Delta CEO: Change Is Here to Stay

There's no looking back for U.S. network airlines, according to Delta Air Lines (DAL) Chief Executive Gerald Grinstein.

A convergence of forces, including the growth of Internet ticket purchases, increased competition from low-cost competitors and tighter business travel budgets, have brought wrenching change to the industry, Grinstein said Wednesday.

Over the next few years, the pace of change will be dramatic and more rapid, said Grinstein, a longtime Delta board member who filled the CEO's job at the beginning of the year after Leo Mullin resigned. Grinstein is attempting to guide the airline through an out-of-court restructuring aimed at cutting $5 billion of annual costs. The nation's third-largest carrier dodged a Chapter 11 bankruptcy filing last month by wrangling $1 billion in concessions from its pilots.

Like other U.S. carriers, Delta is struggling with high jet fuel costs and a glut of industry capacity that has made raising fares difficult. Competition has become fierce with the growth of efficient, low-cost carriers such as Southwest (LUV) and JetBlue Airways (JBLU).

Network carriers can't hope for a government "re-regulation," or other government bailout, Grinstein said in a keynote speech to the Wings Club, a club for aviation professionals. Their only option is to get their "houses in order" and cut costs while improving service, he added.

Delta is not pinning its salvation on a drop in fuel prices either, Grinstein said. The airline must "scrap" its way through a difficult period and rethink how it runs its business.

Network carriers can no longer afford to alienate customers by selling them tickets for more than $1,000 and seating them next to people who paid only a couple of hundred dollars for the same flight, Grinstein said.

As an example of what Delta is doing, the CEO pointed to its recent experiment simplifying the fare structure and lowering full-fare prices on flights from Cincinnati. The program followed the discovery that some Cincinnati travelers were driving to nearby cities like Columbus and Dayton to get cheaper tickets, even if they subsequently had to make a stopover back in Cincinnati. The program saw an increase in passengers in "the neighborhood of a third," Grinstein said.