SEATTLE -- Now it's Delta's ( DAL) time. Continued focus on a merger effort may be masking the real story at Delta, which, after spending decades as a consistent No. 3 among the big three airlines, has emerged as the pre-eminent U.S. carrier. Not incidentally, it's also poised to become the biggest, with or without a deal. The main reason is that in the age of globalization, Delta is spreading its worldwide reach faster than anybody, moving from 20% international capacity in 2005 to 40% this summer, with an eventual target of 50% or more. But it's not solely international expansion that sets Delta apart. In a commercial aviation system based on hubs, Delta operates the biggest hub in Atlanta, where it offers 1,000 departures a day and where a new runway that opened in 2006 has enhanced efficiency. Delta also has a hub at Kennedy Airport in New York, the world's biggest air travel market. Furthermore, in a customer service business where employee relations are critical, Delta appears to have found its way to maintaining good relations. One indication is that Delta led all network carriers in on-time performance during 2007. More telling, perhaps, is that as part of the effort to merge with Northwest ( NWA), Delta pursued a unique strategy, bringing its pilots into the process before a decision was made. Now, it appears Delta may be willing to walk away from the deal if pilots cannot reach a satisfactory arrangement to preserve their seniority. Last week, Delta executives traveled to Seattle to take delivery of the carrier's first new aircraft in six years, a Boeing 777-200LR with more range than any existing commercial jet. As the plane flew to Atlanta, Executive Vice President Glen Hauenstein told reporters that Delta has asked Boeing ( BA) for a 777 with even more range, so that it might one day fly to Sydney. Asked about the potential of Delta's hub at Kennedy International Airport, where the carrier occupies the terminal it acquired from Pan Am in 1991, Hauenstein responded: "I think it's a limit of how big can you dream. We have some big dreams in New York." Some will become reality this summer, when Delta adds a dozen international flights from Kennedy to cities in four continents. At that point, Delta will formally pass United, a unit of UAL ( UAUA), to become the second-biggest U.S. airline in terms of capacity. It will trail only AMR's ( AMR) American which, by the way, has not been growing.
Another key Delta statistic measures revenue per seat mile as a percentage of the industry average. When Delta sought bankruptcy protection in 2005, the number was 86%. For 2007, it was 95%. This year, it is expected to rise to 98%. Delta's 19-month bankruptcy, which ended in April 2007, was unusual. While most airlines have used bankruptcy to cut costs, particularly labor costs, Delta used bankruptcy to transform itself into an international carrier. President Ed Bastian recalled talking with Hauenstein in August 2005, shortly before both joined the company. (It was the second stint for Bastian.) "We could see the future," he said. "We saw the jewel in the rubble that needed to be polished up. We realized it would be a long-term deal, but at that stage in our careers, we wanted to make a difference." As part of the 777 delivery ceremony in Seattle, a steel curtain opened in a Boeing hangar, revealing the 777, named "The Delta Spirit," shimmering in the sunlight. About 150 Delta employees hugged one another and took pictures, and Bastian, who himself seemed deeply affected, said some were crying.
|Airline||July 2008 Daily Capacity*|
|Source: Delta. *Estimated and measured in available seat miles.|
"They had the realization that it was their hard work that actually made this day possible," he said. "I saw a lot of tears. It was a moving day. It was a very personal day. When you pour your heart and soul into something as we have here. We call it 'The Spirit' for a reason. There is a spirit and there is a soul to this company that we almost lost." It appears that Richard Anderson, who took over as CEO in September, has adapted to the Delta culture. He dealt the pilots in on merger talks, and he voluntarily waived accelerated compensation -- perhaps as much as $15 million -- that would have been payable as the result of a merger. "He realizes the value of having employees on his side," said aviation consultant Robert Mann. Anderson declined to be interviewed for this story. In the past, Delta's management was not so highly regarded. Ron Allen, CEO from 1987 to 1997, presided over peaks and valleys, at one point implementing a plan that involved "flying the largest equipment they could find in order to get low seat-mile costs," said Mann. The plan committed major assets like big jets and the Atlanta hub to inferior missions such as connecting passengers on low-yield trips to Florida. The airline is still redeploying the jets. Allen was followed by Leo Mullin, a former utility and railroad executive who fell behind in his efforts to fix the airline's problems following the 2001 slowdown and to inspire employees. In 2003 Mullin was replaced by 17-year board member Jerry Grinstein, who provided leadership, fixed the airline in bankruptcy and topped it all off with the ultimate brilliant decision: He left on top. A great stroke of good fortune occurred during Grinstein's tenure, when US Airways ( LCC) mounted a hostile takeover attempt, and employees led by pilots joined to battle the outsider in the "Keep Delta My Delta" campaign. The camaraderie lingers. Grinstein left a powerful legacy. He consistently took one of the airline industry's lowest CEO salaries, and asked that millions in additional expected compensation be donated to Delta charities. "Jerry Grinstein was the role model, not just for the industry, but for corporate America," Bastian said. "He taught us a lot. In this company, you have to lead with your heart, and lead with your example." Of course, success in the airline industry can be fleeting. The demise of Pan Am, once the world's greatest airline by a wide margin, offers a stark reminder of what can happen. In fact, it was Pan Am's failure that led Delta to become a major trans-Atlantic player. For a carrier that has staked its future on international expansion, perhaps the biggest risk is that international travel growth may be slowing after rising steadily since 2004. In January, according to the International Air Transport Association, growth was 4.3%, down from 7.4% for 2007. "January traffic results show that we could be at a turning point" as world economies slow, said Giovanni Bisignani, IATA's chief executive, in a prepared statement. Choosing to forego a merger with Northwest may make perfect sense today, but it could also have unintended consequences. For instance, another carrier could make a deal, acquire Northwest and its Tokyo hub, and move ahead internationally. There is also the lesson of US Airways, whose shares began a precipitous declined after it abandoned its bid to acquire Delta. Bastian assured that no deal is needed, given what has happened since the bankruptcy. "Our standalone plan is in pretty good shape," he said. "Look at the momentum we have."