There are many things Richard Anderson has enjoyed during his career. But there are some he still can’t stand. “I think playing golf is a huge waste of time,” he says. And, unlike his fellow CEOs, he hates schmoozing with big shots—the fishing trips, the Hawaii junkets, the annual “Conquistadors” weekend at Barron Hilton’s Flying M Ranch in Nevada.
“If Boeing wants to sell aircraft to us,” Anderson says, “they’d better come down to Atlanta and see me in the office. This is not a club; this is a business.”
No one would ever accuse Anderson of being overly romantic about aviation. But don’t mistake that for a lack of passion. TheCEO has fundamentally changed the U.S. airline industry. The merger of Delta and Northwest Airlines that he engineered kicked off massive consolidation in the U.S. airline industry—and an unusual period of high profits.
At the same time, Anderson has waged a fierce lobbying campaign against Persian Gulf carriers, and and low-cost, long-haul new entrant Norwegian Air International (NAI). He fought against simple reauthorization of the U.S. Export-Import Bank, and he complained about the ’s air traffic management modernization plan.
Anderson pushed Airbus into launching the. He irritated Boeing with his war on Ex-Im and remarks about the value of . And when things were not going Anderson’s way at Airlines for America (A4A), Delta pulled out of the Washington trade group.
For those reasons, Richard Anderson is Aviation Week’s Person of the Year 2015, the person who—for better or worse—had the greatest impact on aviation or aerospace over the year. Indeed, Anderson has his share of critics, and he has rankled many in both industries. But his impact is undeniable.
Some say Anderson’s impact can be compared only with those of legends such as Herb Kelleher, who helped create, and in the process created an entirely new airline business model. Says Mo Garfinkle of Tailwind Consultants, who has known Anderson for decades: “He has made all the right strategic decisions.”
The “extremely well-thought-out merger” of Delta and Northwest was followed by/Continental, / and Southwest/AirTran. Delta is now hugely profitable by airline industry standards and stands out for operational excellence. When fuel prices were soaring, Delta bought an oil refinery. And more aggressively than any other major international airline Delta is pushing for international investments: Gol in Brazil, in the U.K., AeroMexico in Mexico and in China.
Anderson has an extremely loyal team of executives at Delta. And he has an ability to connect with front-line workers that few other CEOs have. But his drive and determination can border on obstinacy.
“Richard will always think that he is the smartest person in the room. And he usually is,” Garfinkle says. “If he has one fault, I would say that once he believes that he is right, his position quickly becomes unchangeable. Sometimes, he can’t step back and see the forest.” Anderson himself, of course, sees it differently: “I will debate hard my positions, but I am not captive to my ideas. The better argument always wins.”
But is argument the way to win? Take his vocal battle against the Gulf carriers. Delta and others, notably the Air Line Pilots Association, argue that the three rivals, which have grown their international air travel businesses rapidly, are subsidized by the governments of the United Arab Emirates and Qatar. That unfairly harms U.S. carriers and costs Americans jobs, they say.
Anderson wants Washington to act. Delta has spent millions in advertising and lobbying to make its case, but some say that’s not the best strategy. As one insider put it, “Delta would be far better off doing a commercial deal with one of [the Gulf carriers] than alienating the U.S. government.”
A native of Galveston, Texas, the 60-year-old Anderson’s road to the C suite has been long. What he calls his “first career” must have been one of his toughest. His mother and father died of cancer when he was 20. From then on, Anderson was responsible not only for himself but for taking care of his two younger sisters. He worked as a ditch digger at an oil refinery.
He also dug into textbooks, earning a bachelor’s degree at the University of Houston–Clear Lake and a law degree at the South Texas College of Law. Then he began work as a Harris County prosecutor in Houston. He had a student loan to repay and was still responsible for his sisters, and he was married, with a young daughter and a son on the way. His wife, Sue, also a lawyer, had stopped working to take care of the family. “I needed better earnings,” Anderson recalls.
Luckily, a neighbor was Ben Hirst. The two became fast friends. Hirst, who worked in Continental Airlines’ legal department, thought Anderson belonged in boardrooms, not courtrooms. He told Anderson about an open job at the airline. Anderson landed it, and his airline career began.
Even back then, as a young lawyer in a big corporation, Anderson struck people as someone on the way up. Garfinkle, now a consultant, met Anderson his first day on the job. “His demeanor was very calm and cool. He was very different from a lot of people in the airline industry,” says Garfinkle. “You could tell his extreme self-confidence.”
When Hirst moved to Northwest Airlines in Minneapolis, Anderson came along. Unlike his mentor, though, Anderson went into executive management at Northwest, eventually becoming CEO; Hirst remained in the legal department until he was named Delta executive vice president and special counsel in 2015. Hirst is still one of Anderson’s closest business associates and friends.
Those who know Anderson say a skill that differentiates him from many of his peers is his determination and ability to learn. As a lawyer, he managed to dive deeply into the intricacies of airline management. Delta’s bent for cheaper, older aircraft is something Anderson picked up at Northwest, which operated 40 year-old DC-9s with refurbished cabins.
The Delta/Northwest merger in 2008 was the pivotal moment in Anderson’s career—and arguably the most successful combination of two major U.S. carriers. The two airlines could not have been more different from one another. Delta was focused on good employee relations and treated customers better than many other big airlines. Northwest was driven by operational and financial metrics and derided by many fliers as “Northworst.” A large part of its network was in harsh northern climes, but success was sometimes defined as getting an airplane off the ground on time, the freezing weather be damned.
“Customers sometimes were just part of the cargo,” says Michael E. Levine, a former senior executive at Continental, New York Air and Northwest and now a law professor at New York University.
Integration in the airline world means people management more than anything. “In airlines, people make a lot of decisions unsupervised,” Levine notes. “At the same time, airlines are tribal; they develop cultures that are different, and that is why most mergers are unsuccessful.
“Anderson managed to communicate to people at both carriers that their values count,” Levine points out. But Anderson also made clear at the time that the combination of the two airlines would not be “a merger of equals. There has to be someone in charge.” Having headquarters in Atlanta was not up for discussion. The “Delta way” was ascendant.
Other than that, it was a lot of work. “We spent days planning—everything was detailed and diagrammed,” Anderson remembers. Of course, financial incentives helped convince people to make all the efforts: 15% of the stock of the merged company was dedicated to employees, a good profit-sharing plan was put in place, pay scales were always adjusted to the higher pay scales and pilot seniority lists integrated before closing.
“They paid attention to labor and particularly the pilots during the merger,” says airline analyst and consultant George Hamlin. And it worked, Hamlin says: “They have not had much serious dissent from labor.”
Back in his days at Northwest, Anderson would make visits to the airline’s Asian stations about 3-4 times a year, spending a lot of time with local staff. “Most of the time, these big corporation CEOs parachute in and, once they are on their flight back home, they can’t even remember the names of people they talked to,” one colleague remarks. “Not Anderson—he really connects with people.”
On the other hand, he is a demanding boss. “You don’t get to work for him if you are mediocre,” says one long-time associate. “He assembles the best and the brightest around him. But if you are mediocre, you better look for another job.” And even among the smartest people, few dare to speak up against him in management meetings.
There clearly is a close-knit culture within Delta, but dealing with opposition outside the airline is not always Anderson’s cup of tea. “His legal mind takes over at times of crisis,” says one senior executive. “He defaults to being a lawyer under pressure.”
Anderson can be relentless and uncompromising in his pursuit of business goals. If policy principles like open-skies become a hindrance, Anderson will still fight his fight. The same goes for diplomacy: “When he wants to be, he can be very charming,” says a long-time acquaintance. “But you can also get the cold hard stare, and he will be very short and sharp with his words.”
During an October earnings call, Anderson predicted there would be a “huge bubble” for widebody airliners and said a 10-year-old Boeing 777 could be had for the bargain basement price of $10 million.
The comments sent Boeing’s stock reeling and triggered a backlash from skeptical Wall Street analysts. “Appraised values for a nine- or 10-year-old 777-200 are in the range of $53-5
7 million,” retorted Jefferies & Co. analyst Howard A. Rubel. “Even if Mr. Anderson finds that $10 million plane, it is more likely to be 15 years old, with another airline’s interior and run-out engines.”
But Anderson had made his point: Delta would be interested in used 777s if the price is right. He has been an even bigger thorn in Boeing’s side in the politically charged battle about whether to reauthorize the Export-Import Bank, a congressionally chartered entity that provides financing for foreign customers of American businesses. Nearly two-thirds of Ex-Im financing is for Boeing jets. Delta wanted the bank to stop helping its competitors buy widebody aircraft. But tea party opponents of the bank succeeded in shutting down all new loans by blocking Congress’s reauthorization for months—to the great dismay of Boeing and the Aerospace Industries Association.
The success of the Delta/Northwest combination has had a huge influence on the U.S. air transport sector. It not only started an unprecedented wave of mergers that reduced the number of very large players
in the market to four from eight; it also is the nucleus of what industry executives like to describe as “capacity discipline.” A much smaller number of network competitors operating almost identical business models, with the exception of Southwest, has produced a more predictable environment. No one made moves that others could not typically foresee. Capacity expansion became so slow that yields, load factors and profits rose steeply. Only a few years ago, U.S. legacy carriers, with their old fleets, mediocre service and poor financial results, were considered far from airline industry benchmarks.
Of course, the mergers are only part of the U.S. success story. Low fuel prices helped enormously, and so did the availability of Chapter 11 bankruptcy restructuring that allows U.S. companies to shed billions in debt and rewrite collective-bargaining agreements. That option is unavailable to most other airlines in the world, which therefore complain that Chapter 11 has an effect similar to a government subsidy—a statement that drives Anderson up the wall, since no money flows from the federal treasury to an airline.
Anderson has been hugely influential in other ways, too. It was mainly he andfounder Tony Fernandes that pushed Airbus into launching the A330neo, set to begin deliveries at the end of 2017. And then there is his opposition to the way the U.S. plans to reform air traffic control. Delta says air traffic management needs “evolutionary” reform and that, while the Air Traffic Organization should be spun off from the FAA, ATC should not be privatized.
One observer notes that Delta is being difficult because NextGen would require it to invest in a lot of equipment for older jets and because the restraints on slots in the New York area are actually good for it: “Being on the inside of a slot-controlled environment is very profitable,” he says.
Anderson’s offensive against the three Gulf carriers has caused the most substantial conflicts between airlines and countries in the industry in a long time. The initiative, clearly led by Delta and Anderson personally, split the once fairly united U.S. airline industry first into two, then three rival camps. Airlines such as Hawaiian,or FedEx that supported Gulf carriers and a continuation of the U.S. open-skies policies formed their own lobby group. Then Delta left A4A because Anderson felt he could spend his lobbying dollars more efficiently on his own. His former allies American and United are now also in another camp, in spite of the fact that they principally share Delta’s views on Gulf subsidies.
Anderson says his fight is about “more than $40 billion in illegal government subsidies” that Emirates, Etihad and Qatar allegedly receive, but he insists this does not challenge free competition. The three are “not airlines, but governments,” he says and while Delta can compete with other carriers, governments are more than it can handle. It is not clear exactly what Delta wants as an outcome in the government consultations it requested—freezing Gulf frequencies or reducing them?
And allegations of subsidies do not seem to come to Anderson’s mind when the airline in question is not threatening Delta’s business. He had no problem partnering with and acquiring a minority stake in China Eastern Airlines, a mostly government-owned entity. That carrier sits in the center of a lucrative market to which Delta wants more access. By contrast, he says, “Gulf carriers operate hubs with no population.”
Anderson insists that Delta is a “great supporter of open skies” and that its campaign is about a “very narrow” case. However, many who have followed Delta’s political maneuvers over a longer period disagree. “Delta benefited more from open skies than any [other] airline,” says a senior industry official. “They were a domestic airline 20 years ago. Under [former CEO] Gerald Grinstein, Delta was enormously supportive of open skies, but that has totally changed now. They don’t want disruptors; they want the cozy oligopoly.”
In the matter of Norwegian, Delta and others have lobbied forcefully against the Transportation Department granting a U.S. operating license, and NAI’s application has been pending approval for almost two years.
The senior industry official also says the UAE and Qatar bilaterals are not the first cases in which Delta has opposed liberal air service agreements. “Delta was behind a concerted effort to block the Japan-U.S. open-skies deal” that was eventually signed in 2010 nonetheless, he says. Another industry executive says: “Anderson is only in favor of open skies when it works to his advantage.”
There are instances in which Anderson’s diplomatic skills appear to have left him. On CNN last February, he raised industry hackles. Referring to Gulf carriers’ criticism of government aid received by U.S. airlines after Sept. 11, 2001, Anderson said: “It is a great irony to have the UAE from the Arabian Peninsula talk about that, given that our industry was really shocked by the terrorism of 9/11, which came from terrorists from the Arabian Peninsula.”
Emirates Airline President Tim Clark says that statement “caused great offense in this part of the world” and that he wonders “whether Mr. Anderson considered the feelings of hispartner Saudia.” Qatar Airways CEO Akbar Al Baker says Anderson should be “ashamed.” And regarding Anderson’s charge of government support, Al Baker says, “Mr. Anderson needs to go and study in university to find out what is the difference between equity and subsidy.”
So why is Anderson pursuing the Gulf campaign so fiercely? “He is passionate in his belief that he has built the best airline in the world,” says someone who knows him well. “Given their growth and success, he sees the Gulf carriers as an impediment.” Another industry insider says Anderson’s ambitions are no longer limited to the U.S.: “His ambitions are global.”
Delta has begun investing in foreign airlines—Gol, AeroMexico, Virgin Atlantic and China Eastern. The deals make sense from a business point of view, at least in the long term, because they give Delta access to important markets. But Anderson’s detractors say the relationships assume Delta will dominate and are built according to Anderson’s terms. “He is a great CEO, but a poor partner,” says one Anderson watcher. “Delta dominates its partners.”
What happens when an agreement cannot be reached is on view in Seattle. Delta is spending a fortune on building a West Coast hub against, a carrier that already has a huge Seattle network and which currently codeshares with American and Delta. One source close to the case says it will take many, many years until Delta’s investment pays off. And its aggressive expansion “drives Alaska into the arms of American,” he says, making the Seattle plans even more expensive. As with the Gulf carriers, partnering would have made much more sense, he argues.
Now that Anderson has been CEO for more than eight years, speculation has begun about when he might retire. Many believe he will want to leave at the top of his game, but others disagree. “I don’t see Richard stepping down in the next three years,” Garfinkle says. “He has too good a time right now.”
And there are still Anderson’s global ambitions. Would it be too daring to say his career would not be complete without a big global deal such as buying into a major European airline and running it—perhaps- ? A source close to him says he is watching carefully what is going on in Paris.
Anderson himself says: “My career is irrelevant. And there is not at all a grand plan.”