could have waited for another 15 minutes and managed to take off.
The Tarmac Delay rules definitely need more flexibility. The DOT put these regulations in place to help passengers but cancellations have gone up.
Small communities suffer in particular. Flights to these communities are often the first to be cancelled when there are problems with the network. Delta is compliant with all regulations and we are not asking for flexibility for flexibility’s sake. We are asking for it for the good of the passenger.
You have also complained about the inequality in commercial disclosure. What is the problem?
The issue regarding commercial disclosure is that we have to tell DOT everything. So our full commercial practices are there for all to see whereas foreign carriers are not subject to the same level of disclosure. It creates an uneven playing field and we are working hard to change this.
We also need full disclosure on government fees and taxes for the sake of transparency. Taxes and fees should be broken out and shown clearly to the passenger.
How important is SkyTeam to your future plans?
SkyTeam continues to be important. It allows us to offer the passenger an end-to-end network.
When we are deciding our strategy we always think about the implications for SkyTeam and all our partner airlines. It has to be win-win partnerships with all the carriers we are aligned with around the world.
Are alliances an effective substitute for cross-border mergers?
Cross-border mergers aren’t really necessary in our industry. Through alliances, airlines have a perfectly valid method of cooperation without all the issues that come with a formal merger, such as how to deal with labor and sovereignty. An alliance is actually a more efficient way of getting at the benefits of cooperation without the risk and expense of a formal combination.
What do you hope to achieve as IATA chairman?
We need to be an inclusive organization for all carriers around the world. IATA provides a high quality service to its members. As Chairman, I have a duty to ensure IATA continues to be useful to the industry. And we must be transparent in our rules, especially regarding governance. I also want to make sure we continue to support IATA staff who have done a tremendous job. They have a lot of responsibility around the world and we must help them.
On more substantive issues, the single most important thing is succeeding in our environmental initiatives. We are the first global industry to have a responsible solution for managing its emissions. There is a real opportunity to show the world through the discussions at ICAO that we can be the first industry to come up with a global, responsible solution for managing emissions. And I believe our chances of success are good.
It has happened before at ICAO with noise. Everybody has now signed on for a single noise standard. We are also doing it with the engine manufacturers on a CO2 standard. Through those two constructs, the industry has proved it can come up with a global answer in a responsible way.
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