Rough air tests Delta CEO in first year


Delta Air Lines CEO Ed Bastian’s first year on the job is testing his mettle, with two computer outages that led to mass flight cancellations and the recent five-day operational meltdown after one day of thunderstorms.

And those are just the obvious challenges.

Amid increased competition from ultra low-cost carriers, Delta and other legacy airlines have also been struggling through declining unit revenues, a measure of revenue for every seat flown one mile. Rising fuel costs are squeezing margins.

Running one of the world’s largest airlines was never going to be easy, but the company’s operational troubles during Bastian’s first year have left some customers wondering what happened to the high-flying Delta of recent years.

“Delta’s theory that we’re better than everybody else has been absolutely demolished,” said Joe Brancatelli, editor of a website for business travelers called JoeSentMe.com.

Delta officials, for their part, note that despite the sensational service episodes, Delta’s overall operational performance figures show it still ranks at the top among its large competitors — thanks to the vast majority of days in the year that are free of outages and meltdowns.

New data center

The airline has also remained solidly in the black under Bastian, logging a $4.4 billion profit last year that resuled in profit sharing payouts to employees of $1.1 billion.

Some of that money is being invested in efforts to shore up systems to avoid future outages, including a $200 million data center in Alpharetta that is set to be up and running in July.

“It’s a very expensive investment, but as we proved, it’s vitally necessary,” Bastian, 59, said in an interview with The Atlanta Journal-Constitution. Once it’s open, “we don’t need to worry any longer about the vulnerability and fragility of our 30-year old or more tech systems and processes that are breaking along the way.”

While Delta’s headquarters sits next to Hartsfield-Jackson International Airport, the new data center will be about 30 miles north.

“Most companies have their back-up locations off-site, and our back-up location was on site,” Bastian said. Having the data center in Alpharetta “gives us the opportunity to be in the area but not in the same literal Zip code,” in case an electrical outage or other event knocks out power to the building.

Still, the data center wouldn’t have prevented the crew scheduling mess that snowballed into mass cancellations after the thunderstorms April 5.

For that, Bastian said the company is speeding efforts to upgrade crew tracking and scheduling software and processes. He told employees in a memo that the company will do an audit to determine where the failures occurred to “avoid making the same mistakes the next time we are faced with this type of weather.”

“We’re going to get through this in good shape,” Bastian said.

Coming in at the top

The timing of Bastian’s rise to CEO was both a blessing and a curse: He was promoted to succeed former CEO Richard Anderson with Delta seen as an industry leader for its on-time performance, billions in profits, strategically daring moves like buying an oil refinery and a prominent voice in Washington on issues affecting airlines.

Frank Blake, the former Home Depot CEO who is now chairman of Delta’s board of directors, called Anderson “one of the great CEOs in the U.S.” and agreed that Bastian had big shoes to fill.

“At the same time,” he added, “Ed had been by his side during that time period.” Blake said he thinks Bastian “has done an outstanding job.”

With 20 years at Delta under his belt, Bastian said he had “been the number two guy for a long time, and I have a pretty good perspective on the responsibilities.”

Still, “It’s impossible to fully anticipate what to expect until you’re in the seat.”

Since moving into the CEO’s office, Bastian has continued with deal-making for the airline’s international expansion. The company closed an acquisition that gives it a 49 percent share in Aeromexico and recently struck a deal for a joint venture with Korean Air.

Both deals are crucial for Delta to try to keep pace with with rivals United and American in Latin America and Asia.

“Our goal is to be the most global airline, and we did an awful lot along that path in the first year,” Bastian said.

Bastian has a different mission than Anderson did, according to Mark Drusch, a former executive at Delta and Continental who is now a vice president at consulting firm ICF.

Anderson, who took the helm at Delta right after the company exited from bankruptcy, “had to prove to Wall Street and investors that he could have consistent returns,” Drusch said.

Bastian expects to see a recovery in unit revenues this quarter. And Drusch said Bastian is “able to look at this more in a long-term fashion,” with investments and deals with foreign carriers China Eastern, Korean Air and Aeromexico.

Bastian said with the company’s investments in airports, new planes and employee raises: “We’re in the midst of a generational build.”

On the front lines

Delta’s successes under Anderson, by many accounts, built morale and pride among the company’s 30,000 employees in Atlanta.

But the story was different when thousands of employees were dealing with hundreds of thousands of frustrated customers stranded for hours or days in the fallout from 4,000 flight cancellations earlier this month.

Employees “were overwhelmed,” and crews were left stranded, said Delta pilot Tim Caplinger, who led an effort to form an independent pilots union at Delta. “Pilots are concerned that our company is not being invested in properly…. We the employees that are life-timers here, this really worries us. It’s our future.”

Bastian apologized to employees as well as to customers as the snarls subsided, although some noted his statements came the week after the thunderstorm and several days after a message posted online by one of his lieutenants, chief operating officer Gil West.

That led to some grumbling among people who follow the airline closely.

“I thought the CEO should have come out, really the next day, and said, ‘We can’t get the pilots and planes to the right place and there’s going to be delays,’ ” said Roswell resident Michael Blaiss, a platinum-level frequent flier who got stuck in Washington, D.C. amid the cancellations. “The poor agents I talked to during my fiasco just didn’t really know what was going on. They were as frustrated as the fliers.”

“I think running any type of business that the head of that business needs to take responsibility, being upfront and being honest at the very beginning. Then I (as a customer) go, ‘Okay, these things happen. He knows what’s going on. He’s in charge and he’ll fix it.’ And not continue to keep hearing two days later it’s still the weather. And you look up at the sky and the sky is blue.”

Recovering faster

Bastian acknowledges that the recovery from a daylong assault of thunderstorms at the Atlanta hub took longer than it should have. “We need to recover faster,” he said.

On the day of the storms, Bastian was in Augusta for the Masters Golf Tournament that week.

“We were obviously not fully anticipating the effect of the storm,” Bastian said, and were taken “a little bit aback by the magnitude and severity.”

He said he went to Augusta for a “large customer gathering” Wednesday night and stayed Thursday. Instead of staying longer, he left Friday morning and flew to his Florida residence where he has a home office “because of the way the recovery was going.”

Bastian said he was “fully involved” and in touch throughout the period of cancellations. “It was all hands-on deck for everybody.”

Delta apology for computer glitch

In the wake of the episode, Bastian “doesn’t look to be the kind of guy who grabs it by the throat and says, ‘I will fix this.’ ” Brancatelli said. But he said one advantage Delta has is that it “runs against a very weak field,” with United and American facing their own challenges.

That was highlighted immediately after Delta’s meltdown when the United incident of a passenger being dragged off a plane commandeered the public consciousness and distracted attention from Delta’s storm recovery woes.

‘Learnings from everything’

Blake, the board chairman, said Bastian has had “a lot of things coming at him.”

“I think he did a great job of weathering [the cancellations] as he’s done through other challenges that the company faced,” Blake said.

“There are always learnings from everything.”

In any case, Delta’s dominance in Atlanta and consolidation across the industry lessens the risk of any mass customer defections.

“A lot of travelers in the Southeast simply don’t have a choice,” Brancatelli said.

Blaiss said his cancellation experience won’t stop him from flying Delta, whose Atlanta hub allows him to “get pretty much anywhere at any time.”

“Mistakes like this happen,” he said, “and hopefully they learn from it.”

Looking ahead, Bastian hopes to spend time on less sensational issues such as improving Delta’s reliability, which also boosts efficiency. The company is also hiring 6,000 to 8,000 people a year, to replace retiring employees and grow the business.

And it is working to add amenities on planes, improve in-flight wi-fi speed, modify cabins and upgrade on-board food and snacks, Bastian said.

“We’ve got to improve the experience of our customers on board.”

NEW CEO SCORECARD

Highlights

$4.4 billion profit

$1.1 billion payout to workers

Strong overall service metrics

New pilot contract ratified

Lowlights

Two IT outages fouled operations

Shaky thunderstorm recovery

Unit revenues under pressure

Delta in Washington

Delta CEO Ed Bastian says one of his priorities is “working closely with what’s going on with the administration in Washington,” and he started that effort off as part of a group of airline CEOs who met with President Donald Trump in early February.

“I was impressed,” Bastian said of Trump. “He understands the issues that the industry is facing. He’s aware of them…. I left my meeting with him feeling cautiously optimistic. At the same time, there’s a lot of work to be done.”

The Delta CEO said the “chance to be in the White House with the president within 30 days of his inauguration” is unprecedented, and showed Trump’s “interest in getting the business community engaged in the economic revival of our country.”

“I’ve been meeting with many of his staff and cabinet officers over the last few months,” Bastian said.

Among the issues Delta is focused on:

Middle East carriersDelta and some other major carriers are pushing for action in Washington on competition from Qatar Airways, Etihad and Emirates, contending those Gulf carriers are unfairly subsidized by their governments.

Bastian said that’s Delta’s top focus in Washington: “State-owned enterprises and the need for our government to protect U.S. jobs and promote fair trade, not free trade.”

Air traffic control reform: Airline industry lobbying group Airlines for America and others have supported a spin-off of air traffic control from the Federal Aviation Administration into a non-profit entity funded with user fees. Delta last year opposed such a spinoff proposal. The spinoff proposal did not come to fruition.

Now, Bastian said “there’s a lot of debate and discussion now on the direction of where ATC will go and we’re at the table and having input into the dialogue. We’ve not come out with an official position…. We’re going to work with the government and make sure that our concerns are heard, namely that there be effective governance over the process, that the safety and the role of the FAA is maintained, and at a maximum cost-neutral. We do not want to pay higher costs.”

Atlanta airport: Delta has long opposed the prospect of a second commercial airport in metro Atlanta. Bastian said his views on the question of a second airport are “completely aligned” with that of former Delta CEO Richard Anderson. When an effort to commercialize an airport in Paulding County 35 miles northwest of Atlanta materialized in 2013Anderson said: “With the city of Atlanta and Mayor (Kasim) Reed, we will work together to oppose any investment in that facility.”

Bastian said this month: “We want to continue to grow [Hartsfield-Jackson International Airport] and invest in that airport as we’re doing and make it larger.”



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