New York - In the midst of investing $100 million in its website platform,
Delta Air Lines has no plans to sell its Economy Comfort international seating outside direct channels. "We want to control
the packaging of our brand and the distribution of our brand," said Delta CEO
Richard Anderson last week in an interview here with BTN senior editor Jay Boehmer. Anderson also touched
on corporate demand, capacity cuts, hub downsizing and Delta's proposed slot swap
with US Airways. Additional excerpts follow.
Do you envision GDS distribution of Economy Comfort?
No. We do not envision at
this point GDS distribution—not that it couldn't occur in the future. At this point
in time, we're in the early stages of the product. It's very successful. Remember,
the other piece of that product that was important for us is for our premium elite
frequent flyers. If they did not buy a business-class ticket, for certain elites
it's an automatic upgrade to Economy Comfort. It was another way to provide a differentiated
product to our most loyal customers. Much of what we're doing at Delta is making
sure that we control our brand and that we control our distribution. Much the same
as other consumer product companies, you want to control your brand, your distribution
and your content. Remember, all of that's in the context of having complete and
transparent disclosure to all consumers. That's not in our interest at all to not
have our consumers very well informed about our offerings.
There's discussion in the airline industry around the "who's
asking?" question—the idea being that airlines should tailor the product to
the individual. Is that part of your strategy as well?
Yes, tailoring is part of
it. One piece of that is in our frequent flyer database, where we have a lot of
information about our really good customers, so putting the typical CRM tools that
are used in many other industries to work in our industry or at Delta is a very
important part of that strategy. The second thing is with a flexible, fast, nimble
technology platform, you can unbundle your offerings and let people make the choice
about what they want, what they want to buy and what they want to pay for. There's
a lot of opportunity there for us going forward. And from a customer standpoint,
customers can make these decisions.
Is there an opportunity to make that relationship more
direct? Does the GDS serve as the ultimate intermediary between Delta and TMCs,
and therefore the corporate client?
Ultimately, you have to
have the content residing somewhere in a database. That's going to be an important
part. That function is an important function—housing all the data somewhere so that
it can be accessed by customers will be an important part of the equation. At this
point, I think we have a system that works, though you're seeing a pretty significant
evolution underway when you look at what's going on in the court systems and what's
going on in the marketplace. I think we're in a period of flux, a period of change
and it will be interesting to see how that all works out over time.
Have you seen any evidence that
corporate demand is faltering?
Overall
corporate travel is still strong. We see total tickets—or total passengers traveling—up
double digits. If you think about how things have progressed since the economic
downturn we went through in 2008 and 2009, when companies were really cutting their
expenses, corporations in the U.S. and around the world did a good job managing
through that. Cash balance is high, productivity is very high. As you moved into
later 2009, into 2010 and even to this year, there was really a need to grow the
top line. The way to do that was to go out and see your customers, travel around
the world and grow your business. We have continued to see strong corporate travel
and strong business travel trends pretty much in every entity. We're seeing good recovery in Japan and very strong growth in Latin America.
It seems like the summer is
looking healthy, but there's always a question about the shoulder season. Is that
too far out to assess?
There
is seasonality in our business. Our unit revenues for the [second] quarter will
be up 10 percent, and we expect to have a very solidly profitable quarter. We also
see where the weaknesses are going forward, which is principally in the transatlantic.
Our overall capacity will be down year on year about 3.6 percent, September through
December. We've suspended a number of flights, particularly to Oman and Cairo—where
there's been a bit of unrest—and then some of the deep Eastern Europe flying, some
of the more seasonal markets. We're really adjusting our capacity to demand going
forward. We feel good about where we are coming into the fourth quarter and responding
to the places where there is a little more weakness. We do think overall GDP growth
in the U.S. is going to be in the 2 percent range, and given the correlation between
our revenues and GDP, we feel pretty confident about strong trends continuing in
the latter part of the year.
What's the next step with the
latest slot-swap proposal with US Airways?
It's at DOT right now, and we're very hopeful it will be approved.
Then we'll go through the Justice Department process. Hopefully, by this time a
year from now we'll be well underway. It's a very important move for New York. It
adds about 2.6 million passengers a year to LaGuardia, and really turns it into
a real hub airport for the first time, with a lot of very convenient service to
a lot of places in the United States. That's our next big strategic step.
That begs the question: What
makes a hub? After some consolidation, you have a lot of them now. Do you still
consider all the legacy Northwest Airlines and legacy Delta hubs as such?
We've done detailed analyses of each one of the hubs, and while
we don't share per-hub economics, we have successfully sized Cincinnati and Memphis;
both are performing fine and now they are properly sized to fit both the local market
they serve plus the unique flows that are most efficiently served over those hubs.
We've worked hard with the local business leaders and local airport authorities
to tailor the schedules to maximize convenience for local passengers and at the
same time give our airline the right level of capacity for the right level of demand.