CEO Interview: Delta CEO Ed Bastian

Congratulations on an amazing financial and operational performance that led to Delta being selected as the ATW Airline of the Year. What in your words do you think is key to Delta’s performance? I think the strategy we’ve been on for I’d say over the last 15 years is focusing on service. We’re a service industry. We’re a people business. We transport people. But if you focus too much on the transportation and forget the human element of the experience, you’re going to have some challenging times. We have always focused our people on delivering the highest level of experience for our customers. It starts with delivering an incredibly reliable product; that’s table stakes, that’s the foundation, but that’s not the reason for being. On top of that, we add the opportunities to serve and to make sure that our people—our customers—feel the warmth, the caring and the welcoming experience that Delta provides.

And as a result of that, they’ll have an elevated experience with us that we will take and continue to grow our business with them. That loyalty then really starts to build and it’s the consistency over time. This is every single day for us.

It’s about Delta’s people and their motivation to want to be excellent every day? Yes. When I became CEO, I guess nine years ago now, I did an interview in my first month or so in the job and I was asked, ‘name your job in five words.’ And instinctively it came out of my mouth, ‘taking care of our people’.

You would think it was rehearsed. It wasn’t. And I think that really speaks to who we are, and you could put that question in front of any of our leaders. It’s taking care of our people, and if you do a great job taking care of your own people, they in turn have the confidence and the trust that they have your back and you’ll do whatever is necessary to ensure that you’ll support them and get them the tools and the opportunity to succeed. And that builds a winning culture, but it starts from the leaders taking care of the people and not trying to replace them in terms of thinking too much for them or trying to automate their jobs out of existence or trying to tell them how to do their work. That allows them to shine and that, I think, is the secret to our success.

Have you shifted in terms of offering a premium product or attracting a particular type of audience that you feel that there is market growth for? Certainly. When you think about where Delta was 15 years ago, around the time we acquired Northwest, and where we are today, it’s really remarkable when you look at that network map. Today, we’re the number one revenue producer in New York, we’re the number one revenue producer in LA, we’re the number one revenue producer in Boston, number two in Seattle, and of course right through the heartland of the country—whether it be Detroit, or Atlanta, or Salt Lake City, or Minneapolis—we’re number one as well. And that is a result of focusing on where the premium components of our industry’s revenue pool lie: big business markets, opportunities to grow on the international front as well, the gateways both on the east and west coasts, having opportunities to continue to get more deeply involved in those communities are all part of the strategy. And building on that base with the business customer, the high-value customer—the premium customer, as we call them today—is something we’ve been at for a very long time and where the network is going.

What about international growth? Today, Delta is about two-thirds domestic, one-third international. I’d like to think a decade from now we’ll be at least balanced in terms of our revenue pool, and that growth is growth with our partners as well, with Air France-KLM and Virgin, Korean, LATAM and Aeromexico—really great airlines—and growth we’re doing ourselves.

How much do you value your airline partners and alliances? We like to affectionately refer to them as the Delta Team. I know we’re all part of the SkyTeam [global alliance], but we also have our own team within SkyTeam, the Delta Team, and we have ownership stakes in those companies because we believe in having shared accountability, shared equity in the success of our franchises. A lot of people ask why we do it, because we’re really the only airline that does it at a scale like that. It’s because these are more than just commercial partnerships where I sell you, you sell me, and we try to figure out how we work together with ATI. These are actually ownership-equity relationships where we are inside the boardroom of our partners, we’re inside the management of the partners, and they actually welcome that because they want to see how Delta thinks and they want to get our point of view.

What do these Delta partners bring to your customer service? We want to make certain that our customers, who are largely a US centric customer base, are looking at international travel. We’re looking for opportunities to make it easier for them, more seamless for them to provide the amenities, the reliability that they come to expect from us in the US. We want that to be present internationally as well. There are many innovations in technology and international growth that we’re learning from our partners.

The second part is that international travel is expensive. Those planes are expensive. Everything about it is expensive. It’s a premium experience to travel internationally. It doesn’t matter whether you’re sitting in one of our luxurious Delta One suites or you’re sitting in our main cabin, it’s still a premium experience. And for us to offer as much international service on our own without our partner support, we’d be a small fraction of who we are today. We need our partners to sell and get Delta known in France and Delta known in The Netherlands and in Sao Paulo just as much as we try to get our partners known in the US. So that flow between hubs has been a strategy, and today we operate roughly 50% of our international service in terms of capacity going into those big hubs of our partners, who then take and distribute customers all around the world to the hundreds of destinations that we collectively serve. It’s a more efficient way to produce a much more reliable set of expectations, rather than Delta trying to fly all over the world on its own.

Delta has one of the world’s largest fleets, nearly 1,000 aircraft. It’s also quite a mixed fleet. You’ve got Airbuses and Boeings, widebodies and narrowbodies. Your regional affiliate, Delta Connection, operates a lot of regional jets. You recently placed an order for 20 Airbus A350-1000s and the A350 is your flagship. You don’t have any Boeing 737 MAXs, but you do have some MAX 10s on order. Do you feel comfortable with where you sit with your fleet and how it will meet your growth plans? To the second question, yes. I absolutely feel comfortable that we have the fleet in place today as well as the growth pattern. That’s been our strategy working both with Boeing as well as Airbus, to secure the planes of the future, particularly on the international front because I think that’s where a lot of our growth aspirations lie. The new order is for the A350-1000s comes with an option to take on an extra 20, which we hope to be exercising as well.

To the question about Boeing and the MAXs: We need Boeing to succeed as an industry. Boeing is vital to who we are. We have so much Boeing expertise within Delta. The majority of the airplanes that we fly are Boeing aircraft. And while we’ve almost exclusively been taking Airbus over the last five years, that wasn’t by design because of the MAX. I tell people, sometimes you’d rather be lucky than smart. And when we did the bake-off between the A321 and the MAX seven or eight years ago, it was well before any of the MAX issues, before the MAX was flying. We’ve been taking 50, plus or minus, new A321s every year, as well as retiring older aircraft, taking the Airbus A220s through that process, taking A330s and A350s. So that’s not a sustainable strategy. We need Boeing to be able to offer their support and their technology and that’s why we did the order for the MAX 10. I don’t think anyone could tell you when it is actually going to arrive. I think it will arrive at some point and when it does, we’ll take it.

Give me your general view on your 2024 outlook and top priorities. Demand is really, really strong. The demand that we’ve seen over the last couple of years in the post-pandemic world has continued to develop and grow and it’s finding new avenues for growth. Business travel has really boomed in the last six to nine months as companies have started to reopen their offices and get people back into more traditional patterns of travel. While many of those people were traveling anyway through hybrid or other forms of travel, they’re now adding in-office visits and customer-seeing, which is one of the things that’s vital to our business, because Delta is not just about classic companies, but also the consultancies, the service providers, as well as the accounting firms and the law firms. They are really important and many of them are in our top 20 in terms of overall corporate business.

You can go back and study the last 50 years and our industry, as you know, is very volatile, very cyclical. Rarely does one year look like the next. But there’s one stat that is consistent throughout the last 50 years of US air travel, and that’s the relationship of dollars spent by consumers on air travel and the size of the US economy. That percentage is roughly 1.3% and you can go back to 1975 and it’s roughly 1.3% and maybe a little less because that was pre-deregulation, but it’s pretty consistent, year in, year out.

That shows you the amount of priority customers place on air travel; the inherent demand as well as the capability they have to invest in air travel. And that even stood the test through 9/11. It broke shortly but came right back again.

Look how quick we came roaring back [from the pandemic]. The gap for the last 2022 period is roughly $300 billion of unmet demand that customers had the means and the desire to travel but weren’t capable because of the pandemic. We’re just now getting back to 1.3%, given the size of our economy. This is our new normal, and I think it’s going to pick up from here because any airline out there will tell you that if we had more planes, they’d be full; there’s such a strong inherent demand. So that’s going to be the strategy we will continue: Running a great operation. Delta has been at the top of the charts for easily the last six months on just about every category there is month in, month out, operationally, which is where we strive to be. It’s not very technical or elaborate; it’s just about showing up every day and delighting customers.

You make it sound simple, but it’s not. You’re right. We operate 5,000 flights a day and serve on average over 500,000 customers a day. And it’s a lot, but our people do it as good as anyone.

Do you think the investor community is catching up with that reality of just how much demand is coming back? Because it seems to me that the investor community is lagging. The investor community clearly is lagging. It’s the one thing that hasn’t caught up and revenue’s ahead of plan and the operations are running better than they were pre-pandemic. But the investors lost a lot of money when the pandemic hit, and it’s not the first time they lost money in our industry. It’s an industry where smart investors do make a lot of money if they understand and pay attention. For the casual investor, it’s a tough industry because changes happen. It’s very dynamic. The one thing that Delta has stood out on and that our stock has been responding quite nicely to over the last year is the health of our brand as a premium experience.

When you offer a premium experience, customers will pay. They see great value in that. Value in our industry has been talked about in terms of price. That story has gotten pretty dated and those [carriers] that are focused on price have had a real challenge. Those carriers that are focused on delivering a great experience, a quality experience—people see value in that. And that’s why we’ve had a focus on premium for some time. That’s why our brand is one of the healthiest brands in the entire country. We were named in the last year by Fortune the 11th most admired company in the world as an airline still recovering from the pandemic.

We’re the fifth-largest e-retailer in the country, fifth largest, not just in the industry but overall, along with Apple and Amazon and a couple of others. That speaks to the health of our brand. Then you couple that with the investments we’ve made in the airports, the quality of that experience, the investments in the fleet. We’re two years younger than we were pre-pandemic, despite the fact that, chronologically, we’re four years older.

How has technology played into customer service improvements? The technology of our app is a huge driver of loyalty in our business. And customers who have that experience with the app tell us it’s one of the best apps they use, period, and not just in travel. And they become almost addicted to it. They want to see where their points are. They want to see where their plane’s coming from, they want to see what’s coming next, where they can go and what they can use their points for. It’s really a lifestyle app that they use. And then we’ve added free Wi-Fi on top of that, so that they can continue to stay connected on their journey, and it’s fast and it works well and it’s free.

So, you put all that together and we’re moving beyond just the commodity category. We’re moving into the branded world. Branded consumer products generate multiples that are easily two to five times the multiple that the airlines traditionally have generated.

It’s one of the reasons we went with the Wi-Fi because we’re building a whole new generation of customers. In the last year we’ve added over 2 million new members to our SkyMiles program. These are customers we already had but we didn’t know who they were, and they’ve become members of our program so they can tap into free Wi-Fi. And now we can serve them better. And that’s the next generation of loyalists to Delta, because once people start becoming familiar with the brand, they tend to stay quite loyal to our brand.

What do you believe is the top challenge for this industry generally? Sustainability comes to the top of that chart, no question, and all of us have described that as our existential challenge. We don’t have a solution at the moment. Ninety-eight percent of our footprint is coming in the form of jet fuel, and we don’t have any economic alternative at present. We do have some alternatives being developed in biofuels and some sustainable aviation fuels, but they’re coming at a tremendous cost, two to four times the price of the cost of jet fuel, which is not cheap in itself. And as a result, we don’t have the capital to afford to do this through traditional, conventional means.

So, we need to make sure that our constituents are far beyond just the airline industry, reaching out to the energy producers, to others that depend on our industry: the engine manufacturers, the Boeings, the Airbuses of the world, the customers, the hotels. The travel-and-experience base is such a key part of our overall economy here in the US and in many international markets as well, with many people depending on sustainable travel to keep their businesses growing.

We’re building coalitions and we’ve got a couple of good plans. One in particular that Delta’s built up is in Minneapolis, which I’m really excited about. We have an opportunity to take up to 50% of our jet fuel consumption in the Minneapolis hub and turn it into a sustainable aviation product within the next 10 years. But it requires a coalition of the willing and it needs to attract capital and attract interest and government support—not mandates, but government incentives to invest alongside us. If you’re an energy producer today, you want a role.

Through a coalition, you can create an opportunity to start to bring that green premium down. And our goal in Minneapolis is to have that premium be within 10% of the jet fuel marketplace. I think once we start producing that level of scale, that will put pressure on jet fuel prices, which will, in turn, incentivize people to want to invest in this space more. It’s going to take a lot of local initiatives. There’s no global solution to this. I think the Minneapolis initiative could be a model that people all around the world can look to.

Interview by Karen Walker. To listen to the full interview with Ed Bastian on the ATW Window Seat podcast, go to: https://bit.ly/EdBastian.