Delta Pulls Out of a Dive

But while other airlines were permanently grounded, Delta once again took wing. And how did they do that? We'll buckle in and return your trade tables and seats to their upright positions as we take off for Delta on the brink. Hey there, everybody. I am Jonathan Strickland and I'm Aerial cast and Ariel I. I have to take my metaphorical hat off to you for writing that intro because there were so many puns it was. It was a beautiful thing.

I love puns. And as we have alluded to, we will be talking about Delta Airlines and uh, for interest of full disclosure, before we even get started in this, my wife works for Delta, so I but you know, she has no saying what I do here, just as I have no say in what she does at Delta. Well, my husband does not work for Delta, but he sometimes rides it. Yeah, we've both both flown a few times. You a bit, quite a bit, But as as a spouse of someone who works for Delta, I have flown

quite a bit. And Delta has a really fascinating history. Delta is one of those companies where it's not super easy to point at a company timeline and say here is where it all began, because it actually there were a lot of things that led into the creation of Delta as a as a company, and as our series title suggests, a lot of things that led into the brink as well. It wasn't just one instance and bam, there there. Yeah, there was actually decades of policy that

got overturned in the nineteen seventies. Spoiler alert will get there and and we'll talk about how that really was both a good thing and a bad thing and had unintended consequences. But to start with, just to get an overview of where Delta came from. In back in nineteen twenty, some guys named Thomas Huff and Elliott de Land created the Ogdensburg Errowway Corporation in New York, and in nineteen twenty five they renamed it the Huff de Land Aero Company,

and they relocated out of Bristol, Pennsylvania. And at that point they weren't an airline. They weren't taking people or even stuff anywhere. They were building airplanes mostly for the military, and their next step was also not necessarily moving people around. They then started huff Dalon Dusters as a subsidiary company of huff daland Arrow, and it was the first commercial agricultural fine company. So they did crop dusting. Yeah, and this was out of a place that we're both familiar with,

Macon Georgia oh Man Makon Bacon and uh yeah. They started off building out a small fleet, although it was the largest privately owned fleet at the time, but it's still small, eighteen whole planes. Yeah, yeah, And they also moved into doing some mail carrying, and you know, shortly after crop dusting people carrying I hope not simultaneously. Yeah.

Then in the late nineteen twenties, Ce Woolman comes in buys the company and decides that he doesn't care for the huff Dalon Arrow company name, so he renames it and he calls it Delta Air Service. Now why Delta, Well, that would be because they served at the Mississippi Delta region. Yep. So in the late twins they also incorporated and they began their first passenger flights. So let's say I want to get from point A to point B and I

want to fly Delta. Where are point A end point B, Texas and Mississippi, And you have to be one of the lucky five total passengers on their planes at that time. Yeah, five passengers one pilot, which, if you if you ask me, not a bad ratio. But you know, having recently been on a puddle hopper, tiny, little, cramped a little plane, yeah, I rarely fly on planes that small, and my wife never will. I cannot convince her to get on those.

She's she says, if the plane is to the size where she could reach her arms out to either side and touch walls, she doesn't. She wants some bigger plane. Uh So, nineteen thirties they start service to the city that you have to go through. Now, if you're on Delta, at least, that's the joke. Which is Atlanta, our hometown. So this episode is also a big shout out to

a major power player in our city. And they decided that they weren't going to continue passenger services for a couple of years because they got another gig, yeah, flying mail routes for the postal service. So I guess the letters were more important than the people trying to get from Atlanta to Texas to Mississippi. People still have buses. It's hard for a letter to board a bus and get off at the right location. Gosh darn it, they're perishable goods in this in this box. They're really really

bad at directions. Um yeah. So uh. Then they eventually start flying under the name Delta Airlines, and they began to offer night service flights in nine yes, with two pilots, wow, and eight passengers. Now at this point, Delta, while it is flying passengers, was not one of the big major airlines in the United States. No, the big four were Eastern t W A United An American. And then we had, uh this bit of legislation that would take take take control for the next four decades, which was the Civil

Aeronautics Act of nineteen thirty eight. Yes, and This allowed Delta to jump into the market of the Big four and kind of be a competitor. Yeah, it allowed for

better market growth. What's important to remember here, and we'll talk more about it in just a second, but this was an era where in the United States, if you had an airline that flew flights between states, so you went beyond one state into another, then you fell under the purview of an agency, and you were you had to agree to certain rules on a federal level, and that included things like the federal government setting the rates for airfare and what your schedule was and what routes

you could fly. And in these early days, what that helped to do is establish an industry. But as we'll see as we go along, the longer that policy stayed in place, the more constrained everybody was. Moving on with Delta's history. Yes, in the nineties, they added flight attendants, which were called stewardesses at the time. Yes, we are

more elevated in our thinking these days, we are. And they also moved their headquarters to Atlanta, so they had service to Atlanta, but now they're going to be based out of Atlanta. And then they also started modifying their airplanes to contribute to World War two efforts because that

was happening. And then they were training military pilots and mechanics for their planes if you listen to our episode on Harley Davidson, similar to what Harley was doing with their bikes and training people to service their bike right, and that this would end up serving the company well post war because they would have a larger infrastructure in place. They also underwent another name change. Yes, they became Delta Airlines, Incorporated.

And they hit one million passengers flown on Delta Airlines, which you know is a lot when you consider they're flying him like five or eight of the time, maybe maybe a few more by that time. And also they had traveled half a billion passenger miles with no fatalities. They're recognized by the National Safety Council for that ten years of no fatality success. And they introduced a special class of flying for those who were on a budget

like me. No, they introduced coach service from Chicago to Miami. So I guess if you're going to the windy City to Miami, I would say if if you're going from the greatest city to the sunniest city, I don't know that Chicago's right lovely. So nineteen fifties that's when they begin to incorporate a hub system. And this is something that became common in the airline industry for the big airlines in the United States. The idea that you create a base of operations in a major city and you

have a lot of flights out from that area. You don't necessarily do a lot of direct flights city to city across the States. So if you want to get from point A to point B, you've got to fly through Atlanta first. Yes, that was the joke. Is it still is? You know? I was trying to get back from New Hampshire to Atlanta and I had to fly through Philadelphia, which seemed a little off course for me. I once had to fly home from Philadelphia to Atlanta, but because of the way the flights had filled up,

I had to go Philadelphia Cincinnati. Since at E D C, d C Atlanta. That sounds like an adventure. It was a long day. Yes, Delta had several hubs. Atlanta remains Delta's hub, but for a while it also had Cincinnati, and I believe it still has Salt Lake City, So those would be the major hubs for Delta, but different airlines have different cities as their hub. Yes. Also in the nineteen fifties, Delta installed radars in the noses of

their aircraft and they also got their first logo. Wow, it's amazing that they had been around for decades and they get their first logo in nineteen fifties in the In nineteen sixty six, the c woman who had purchased Delta from the original creators back uh several decades earlier, passes away. Yes, they gave a huff dollond duster to the Smithsonian a remembrance of him, which is kind of cool.

That's kind of cool. Uh. They hit fifty years old once they get into the nineteen seventies, and at this point they had moved away from airplanes entirely. The entire fleet was now jet aircraft, no longer prop planes necessarily, and they end up hitting their first hitting a major financial loss by night. This is a point where they actually were in some pretty dire straits financially, so they turned to their employees as one of the ways that

they could recover. Yeah, they raised about thirty million dollars from payroll deductions. Yikes. Never a fun thing. Yes, and they took up money and purchased their first Boeing seven sixties seven. Yes, they call it the Spirit of Delta, which, by the way, there there is always at least one Spirit of Delta. If you pay attention when you get on the plane, you might notice if you're on the Spirit of Delta. I have not flown on the Spirit of Delta. Despite the fact that I've flown Delta many

many times, I'm going to assume that I haven't. By this time in the eighties, Delta is the fourth largest carrier in the US, fifth in the world because of a Western Airlines merger, and they also start Transpacific service to Agya. And in the nineties they would continue their

their path of growth. Uh they were part of the Civil Reserve air Fleet during operations Desert Desert Shield and Desert Storm, and PanAm, which had gone bankrupt in ninety one, would end up having its assets largely purchased by Delta, so routes and PanAm Shuttle were acquired through this process. So PanAm was one of a whole bunch of airlines that went bankrupt around this time. Essentially, you started seeing a lot of airlines going bankrupt towards the end of

the seventies all the way up through the mid two thousand's. Uh. And it was ugly, y'all. Yes, but Delta did get to its profits in and it also introduced Olympic planes because the Olympics were in Georgia and that was where Delta was headlined. And then we're getting into what we were alluding to earlier with the brink. So why if things are going so smoothly for Delta, I mean, despite the the blip that they had in the nineteen eighties, why did they have this issue where they had to

go into bankruptcy protection? And moreover, how did they climb out of it. We're going to talk about the unintended consequences of deregulation when we come back from this word from our sponsor. So earlier I mentioned that you had this thing happened in that ended up really affecting the airline industry and gave Delta an early boost. That was this same issue that we would see dismantled in nineteen

seventy eight. Yes, the Airline Deregulation Act of nine to be exact, it allowed a bunch of smaller airlines to open up and cause the larger airlines to have to kind of scurry to keep up with the competition. Yeah. So with regulation, with the government setting these things like setting the air fare rates and setting routes and setting schedules, it was starting to rub passengers the wrong way because

airfares were high. There was no competition because the government told you how much the tickets had to be a right, so there was no way for one company to say, well, we're going to try and win more customers by dropping the air fare for the one route. You didn't get to decide all your routes. You could propose routes, but the government would have to approve it. So if you wanted to propose a new route from Atlanta to let's say Topeka, Kansas, you'd have to submit that to the

government first before you could get actual approval to do that. Uh. You had to submit schedules to the government too. This was all meant to help make sure the industry grew in a way that was uh supported by the government. But at this point, a lot of the a lot of the customers were not terribly happy because they felt like they were paying a lot of money for things that probably could be of rated lower put at a lower cost. The the airlines themselves, the big ones weren't

terribly upset with the regulation. They were getting pretty regular. I was thinking prices exactly they were making. They were making bank is what they were doing. But then in the government decides to deregulate the industry. This creates an incredible amount of competition rapidly, and so you started getting into price wars, and you're talking about companies that haven't had to deal with this for four decades. Yes, some of those price wars meant cutting airfares so low that

it was starting to eat into profit margins. It was starting to make the companies, uh, become less stable financially. They had they had to deal with airlines that had smaller fleets and less bells and whistles. But we're offering flights out a fraction of the cost, which you know all those coach passengers are all about. Right. So the question was should the larger companies focus mainly on longer

flights that these smaller airlines weren't really able to accommodate. Uh, you know, how could they compete in that same space? And we saw a lot of airlines start up in this era, we saw a lot of them shut down. We saw a lot of both, Like we saw a lot of the same ones that start up failed well. And three of the big original four airlines did not survive this competition, PanAm, Eastern, and t w A all folded. Yeah,

so this gut ugly. It also led to some pretty big cost cutting measures for the companies that did survive. So people who worked for these airlines started to see their salaries uh stagnate, like wages were not going up along with the rest of the industry and um. And

then we also hit at this time an economic slowdown. Yes, so multiple things are all happening around this era, and and the fallout of this deregulation Act would take of course, it would take decades to unfold, to unravel, right, I think generally speaking, when people who oppose government regulation are thinking those thoughts, they point to things like the regulation of the airline industry and say, see how that was bad for customers because we had this mandated airfare and

you couldn't get that bargain price to to go fly you know, whatever airline you wanted. You were stuck having to pay these higher the higher costs on the flip side of that. Uh, it solved some problems, but it made other problems. Yeah. Yeah, it's's constant battle, you know, even today between what is good for the customer and

what is good for the company and finding that right balance. Um. But Delta is hit kind of especially hard by these smaller airlines like air Tran in Jet Blue because they didn't have a lot of international travel, so most of their travel was domestic Delta that is, so they're in direct competition with these small airlines. They don't have extra you know, revenue builders out there, right because it wouldn't be for a few years before Delta would start building out.

It's more of its international travel. They had a little bit, but it's not what they were known for right now more than like I think of their revenue came from domestic flights. So where when you see a more competition in your space where your where your bread is buttered, then you're gonna take a hit. But even still they were struggling along and then then we have the absolute awful disaster September eleven terrorist attacks. Yes, I was supposed to fly that day. I it was a little unreal

for me. I was working at a daycare with children at the time, so someone told me what happened. I had to wait for a break to go watch a TV and it horrible. Yeah, it's still surreal to think about that day. And of course, you know, I didn't fly that day. All flights were grounded and this was across all airspace in the United States. It lasted for two days and UH stranded a lot of people in

a lot of different places. Also meant that airlines were really in a bind to try and UH once operations began again to get people to where they would be, they were understandably really hesitant to fly at this point. Yeah, and so Delta, Delta was not alone in this. I mean, all the airlines took a massive hit from this, but Delta ended up losing two point four billion dollars over the course of two thousand one and two thousand two.

It was their first financial loss in six years. And um, it was only the beginning of their kind of nose dive into the brink. Yeah. They decided to try and compete more directly with these budget airlines by launching a a service called Song and this was their their version of budget flights I've flown on Song aircraft before. Actually Song Aircraft they got a few amenities before some of

Delta's other aircraft did that. I really liked a lot. Yeah, but you know what, Song overall didn't do very well. That's true. Um In two thousand three, their CEO, Leo Mullin retired, Yeah, this was where when he retired, one of the things that he was getting criticized for was that he had offered some massive bonus packages for executives,

a lot of golden parachutes. Yeah, when they're supposed to be cutting costs and when they're not offering their employees raises or yeah, and they're trying to avoid going bankrupt, and this week have this This was a dark time for people who worked at Delta. It's very tough and very demoralizing. If you're an employee, a rank and file employee, and you hear about an executive who comes in. Maybe this executive spends six months at Delta, maybe this executive

makes some terrible decisions. But because part of that executives agreement to come work for Delta was a golden parachute guarantee that even if that person were to leave the job or be fired or whatever that they would have a certain amount of money or stock or whatever. Uh. That was like, you know, you had regular employee saying, well, this is totally unfair. If I come in to work and I do a terrible job for six months, you don't reward me. Yeah, yeah, it was. It was unfair,

and hence the retirement quote unquote Yes. Now this caused Delta by the fourth quarter of two thousand four to have lost two point two billion dollars, their single largest loss in a quarter. And so then, uh, they the new CEO of Delta tries to take some measures to turn things around. Yeah, he negotiated a gift back by the pilots of one third of their pay and benefits, which I guess if you really like working for Delta, you're gonna give up some of that pay for some

a little bit more job security. Um. They're also trying to make flights more efficient at that time, having a shorter turnaround time and conserving fuel and lowering fares. They saved about a billion dollars doing all this. Yeah, they also sold some of their fleet and they also cut about five thousand jobs. But they were still hit with more misfortune because Hurricane Katrina hit in August of two thousand five, and it pushed oil prices way way up

to sixty or seven dollars a barrel. Yeah, and that was the last straw for Delta. Delta had been eating off having to file for bankruptcy protection, but at this point it was too much, and on September two thousand five, Delta would declare Chapter eleven bankruptcy protection. And here's an interesting thing. They were not the only airline to do it that day. Nope, Northwest Airlines filed less than a

half hour later. Yeah, according to reports, but over this five year period of turmoil, Delta lost about ten billion dollars. That's crazy, an So this seems like Delta is really in dire straits. I mean, the airline industry was in dire straits. Almost half of the indigeny's capacity was operating under bankruptcy oversight. So how could Delta pull out of this nose dive? We'll explain in just a moment, but first let's take a quick break to thank our sponsor,

Okay Ariel. How did Delta pull out of this? Well, first they cut additional costs and then they sold Atlantic Southeast airlines, and then they cut their flight capacity out of the Cincinnati hub, which explains why it's so hard for me to get back home now, it's true. And then they did like an internal company reboot that costs

them three billion dollars. This is actually a very bold move, right that that they see the need to redefine themselves, to reposition themselves, to restructure all of these rewords, and it would mean having to spend three billion dollars while you're in chapter Yeah, it's it's it's a whole lot of investment for very little guarantee and it took nineteen

months to do. Yeah, so is a long term invest But these are things that I think a lot of businesses struggle with, this idea of you're taking a big risk and you know it's going to take a long time for that risk to pay off because there's so much emphasis on short term gains and short term turnaround. But for Delta, it worked. Yeah, And I guess you could figure they're thinking they're in chapter eleven already, so compared to the ten billion dollars they lost, it's only

a third of that. It's only a third of that. Um they're already failing this is the hail Mary for them. Well, one of the things they decided to do is put a new focus on the customer experience. This was a major part of the rebranding for Delta, to say we are looking at this from your point of view. Yeah, they wanted to keep the immediate impact of this bankruptcy

minimal for their customers. Yeah, they did have to increase fair prices in a few routes and I did also cut back on some of those routes and uh flight capacity, which again can make it pretty challenging to get to

where you're going sometimes. They also introduced new logo and and some branding which doesn't seem like a big thing and doesn't really seem like it would benefit the customer beyond trying to be more eye catching, but it actually uh took the amount of colors they needed in their logo and cut it and it made it a lot less expensive, two logo everything. Of course, they had to put their new logo on everything first, right, but the

new logo was was more efficient. Yes. They also began to include new amenities both if you were in flight or waiting at the gate, So that would include things like in flight WiFi. Uh. They had various in flight entertainment systems that were installed in a lot of their aircraft more and more. In fact, it's pretty rare now when I get on a Delta flight that does not have and in flight entertainment display on the back of

the seat in front of me. Yes, both of my flights tuned from my vacation this past weekend did not, so sometimes it does happen. They did, They did have other amenities. It was still a lovely flight. Uh. They also streamlined their check in for their business class customers, so the people who wanted to pay a little bit more got a better experience. Yeah, and they tried to train their employees to to kind of have a more empathetic outlook on those who are traveling. I can say

anyone who's traveled a lot can say this. There are certain people who experience a heightened sense of anxiety when they are traveling and when they are no longer the person who is in control of their traveling, and as a result, sometimes their interactions can become a little testy. And I am always impressed by air employees who are managing to keep their cool after what I can only imagine, is the seventy person two directly hold them responsible for

whatever ills they proceed against them. Yes, they train their employees using what they called the quote unquote rules of the road, oddly enough since they fly. Yeah, and you know it focused on empathy. They used sayings from ce Woolman, who was the former owner. The former owner, things like, let's put ourselves on the other side of the counter. And the only monotonous thing about the aviation industry is the constant change. The only thing constant is change. Uh.

And they looked on creating a better employee morale as well. Gosh, they had to after cutting and cutting and cutting. So they said, we'll tell you what what we're gonna do is create a profit sharing program so when Delta makes money, you make more money. They also added sixty international routes to take up the slat caused by US competitions. So they kind of looked at what their problem was and

then directly fixed that problem. When again, because there was no longer this regulation, they didn't have to sit there and clear everything. You know, obviously you have other issues. You have to negotiate. You have to negotiate with airports to make sure that you have the gate capacity and everything. But they were able to make these plans and and end up building out their international flights to create more revenue from that travel and less dependence on or you know,

not so much a soul dependence on domestic travel. Yeah, Delta now serves fifty nine countries out of the Atlanta Airport Hub. Now, they were able to avoid a hostile takeover attempt from US Airways in early two thousand seven. In fact, they were able to do this through multiple means, including a a sort of a PR campaign. Hostile takeovers tend to be where a company goes to shareholders and tells the shareholders of that company your better or off

if you go with us. So if you vote, if you vote so that we get places on the board of directors, we can take over the company. So what Delta does is they create a PR campaign called keep Delta, My Delta, and through this they're able to argue that it would be better for Delta to stand on its own rather than become acquired by another company. Yeah. They played on the affection of their employees and customers, relating

them to stakeholders in the company, which some of them were. Yeah, and saying, you guys are valuable and we want our company to remain our company. And they were able to do that, and in April two thousand seven, two years after entering bankruptcy, they emerged. So the company was able to actually turn things around and come out of bankruptcy and came out better than they went in, which is

what you want to do. Yeah. Yeah, So when they went into bankruptcy, they had a revenue per available mile seat that was about eighty six percent of the industry average, and when they came out it was a So they continue to grow and expand today. I mean there's a point now where domestic travel, which used to be eight percent of their revenue, is now down to six So they have diversified in that sense. They acquired or merged essentially with Northwest. That is an interesting story from the

employee perspective, I can tell you. But it also means that my wife has traveled a lot more to Minnesota and occasionally talks in a very funny way when she comes home asking for tacos. Yeah, she's Minnesota. Was it was really good? Yeah? And uh so they've done quite well since then. They were ranked as one of the world's five most profitable airlines. Uh, every year since two thousand twelve. Yes, and in two thousand sixteen they paid out one point one billion dollars in the company profit

sharing plan. So clearly companies making money, employees are starting to get those bonuses. Yeah, they give a whole bunch of other employee bonuses as well. Yeah, it probably helped take away some of that sting for the employees who have been around long enough to have seen those bayroll cutbacks. And I mean here's the other thing. Delta employees tend to be like lifers, y'all. Yeah, I mean they stay, they stay with that company for decades. Well, because Delta

really is working to make the work experience better. Since two thousand ten, they've increased employee conversation and they are ranked as one of Fortune's one best companies to work for. And uh yeah, so this is one of those things we keep on seeing here. They're also the biggest employer in our city. Uh you know, it's it's not Coca Cola, it's Delta. Uh. And uh yeah, there's there's been some

other stuff happening recently that that slowed things down. The winter of was pretty rough, but they still were able to have growth and revenue year. Yeah, and there's some oil refinery and fuel price hedging happening that's getting a little bit of mixed reviews with Yeah, But overall, I would say they've done a pretty good job. It was an amazing job to pull out bankruptcy like that and to win back the loyalty of employees who probably were

feeling kind of abandoned for a few years there. Yes, and right before we recorded this episode, I actually read an article that while other airlines are pulling in seat entertainment consoles out of their planes to reduce weight and save costs, Delta's like, nope, we're keeping that in for our customers. So as long as we don't see more squishing seats closer together so that you have even less legs. I'll have to like lay on my side if they do that. Yeah, they might will just fold me up

and put me in the overhead compartment. I mean, obviously I'll have to get on the plane first because those things fill up so fast. But yeah, that that's that's Delta's return from the brink. Delta, which it's such a big company here in Atlanta. It's it can be hard to imagine such a such a it's like almost like a too big to fail kind of thing. It's hard to imagine a company that that size struggling. But it was not a guarantee that it was going to pull

through that bankruptcy. But they really doubled down on some core values that I think in the long term paid off and hopefully we'll see that continue because you know, I love the way they fly and it shows do do do well. That wraps up this episode of The Brink. We can't wait to talk to you about our next company. I mean, we we just spent time in the Delta what if? What If? Next we go and explore the Amazon Well. Until then, I am Jonathan Strickland and I'm

Aerial Casting and we'll see you next time. If you would like to learn more about what we've talked about, as well as keep track of all of our episodes, make sure you visit our website at the Brink Podcast dot show, or you can email us at Feedback at the Brink Podcast dot show.