Delta Air Lines last week officially exited more than 19 months of bankruptcy court protection with the "lowest-in-class cost structure" and a "fiercely competitive" transformed business, CEO Gerald Grinstein said. Under the restructuring, the carrier centralized its corporate sales force, aggressively expanded internationally and initiated reinvestment efforts for its product, Delta officials said last week.
Although Delta executive vice president and chief of customer service Lee Macenczak last week said the carrier's emergence does not alter Delta's corporate strategy, he noted it leaves the carrier better suited to serve corporate customers.
Among the most dramatic changes under bankruptcy court protection is Delta's growing international network. Macenczak said less than 40 percent of revenue comes from international business, but the carrier "probably will ultimately settle with 50 percent of our revenue coming internationally." Macenczak said Delta added 50 new international destinations to its portfolio last year—served mostly from its Atlanta and New York JFK hubs—and will continue to move into new markets with plans to launch service to Dubai, Bucharest and Pisa, among others.
According to Delta's first-quarter earnings report released last month, the carrier grew international capacity 24 percent, year over year, which represented 31 percent of Delta's total capacity for the quarter. International revenue grew 34 percent for the first quarter of this year over last year. Delta forecasts domestic capacity this year to be down 2 percent to 4 percent, following last year's 13 percent reduction.
Macenczak and Delta vice president of sales and distribution Pam Elledge said Delta entered some of the markets due to corporate client demand. "We get a lot of input from a lot of accounts," Macenczak said. "Sometimes you get a little ahead, because it's not showing in the data yet, but you'll have an account say, 'this region's growing for us.' "
As Delta moved into more international markets, it also cut back on domestic capacity—in some cases shifting resources away from leisure markets. "As you pull down capacity, for instance in Florida, your reliance on leisure changes somewhat," Macenczak said. "As the network has changed, the mix has changed along with it. We've seen a good steady growth on the corporate side. It's still pretty strong."
Elledge said corporate contracting remains as varied as the companies bidding, but noted that the "market is moving more and more global." As many corporations have centralized global travel programs, Delta is responding in kind.
"Many companies—even medium-size businesses, not just the largest global companies—have business centers throughout the world," Elledge said. "It was really just responding to those needs to have that more centralized."
Delta last year restructured its corporate sales force, disbanding regional teams into a more streamlined unit, headed by Elledge. "As the company was going through the transformation and we had an eye on expanding significantly on the international front, it no longer made sense to have a domestic team and an international team," Elledge said. "Once we brought them together, we found so much efficiency. Although we added very few people, once you start realigning the portfolios to truly support the network, a lot of efficiency is gained."
Macenczak and Elledge said corporate business is growing and both international and domestic demand remains strong for the carrier, despite warnings from airline analysts that demand in the United States is weakening
(see story)."We've always worked across the board with a large number of corporations," Elledge said. "There's been a great deal of stability in that. I can't tell you that it's grown exponentially. It's probably a variance of a 100 additional accounts globally, which is small when you think about the number of places we serve, but it's more that our network is now so different than when we were 80 percent domestic. It's really designing the network with our network team so that it better fits business travel patterns, so then you see the revenue go up."
CEO Grinstein, who is preparing to leave the company now that it has exited bankruptcy protection, said Delta is poised to profit in the approaching year. The carrier in a statement noted that in its four most recent quarters it has reported operating profits, most recently the first quarter of 2007
(BTNonline, April 23).J.P. Morgan airline analyst Jamie Baker noted, "The new Delta is a much-improved version of its former self, though its plan was crafted in part to ensure independence in the face of US Airways' hostile bid."
"Rather than simply cut costs, Delta used the Chapter 11 process to completely transform every aspect of our business and create a platform for long-term success that will enable us to weather future volatility in the airline industry," said Delta CFO Edward Bastian. "With a best-in-class cost structure, improving revenue performance and a strong financial foundation, we are exiting Chapter 11 in a position of strength and are ready to build on this momentum."
Delta subsidiary Comair last week exited bankruptcy along with its parent, but Delta has considered selling the regional affiliate. Meanwhile, Pinnacle Airlines Corp. last week entered into an agreement to operate 16 regional jets as a Delta Connection partner.
Macenczak stressed the importance of Delta's regional partners, noting that they account for nearly half of the carrier's domestic departures, but noted that selling Comair is an option. "It comes down to what's best for Delta," he said. "We'll look at the market, as we did when we sold Atlantic Southeast Airlines to SkyWest. At that time, we didn't feel like we needed to own the carrier to get the value from it. Then again, you want to make sure you're doing it at the right time. There are many factors to consider. I don't think you'll see us go and do something immediately. Nonetheless, it is an option for us."
Meanwhile, Delta is working toward enhancing its offerings for travelers. Elledge said the carrier has completed refurbishments to its domestic planes and is in the midst of putting lie-flat seats on its Boeing 777 international fleet, while it also is evaluating a lie-flat product for international Boeing 767s. The carrier also has upgraded inflight entertainment systems on several of its planes serving long-haul routes.
Macenczak said the carrier also has rolled out mobile alerts to travelers with BlackBerrys and cell phones, keeping them apprised of cancellations, delays and upgrades, among other alerts. "Of course, it saves us a phone call but it's giving the passenger the info in real time," he said.
The carrier also is testing new kiosks at departure gates in Atlanta, through which passengers can make upgrades, select seats or make other changes that usually require a gate agent.