Delta's New CEO: Consider Service and Reliability Over Price

Delta's New CEO: Consider Service and Reliability Over Price

June 13, 2016 — Delta Air Lines is posting record profits and is generally envied by the rest of the industry, due largely to its success in catering to high-paying business passengers.

While other carriers try to copy that model, Delta's new CEO, Ed Bastian, has turned his attention to the rest of the plane.

Bastian wants to convince leisure travelers to choose Delta not based on price, but on the experience. That could be a hard sell in a culture where most fliers look for the cheapest flight that fits their schedule.

"The company has invested over the last five years heavily in the business cabin and business customer," Bastian says. "We've got to make certain that we turn a higher focus than we've had on the main cabin."

Bastian proudly notes that a decade ago, Delta was getting 90 cents for every dollar charged by its competitors. Today, it gets 110 cents. Some passengers still book based on price and that's why Delta is offering a "Basic Economy" fare that doesn't come with an advance seat assignment.

"But that isn't the bulk of who we are," Bastian says.

Bastian, a longtime Delta executive, is also turning his attention to millennials, those born from the early 1980s to the late 1990s.

"That's our next generation of customers and by 2020 that will be half of our employees," he said in a recent interview at the airline's Atlanta headquarters.

Millennials want easy access to technology and a personalized experience. And, he says, they'll initially have less money than preceding generations. But, as the father of three millennials — and a fourth, younger child — Bastian acknowledges that he isn't yet sure how the airline will best cater to the group.

Delta has refurbished the interiors of its mainline jets and currently has one of the best on-time performance records. But its regional jets aren't up to the same standards.

"That's been the single biggest change, candidly," Bastian says.

For instance, as of last week, the airline's mainline operations has had 95 days without a single cancellation so far this year, but that figure falls to 29 days when you include the regionals. That might annoy fliers, but that figure — Delta boasts — is more than all of its major competitors combined.

Delta is working with the regional carriers it hires to improve their maintenance organizations and to improve hiring. But there is also a threat of loss of business. When Delta didn't like how things were going with one airline, it took it to court.

"We pay for performance," Bastian notes. "There are financial penalties when they can't deliver."

The airline is quickly eliminating its unpopular 50-seat jets. Five years ago it had more than 500; by the end of next year, it will be down to 100. Delta has switched many flights once flown on regional jets to its mainline planes, with its own pilots and flight attendants.

"I don't envision not having the regional element but we're going to continue bringing more and more flying to the mainline," Bastian says.

Although some smaller cities will continue to lose flights, Bastian says "I think the bulk of that is behind us."

The biggest risks to the airline industry today are the possible return of high jet fuel prices and the possibility of recession.

Delta has one of the oldest fleets but is quickly replacing jets with newer, fuel efficient models that also come with lower maintenance costs. And in most cases it is paying cash, helping to keep its debt load lower than competitors.

That's one reason that Wall Street still loves the airline. While American Airlines, Delta and United Airlines fly roughly the same amount of passengers each year, the market capitalization of Delta is almost equal to that of American and United combined.

Oil has risen from $26 a barrel earlier this year to around $50. If oil prices were to stabilize at $70 a barrel, Bastian says, "That's not a bad place to be for the airline."

"It will require the airlines to think about how they will cover that cost, through pricing, through segmentation, merchandizing, ancillaries," he adds. "There are a lot of tools that we have."

Published by the Associated Press on June 7, 2016

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