Delta’s Flight Plan
CEO Richard Anderson says a new business model has the world’s largest airline cleared for takeoff.
Andrew French
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E-mailDuring his first year at the helm of Delta Air Lines Inc. (DAL), CEO Richard Anderson rebuilt the carrier following bankruptcy reorganization, faced a wild rise in fuel costs and battled a historic disruption in the global economy — all while finalizing the acquisition of Northwest Airlines Corp. So it sounds a little strange when he uses words such as “fortuitous” and “timely” to describe 2008, a year that some industry analysts call one of the most turbulent in the history of commercial aviation.
Anderson, who became CEO in 2007 after serving as a Delta director and executive vice president at UnitedHealth Group Inc. (UNH), argues that recent economic headwinds validated his strategy to break the feast-or-famine model that has defined the airline industry. Pointing to its emergence from bankruptcy protection in 2007, he says: “Delta went through a very successful reorganization and came out with a sound business plan.” Anderson insists the carrier’s solid balance sheet and strong cash flow will allow Delta to continue its massive restructuring. “We had to reform this business model to be sustainable for shareholders and employees, because both groups suffered a fair amount over the past decade,” he explains.
In fact, Delta has a history of changing with the times. Launched in 1924 as Huff-Daland Dusters to dust cotton fields for boll weevil infestation, the company was renamed for the Mississippi Delta region it served when field manager C. E. Woolman and two partners bought it four years later. Soon afterward, the airline began offering passenger service and secured a government contract to fly mail. Delta grew by adding routes (including its first transcontinental flight in 1961 and its first international foray in 1972) and by buying other carriers (including Northeast Airlines in 1972, Western Airlines in 1986 and Pan Am’s European routes in 1991).
The company has had its own share of turbulence: Delta recorded its first losses in 1983 and struggled through the early 1990s. In 2005 the airline filed for bankruptcy protection after posting several consecutive years of losses. Gerald Grinstein, who had become CEO in 2004, set out to completely transform the company, including its route network, fleet and cost structure. When it emerged from bankruptcy two years later — a year sooner than expected, notes the company — Delta had regained much of its strength, reporting a $500 million profit on $19.2 billion in revenue in 2007 and relisting on the NYSE in May 2007. Still, there was plenty of work to do to secure Delta’s future, the company concedes.
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After spending six months on Delta’s board of directors, Anderson, 54, had a good idea of what he wanted to accomplish when he succeeded the retiring Grinstein as CEO. By the end of 2007, Anderson laid out his “2008 Flight Plan,” which specified first-year operational targets across every business unit. A poster-size copy of the plan — recently updated to 2009’s Flight Plan — now hangs in every work area, including executive offices, airplane hangars and employee lounges, throughout Delta’s system.
Delta’s international capacity doubled from 2005 to 2008, on target to make international half its capacity by 2010.
Anderson says the Flight Plan is so ingrained in every aspect of the company that not even the April 2008 announcement of its acquisition of Northwest Airlines could push it off course. As an all-stock deal, says Anderson, “the $2.8 billion price tag did not impact our bottom line and created the world’s largest airline almost overnight,” giving his team ample leverage to implement its long-term plans, he adds.
One priority was to continue reducing domestic capacity while expanding its more profitable international business — a strategy Delta launched during bankruptcy — says Edward Bastian, Delta’s president, who served as Delta’s chief restructuring officer through Chapter 11. Calling Delta “the fastest-growing international carrier in the country,” Bastian reports that its international flight business grew to more than 40 percent of total capacity by the summer of 2008, up from 20 percent in 2005. He reports that Delta aims to make international account for half its capacity by the end of 2010.
“With Delta’s existing hubs in both John F. Kennedy International Airport in New York and Atlanta’s Hartsfield-Jackson International, the world’s busiest airport, the airline is well positioned to move quickly and efficiently into more profitable international markets,” explains Ray Neidl*, an airline analyst with Calyon Securities.
