Delta is enjoying a stronger financial position, has embarked on some major product updates and has Asian expansion plans. Nicole Nelson sat down with chief revenue officer Glen Hauenstein to find out more about his strategy.
As the newly appointed chief revenue officer of Delta Air Lines, Glen Hauenstein has been depicted as personable, funny, gregarious and eccentric in a good way – all character traits which have, in addition to being brilliantly cerebral, elevated him through the ranks of a number of airlines’ executive suites over the course of his career.
Hauenstein could also be described as modest and mannerly from his perch overlooking the Delta-dominant airfield operations at Hartsfield-Jackson International in the spacious Atlanta headquarters office he has occupied since 2005. With responsibilities that include network planning, revenue management and marketing, Hauenstein’s leadership has brought Delta improved revenue performance that has outpaced the industry, as well as a profitable global network.
When called by his colleagues as the “mastermind” of Delta’s recent series of strategic network partnerships and mergers, Hauenstein immediately deferred to his “great team”. But after a moment’s hesitation, he changed his mind and accepted the respectful praise. “I’ll take credit, thanks,” Hauenstein says. “My mother always says when somebody gives you a compliment, just say thank you.”
The New Jersey native may find himself attracting more compliments, as he is in a prime position to receive kudos for a number of transactions that include June’s acquisition of a 49% minority stake in Virgin Atlantic. The deal marks “one of the last lynchpins we had to solve,” according to Hauenstein. It is also the next step towards a full joint venture between the two carriers and an enhanced foothold for Delta in the European market.
Historically, two US airlines had designations to fly to Heathrow, starting with Pan Am and TWA – routes that were later acquired by American and United. When Open Skies was finally granted between the US and the UK in 2008, Delta was no longer prohibited from flying to the coveted UK airport, although a capacity issue remained (and still does) at one of the most heavily slot-controlled airports in the world.
“While we appreciated the government’s opening up of the skies, we were faced with the dilemma of having a far inferior portfolio of slots – zero to start with,” Hauenstein says, recalling the airline’s mission to embark on a process to acquire slots.
In addition to leasing several long-term slots from SkyTeam partners Air France and KLM, Delta acquired under-utilised slots on temporary loan from other carriers. However, Delta was still coming up short in its efforts at Heathrow.
“Heathrow represents 35% of the entire US–Europe market, and we weren’t satisfied with the level of service that we were able to achieve on our own,” Hauenstein says. “Our desire to be competitive – and, in some cases, superior to our competitors at United and American – did not reside in a self-help option. So, we looked into other options to enhance our positions in Heathrow, and it became obvious to us that one thing that we could do was to work with Virgin Atlantic to produce what we think would be a superior product in the US–UK marketplace.”
Product alignment
While the coming together of the two airlines has many benefits, commentators have questioned the disparity between the carriers’ product offerings. However, Hauenstein says that when Delta’s entire widebody fleet upgrade is finished in summer 2014, the new Delta product will stand up to any global competitor. “We think our product stands, surveys indicate that we are far above the competitive setting in the category of Virgin in terms of business,” Hauenstein says. “I think that this is a great marriage.”
Hauenstein says the level of customer service that Delta and Virgin Atlantic are committed to providing is doled out with different slants. “We do it with more of an American spin, and they do it with a more British spin, with different flares, different highlights and different lowlights,” Hauenstein says. “Versus the primary competitors in the marketplace, I think we both beat them hands down.”
In the initial phase of the deal, one of the key things Delta has focused on is providing an adequate service pattern between New York and Heathrow, which is the largest trans-Atlantic business market by a factor of two to three. Delta’s previous tally of three flights a day made it difficult for it to compete with British Airways and American’s combined up to 13 daily flights on the JFK to Heathrow routing. By combining schedules and working with its partners to provide separation in that schedule, Delta can now provide seven daily flights from JFK to Heathrow, and he claims its service offering is superior to competitors.
“We have a better product because we have a competitive schedule and because we are the largest carrier in New York City,” Hauenstein says, noting that Delta’s Big Apple operations are roughly twice the size of American’s.
“Our goal is to have ‘one-stop shopping’ in New York, and have the best of everything: the best services to Asia, the best services to Europe through our friends at KLM, the best services to London through Virgin, the best services to interior points in Brazil through our partnership at GOL, the best access to Mexico through our partnership with Air Mexico, and the best domestic network, by far, between LaGuardia and Kennedy.”
Hauenstein is banking on Delta’s augmented New York offerings – including the recent $160 million renovation and expansion of its facilities at LaGuardia and a $1.2 billion enhancement and expansion of Delta’s Terminal 4 facilities at JFK – to generate a preferred carrier status throughout the region. The historic expansion at LaGuardia alone added 100 flights and 30 new destinations to the Delta line-up.
“Our whole New York strategy is to be able to offer a comprehensive offering, so that you don’t need to go outside our network unless you want to,” Hauenstein says. “It is always about consumer choice, so the two things you have to do is to have the scope and the depth, and then have the product on top of that. We have worked very hard on the scope and the depth, and now we have been working very hard in the last couple of years on elevating the product. I think by all research we’re making great progress.
“We need to keep going and we have a lot of great new projects on the boards for 2013 and beyond, but if you look at any kind of key metrics, we are leading the three major US airlines in terms of how customers perceive us,” he adds.
Global network strength
These perceptions don’t stop Stateside, with Hauenstein claiming key positioning in markets abroad. From his Atlanta office, he casually mentions he was in São Paulo the previous week meeting with strategic partner GOL Linhas Aéreas Inteligentes. Delta’s codeshare agreement with GOL is designed to offer a US–Brazil network that is unrivalled by any other US flag carrier.
“GOL is a great carrier with an incredibly extensive domestic route network,” Hauenstein says. We are now going to fly to a lot of the secondary and tertiary cities in Latin America that have large, growing populations and larger growing economic presence. We will be partnering with them to continue to expand our presence in Latin America. If we were to say what are our two most important geographies, it is going to be South America and Asia, particularly China and Brazil.”
Hauenstein says Delta sees the future in China with more than one billion people and the world’s second-largest economy. “We have some really great strategic partners in China, and having two of the three major carriers in China as partners is a huge advantage,” Hauenstein says.
Routes have also been recently established on roads less travelled, with Delta stepping up as the first major US airline to operate non-stop service between the United States and Africa since Pan Am suspended flights in the 1980s.
“We were very pleased to be the first carrier in 20 years to re-enter non-stop service from the US to the African continent,” Hauenstein says, noting Delta is approaching its seventh year of serving Johannesburg, South Africa, and Accra, Ghana, from its Atlanta and JFK hubs respectively. “We think Africa is another continent that holds a lot of promise, and although the base is quite small relative to the other geographies, it is growing at a relatively rapid pace. We are proud to be the number one US carrier to Africa, and we’ll continue to look for opportunities to expand our services there.”
In the black
The cumulative effect of all of the above is an airline that is in the black, with strong results compared with the not too distant past. In 2013, Delta posted its best first-quarter profit in more than a decade and revenue rose 1% to $8.5 billion. “Relative to ourselves, we’re doing better, but relative to what we need to achieve to be a stable industry, we’re just scratching the surface,” Hauenstein cautions.
“US airlines have been through a very difficult time, and all through restructuring we really weren’t able to invest in what we needed to invest in – the products and services that customers want from us. We’re starting to get to where we need to be, but as an industry we have a way to go to return our cost to capital, and to return capital to shareholders. We’re high-fiving each other on some of the thinnest margins of any business in the world.”
Although paper-thin margins are nothing new to the industry, Hauenstein says there has to be a paradigm change. “In order to be sustainable, there has to be a new norm, or else we’ll just wind up in the same cycle,” Hauenstein says. “I think that industry consolidation is one of the key drivers of that.”
Delta is no stranger to consolidation, with trickle-down effects from the 2008 Northwest acquisition still ongoing. “Mergers are never easy,” Hauenstein says. “Airlines are service companies – we are providers of transportation, but we are also technology companies, and sophisticated technology at that, so integrating those technologies is difficult during any merger.”
He adds that the most recent adjustment in a long line of modifications was the September de-hubbing of Memphis, the south eastern port in the former Northwest network. “The size, scale, scope and the product advantages of Atlanta, with bigger airplanes, and more frequency, kept people flying over Atlanta, versus Memphis, so it made no sense for us to keep continuing to provide all that connectivity in a hub that was a higher cost production and a lower quality of service,” Hauenstein says. “Towns or cities may think we are being punitive to them, but really in the end, airlines get in trouble when they don’t respond to their consumers, and they thrive when they do.”
Which brings us to capacity. “We are starting our capacity planning from a very different perspective from what we did years ago,” Hauenstein says. “When we look at the relationship to GDP, we look not only at the domestic, but by region and by country, and we try not to get out too far ahead or too far behind what we think those forecasts are going to be.”
Hauenstein says the most recent manifestation would be in Europe, where there has been an economic recession for several years, yet airline profits in the continent have held up nicely. “We can’t be blind to what is going on in the world, and say we want to grow in Europe, when the economies are receding. We have to follow where the money is, and again that goes back to understanding our customers’ needs and providing what they’re willing to pay us for, not trying to get out front and grab market share, or destroy shareholder value. We are very focused on shareholder value, and we’re very focused on growing at a reasonable rate, that is commensurate with where economies are growing.”
With what he calls a “marriage made in heaven” between Delta and Virgin Atlantic, Hauenstein’s recent coup is expected to be a boost on both sides of the pond. “Around 90% of the business traffic that is going from the US to the UK is going to Heathrow,” Hauenstein says. “You think about the Virgin brand, the Virgin distribution in the UK, and you tie that with the Delta brand in the United States, and the Delta distribution network in the United States, and I think you will get something that’s very powerful,” he concludes.
This article was reproduced and edited from an original story that appeared on our sister publication Routes News. The latest bumper World Routes edition of the official air service development magazine is available in your delegate bags or can be read online by clicking here.
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