After US Airways publicized its proposal to acquire Delta Air Lines this month, management at Delta reiterated its intention to complete a bankruptcy reorganization in the first half of 2007 and emerge as a standalone competitor. Just days before the US Airways announcement, Management.travelspoke with Lee Macenczak, Delta executive vice president of sales and customer service, about the carrier's corporate sales efforts, distribution, overseas expansion and inflight product. An excerpt follows. For coverage of US Airways' proposal to acquire Delta, visit The Transnational.
Can you explain how Delta's relationships with corporate clients are evolving?
We are becoming more of a business-focused airline, so we are making sure we will be competitive in the market and offer the right kind of deals. We have a lot of work to do to make sure our deals are structured correctly and the right support mechanisms are there. Are we where we want to be in that regard? No, we are not. Our network has changed so dramatically that it really is forcing us to think in a different way as far as how we structure our agreements. Our international growth is driving us to think more about how we leverage our international presence, but our growing presence in New York City, and Los Angeles to a smaller extent, also is changing that. New York is certainly a focus market for us and we have significant resources there. It is a balance. We make sure we have the right percentage of the market covered, be it agency or corporate. Flying to some of these new destinations--Kiev, Johannesburg, Ghana, Prague, Dubai and Seoul, and New York to London [which started this month]--certainly does expand the base of people we need to be calling on, and there is an international orientation to that, but it is in addition to what we've already been doing, because our domestic footprint has grown also. While our capacity might be down, the number of cities has increased and we have tremendous domestic coverage that we have to make sure we are addressing.
What is your perspective on the whole airline-global distribution system episode from this year, and is Delta pursuing GDS-bypass strategies?
It was inevitable. We came out of a period where the GDSs were being deregulated and we had signed DCA agreements. The whole market was learning how to be competitive and how to price and how to contract in a more open-market environment. While it was a difficult process--and certainly a lot of it played out in the press--it was something that was necessary. We ended in a place that we are comfortable with. It was a good negotiation while the market was shaking itself out, as it should, in this type of free-market environment. From the agencies' perspective, their key is to protect content for their clients. If they can't promise their clients content, then they are in a bad position. We have some direct-connect agreements that are very cost-effective for us. But also, our new GDS agreements are very cost-effective for us. So we will work with agencies and corporations to do the right thing. At this point, it is not unlike where we were three or four years ago. Content is still king.
Regarding delta.com, is the business-to-business portal concept still being cultivated?
Somewhat. It is attractive to some accounts. For other accounts, it is not attractive. If you look at the major corporations that purchase a lot of business in the United States, they have deep relationships with the agencies they use. The smaller an account becomes, they are, a lot of times, looking for alternatives to save them money. That is where we end up with some of the portal-type activity. You are not going to have the major corporations coming directly to delta.com, and that is not necessarily a big push. We are trying to make our distribution programs as neutral as possible so customers can choose how they care to work with us.
Delta last year reworked some travel agency compensation programs to push a pay-for-performance model, in some cases including volume measurements rather than market share. More recently, some have suggested that airlines may again consider point-of-sale commissions. What is your position?
It has to be a pay-for-performance model. How we measure an account's performance will always change--is it market share or is it volume or is it a combination? That will always be dynamic. I can't speak to the market, but is Delta going to go back to primarily point-of-sale commissions? No, we are not going to do that. Do point-of-sale commissions exist? Sure they do, but we are committed to a performance-based model and that is where we are going to stay.
Delta has begun inflight product improvement programs for both domestic and international routes, including new seats and entertainment systems. In terms of the corporate market, how much of a differentiator is the inflight product, and does an improved product warrant a price premium?
There is a sweet spot that we need to be at. Comfort and productivity onboard the aircraft is a key, and the inflight experience is very important. We have increased the frequency of deep-cleans on the aircraft and looking after cabin maintenance, and we are seeing our customer satisfaction scores go up in those areas. Our airport process quite frankly marries what we are doing in the sales process in that people really want to be self-sufficient. Next year we also will be installing kiosks in all Delta Connection cities, so that wherever you are traveling on Delta, you will have a similar experience. We are trying to value our customers' time. We'd always like to have a premium for the product but we have to be realistic about what we can charge in the market. With a certain part of the customer base, it drives loyalty. For another part that is very price-sensitive, it is not going to drive loyalty. But it could be a differentiator, for a very long-haul flight, in having live television versus not having it. Delivering on the basics of the customer process is an absolute key. Clean, safe and on-time are the basics for us, and we are layering on top from there. Related item: Lee Macenczak interview in The Beat.