The Atlanta Journal-Constitution

Delta’s chief looks back at his first year on job

High profits welcome; service struggles pose challenge to airline.

- By Kelly Yamanouchi kyamanouch­i@ajc.com Delta CEO continued on D4

“It’s impossible to fully anticipate what to expect until you’re in the seat, ”Delta Air Lines CEO Ed Bastian says.

Delta Air Lines CEO Ed Bastian’s first year on the job is testing his mettle, with two computer outages that led to mass flight cancellati­ons and the recent five-day operationa­l meltdown after one day of thundersto­rms.

And those are just the obvious challenges.

Amid increased competitio­n from ultra low-cost carriers, Delta and other legacy airlines have also been struggling

through declining unit revenues, a measure of revenue for every seat flown one mile. Rising fuel costs are squeezing margins.

Running one of the world’s largest airlines was never going to be easy, but the company’s operationa­l troubles during Bastian’s first year have left some customers wondering what happened to the high-flying Delta of recent years.

“Delta’s theory that we’re better than everybody else has been absolutely demolished,” said Joe Brancatell­i, editor of a website for business travelers called JoeSentMe.com.

Delta officials, for their part, note that despite the sensationa­l service episodes, Delta’s overall operationa­l performanc­e figures show it still ranks at the top among its large competitor­s — thanks to the vast majority of days in the year that are free of outages and meltdowns.

New data center

The airline has also remained solidly in the black under Bastian, logging a $4.4 billion profit last year that resulted in profit-sharing payouts to employees of $1.1 billion.

Some of that money is being invested in efforts to shore up systems to avoid future outages, including a $200 million data center in Alpharetta that is set to be up and running in July.

“It’s a very expensive investment, but as we proved, it’s vitally necessary,” Bastian, 59, said in an interview with The Atlanta Journal-Constituti­on. Once it’s open, “we don’t need to worry any longer about the vulnerabil­ity and fragility of our 30-year-old or more tech systems and processes that are breaking along the way.”

While Delta’s headquarte­rs sits next to Hartsfield-Jackson Internatio­nal Airport, the new data center will be about 30 miles north.

“Most companies have their back-up locations offsite, and our back-up location was on site,” Bastian said. Having the data center in Alpharetta “gives us the opportunit­y to be in the area but not in the same literal ZIP code,” in case an electrical outage or other event knocks out power to the building.

Still, the data center wouldn’t have prevented the crew scheduling mess that snowballed into mass cancellati­ons after the thundersto­rms April 5.

For that, Bastian said the company is speeding efforts to upgrade crew tracking and scheduling software and processes. He told employees in a memo that the company will do an audit to determine where the failures occurred to “avoid making the same mistakes the next time we are faced with this type of weather.”

“We’re going to get through this in good shape,” Bastian said.

Coming in at the top

The timing of Bastian’s rise to CEO was both a blessing and a curse: He was promoted to succeed former CEO Richard Anderson with Delta seen as an industry leader for its on-time performanc­e, billions in profits, strategica­lly daring moves like buying an oil refinery and a prominent voice in Washington on issues affecting airlines.

Frank Blake, the former Home Depot CEO who is now chairman of Delta’s board of directors, called Anderson “one of the great CEOs in the U.S.” and agreed that Bastian had big shoes to fill.

“At the same time,” he added, “Ed had been by his side during that time period.” Blake said he thinks Bastian “has done an outstandin­g job.”

With 20 years at Delta under his belt, Bastian said he had “been the number two guy for a long time, and I have a pretty good perspectiv­e on the responsibi­lities.”

Still, “It’s impossible to fully anticipate what to expect until you’re in the seat.”

Since moving into the CEO’s office, Bastian has continued with deal-making for the airline’s internatio­nal expansion. The company closed an acquisitio­n that gives it a 49 percent share in Aeromexico and recently struck a deal for a joint venture with Korean Air.

Both deals are crucial for Delta to try to keep pace with rivals United and American in Latin America and Asia.

“Our goal is to be the most global airline, and we did an awful lot along that path in the first year,” Bastian said.

Bastian has a different mission than Anderson did, according to Mark Drusch, a former executive at Delta and Continenta­l who is now a vice president at consulting firm ICF.

Anderson, who took the helm at Delta right after the company exited from bankruptcy, “had to prove to Wall Street and investors that he could have consistent returns,” Drusch said.

Bastian expects to see a recovery in unit revenues this quarter. And Drusch said Bastian is “able to look at this more in a long-term fashion,” with investment­s and deals with foreign carriers China Eastern, Korean Air and Aeromexico.

Bastian said with the company’s investment­s in airports, new planes and employee raises: “We’re in the midst of a generation­al build.”

On the front lines

Delta’s successes under Anderson, by many accounts, built morale and pride among the company’s 30,000 employees in Atlanta.

But the story was different when thousands of employees were dealing with hundreds of thousands of frustrated customers stranded for hours or days in the fallout from 4,000 flight cancellati­ons earlier this month.

Employees “were overwhelme­d,” and crews were left stranded, said Delta pilot Tim Caplinger, who led an effort to form an independen­t pilots union at Delta. “Pilots are concerned that our company is not being invested in properly . ... We the employees that are life-timers here, this really worries us. It’s our future.”

Bastian apologized to employees as well as to customers as the snarls subsided, although some noted his statements came the week after the thundersto­rm and several days after a message posted online by one of his lieutenant­s, chief operating officer Gil West.

That led to some grumbling among people who follow the airline closely.

“I thought the CEO should have come out, really the next day, and said, ‘We can’t get the pilots and planes to the right place and there’s going to be delays,’” said Roswell resident Michael Blaiss, a platinum-level frequent flier who got stuck in Washington, D.C., amid the cancellati­ons. “The poor agents I talked to during my fiasco just didn’t really know what was going on. They were as frustrated as the flyers.

“I think running any type of business that the head of that business needs to take responsibi­lity, being upfront and being honest at the very beginning. Then I (as a customer) go, ‘OK, these things happen. He knows what’s going on. He’s in charge and he’ll fix it.’ And not continue to keep hearing two days later it’s still the weather. And you look up at the sky and the sky is blue.”

Recovering faster

Bastian acknowledg­es that the recovery from the daylong assault of thundersto­rms at the Atlanta hub took longer than it should have.

“We need to recover faster,” he said.

On the day of the storms, Bastian was in Augusta for the Masters golf tournament that week.

“We were obviously not fully anticipati­ng the effect of the storm,” Bastian said, and were taken “a little bit aback by the magnitude and severity.”

He said he went to Augusta for a “large customer gathering” Wednesday night and stayed Thursday, then returned to Atlanta early Friday “because of the way the recovery was going.”

Bastian said he was “fully involved” and in touch throughout the period of cancellati­ons. “It was all hands on-deck for everybody.”

In the wake of the episode, Bastian “doesn’t look to be the kind of guy who grabs it by the throat and says, ‘I will fix this,’ ” Brancatell­i said. But he said one advantage Delta has is that it “runs against a very weak field,” with United and American facing their own challenges.

That was highlighte­d immediatel­y after Delta’s meltdown when the United incident of a passenger being dragged off a plane commandeer­ed the public consciousn­ess and distracted attention from Delta’s storm recovery woes.

‘Learnings from everything’

Blake, the board chairman, said Bastian has had “a lot of things coming at him.”

“I think he did a great job of weathering (the cancellati­ons) as he’s done through other challenges that the company faced,” Blake said.

“There are always learnings from everything.”

In any case, Delta’s dominance in Atlanta and consolidat­ion across the industry lessens the risk of any mass customer defections.

“A lot of travelers in the Southeast simply don’t have a choice,” Brancatell­i said.

Blaiss said his cancellati­on experience won’t stop him from flying Delta, whose Atlanta hub allows him to “get pretty much anywhere at any time.”

“Mistakes like this happen,” he said, “and hopefully they learn from it.”

Looking ahead, Bastian hopes to spend time on less sensationa­l issues such as improving Delta’s reliabilit­y, which also boosts efficiency. The company is also hiring 6,000 to 8,000 people a year, to replace retiring employees and grow the business.

And it is working to add amenities on planes, improve in-flight Wi-Fi speed, modify cabins and upgrade on-board food and snacks, Bastian said.

“We’ve got to improve the experience of our customers on board.”

 ?? JOHN BAZEMORE / AP 2016 ?? Delta Air Lines CEO Ed Bastian in his office at the company’s headquarte­rs in Atlanta. Delta is posting record profits and is generally envied by the rest of the industry.
JOHN BAZEMORE / AP 2016 Delta Air Lines CEO Ed Bastian in his office at the company’s headquarte­rs in Atlanta. Delta is posting record profits and is generally envied by the rest of the industry.
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 ?? BRANDEN CAMP / CONTRIBUTE­D ?? Delta passengers wait in line in hopes of catching their flights out of Hartsfield-Jackson Internatio­nal Airport after Delta canceled about 350 flights due to bad weather in January in Atlanta.
BRANDEN CAMP / CONTRIBUTE­D Delta passengers wait in line in hopes of catching their flights out of Hartsfield-Jackson Internatio­nal Airport after Delta canceled about 350 flights due to bad weather in January in Atlanta.

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