Delta, the ATW 2024 Airline of the Year, is focused on continuous improved performance. Listen in as CEO Ed Bastian explains the strategy behind that goal.

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Rush Transcript

Karen Walker:

Hello everyone and thank you for joining us for Window Seat Aviation Week, Air Transport Podcast. I'm ATW and Aviation Week Network Air Transport Editor-in-Chief Karen Walker. Welcome on board. I'm absolutely delighted today to be joined by a very special guest indeed, Ed Bastian, the CEO at Delta Air Lines who joins us from Delta's Atlanta headquarters. Ed, welcome. Thank you so much for joining us today.

Ed Bastian:

Well, thank you Karen. Good to be with you.

Karen Walker:

And it's my very extra pleasure to give you my personal congratulations because Delta is the ATW 2024 Airline of the Year, and that is a fantastic and very well-deserved achievement, so it's lovely to be able to actually say that to you in person.

Ed Bastian:

Well, thank you Karen and on behalf of our 100,000 team members that make Delta the airline that we are, we're very honored, very humbled. We understand what an incredible recognition this is on a global stage and this will give us the momentum to continue to get better as we go forward.

Karen Walker:

Thank you very much for that. It is indeed a very high bar to be selected as the ATW Airline of the Year. To do that, you must demonstrate exceptional across-the-board performance financially and operationally in customer service and in community values. Ed, the numbers from your 2023 full-year results alone speak for themselves. You had operational revenue of almost $55 billion. That was a 20% increase over 23 and pre-tax income of $5.2 billion. You also had a best-in-class operational performance. None of that of course just happens. It's not just good fortune. These are still extremely challenging times for the industry. What in your words do you think is key to Delta's performance?

Ed Bastian:

Well, I think the strategy we've been on and we've been on the strategy as you know, Karen, for well over a decade, 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 and 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 just the reason for being. On top of that, we add the opportunities to serve and to make sure that our people feel, our customers that is, feel the warmth, the caring, 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. It's not just, while, we're honored and delighted to win the award this year, this is for us every single day. And as I said earlier, the awards just give us momentum to know we're on the right track and continue to do better.

Karen Walker:

Yeah, that's an interesting point because you can be really, really good and then what people remember is the last bad experience. So consistency is important. And I think also what you're talking about there when you mention people, there's sort of two elements to that. Of course everybody thinks people is the customer and serve those well, and I'd like to talk to you a little bit more about that as well, that sort of, the premium experience, especially if you like, but of course it's also your people, it's Delta's people and their motivation to want to be excellent every day. Correct?

Ed Bastian:

Yeah. When I became CEO, I guess nine years ago now, I had a fellow from NPR who came and did an interview my first month or so in the job and Kai Ryssdal and he runs Marketplace and he always closes his interviews, he does them in person with a big microphone in your face, some old radio style and he closes each interview with a question. And my comms team does a great job providing me background on the interview and the stuff we're going to be talking about, but they didn't provide me this question. He said, "This is a question I try to close all my interviews with CEOs and other leading business types with name your job in five words, go." And you're on the clock and instinctively came out of my mouth “taking care of our people”, and it was within fractions of a second from when he said it.

You would think I was rehearsed. It wasn't. And he was really taken aback by how quickly that came out knowing I didn't know the question. 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, the trust, they know 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 actually allows them to shine and that I think is the secret to our success.

Karen Walker:

Yeah, absolutely. You can tell when people are motivated and enjoying their jobs. You really can and that comes back to the happier customer. So just talk a little bit about your focus areas in terms of network and growth. And as I just mentioned, and you sort of alluded to this, a lot of people think that air travel is a commodity, but have you shifted in terms of sort of being able to offer a premium product or attracting a particular type of audience that you feel that there is market growth for?

Ed Bastian:

Certainly. Well, 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, Minneapolis, we're number one as well. And that focus 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 coast, having opportunities to continue to get more deeply involved in those communities are all part of the strategy. And so building on that base with the business customer, the high value customer, the premium customer as we call them today, in mind is something we've been at for a very long time and where the network is going.

While the US is a relatively saturated market, there's not new destinations. We bring some bigger planes and some larger airports, but we're not fundamentally changing air traffic control congestion or the throughput. There's not new runways being constructed of any magnitude. We need to go international, we need to continue to expand globally the network that we have. 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 and Virgin, Korean, really great airlines, LATAM and Aeromexico and growth we're doing ourselves.

Karen Walker:

So as you say, that big focus on the international as well, and you've just mentioned a whole bunch of partners there, I think that's something that also, I've seen a big change in Delta over the years and that growth and the importance and how much you invest in those partnerships. How much do you value your airline partners and alliances and what do they mean to Delta?

Ed Bastian:

We like to affectionately refer to them as the Delta team. I know we're all part of the SkyTeam, but we also have our own team within SkyTeam, the Delta team, and we have ownership stakes as you know in those companies as well 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 scale like that. And I tell folks the reason we do it is 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.

We want to make certain that our customers who are largely US centric customer base is 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, as well as things we can learn back from them. There's many, many innovations on technology and international growth that we're learning from them, so that's one of the big drivers of that. The second part of it is is that international travel is expensive. Those planes are expensive. The cost to serve are expensive. Everything about it is expensive. When you think about premium, like we were earlier talking about, 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, is how we think about it.

And for us to be able 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 Delta known 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, the hundreds and hundreds destinations that we collectively serve. It's a more efficient way to produce and it produces actually a much more reliable set of expectations rather than Delta trying to fly all over the world on its own and the service challenges that come as a result of that.

Karen Walker:

So it's a meeting of minds, it sounds like. As you pick your partners, as you say, it's much more than just, oh yeah, they're now on our co-chair, et cetera. You really invest in them and as you said, it makes best use of your aircraft. Delta's got 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, a Delta connection. Of course, your regional affiliate operates a lot of regional jets. You recently placed an order for 20 Airbus A350-1000s and the A350 is your flagship. It's a beautiful aircraft by the way. You don't have any Boeing 737 MAX's, but you do have some -10s, MAX-10s on order. This whole thing with Boeing of course is very well documented. So I'm not looking for a long answer here, but can you just give me a bit of a view on two things, where you stand on the MAX and Boeing and do you feel comfortable that where you sit with your fleet and your fleet plans now will meet those growth plans that you're just talking about?

Ed Bastian:

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. All of the new order of the 350-1000 is with an option to take on an extra 20, which we hope to be exercising of course us as well. 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 we'd rather, sometimes you'd rather be lucky than smart.

And when we did the bake-off between the [A]321 and the MAX back seven or eight years ago, well before any of the MAX issues, before the Max was flying, we decided that Airbus was the product we wanted to go with for a lot of reasons. And as a result of that, we've been fortunate and so right through the pandemic, as Boeing has had a hard time producing that aircraft, we've been taking 50, plus or minus, new [A]321s every year right through it, as well as retiring older aircraft, taking the Airbus 220s through that process, taking [A]330s and [A]350s. 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 made the order for the -10. I don't know. I don't think anyone could tell you when that -10 is actually going to arrive. I think it will arrive at some point and when it does, we'll take it.

Karen Walker:

Gotcha. Thank you very much. You're not far away from your first quarter earnings call, so I know that there are a lot of rules about, there's a lot of things that can't be said specifically at this time, but just talking in general, can you just give me your view on your 2024 outlook and your top priorities?

Ed Bastian:

Well, you're right. I can't give you any specifics on the numbers. We'll be talking about those soon, but the demand is really, really strong. The demand that we've seen for the last couple of years in the post-pandemic world has continued to develop and grow and 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. And one of the things that's vital to our business as Delta is not just classic companies but the consultancies, the service providers, whether it's the McKinsey's or the Bain's or the BCG's [Boston Consulting Group] as well as the accounting firms and the law firms and all the different other service consultancies, they are really important and many of them are in our top 20 in terms of overall corporate business.

If they don't have customers and clients open that they can go visit, that's been a challenge. So they're moving steadily forward. I've spoken a fair bit over the last year about the gap that this industry still has between where we should be as an industry from the trajectory we had pre-pandemic to where we are now, both in terms of the size of the US GDP, the ratio of air travel to US GDP. 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. 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 pretty consistent and every year, year in year out.

And so that shows you the amount of priority customers place on air travel, the inherent demand as well as capability they have to invest in air travel. And that even stood the test on through 9/11. It broke shortly, but came right back again. You can remember back then people were looking at the demise of air travel, particularly internationally. Look how quick we came roaring back. That gap for the last 2022 period is roughly $300 billion of unmet demand that customers had the means to 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. We've grown also post pandemic about 20% larger as an economy.

So we're not even back to events travel. This is our new normal as to where we're at and I think it's going to pick up from here because I think any airline out there will tell you that if we had more planes, they'd be full. And that demand, while it appears to be insatiable at some points, particularly during the peak seasons and international and other destinations, I think there's such a strong inherent demand. So that's going to be the strategy that we have continuing. Running a great operation, Delta has been for the last, easily the last six months at the top of the charts on just about every category there is month in a month out operationally, which is where we strive to be. And couple that with the demand strengthening and the focus on experience and service. It's a really good strategy. It's not very technical or elaborate, it's just every day showing up and delighting customers.

Karen Walker:

That's not easy to do. That still takes a lot of work and dedication.

Ed Bastian:

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.

Karen Walker:

Can I ask you, 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.

Ed Bastian:

The investor community clearly is lagging. The one thing that hasn't caught up and we're already back and revenue's ahead of plan and the operations are running better than they were pre-pandemic is the investor confidence and investors lost a lot of money when the pandemic hit, and it's not the first time they lost money in our industry. So it's an industry that smart investors do make a lot of money. Those that understand and pay attention. The casual investor, it's a tough industry because changes happen. It's very dynamic and it's quite cyclical, whether it's geopolitical events or the cost of fuel or other events that we've seen such as Boeing that have a negative backdrop. The one thing that Delta has stood out on and our stock has been responding quite nicely to over the last year is the health of our brand as a premium, a premium experience.

Because when you offer a premium experience, customers will pay. They see great value in that. Value in our industry is a sort of been talked about in terms of price. That story has gotten pretty dated and as you can see, those that are focused on price have had a real challenge. Those carriers that are focused on delivering a great experience, 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. And when we talk to investors, they're seeing that this is, while again, we are greatly humbled to receive the ATW award this year, but a couple of other things. 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. Right.

So that speaks to the health of the brand. We're the fifth-largest e-tailer in the country, fifth largest, not in the industry, in the country of all e-tail behind Apple and Amazon and a couple of others. Speaks to the health of our brand. Our American Express relationship, the loyalty that enters number one performer within all of American Express's cards by a factor of two by the way, health of the brand. So that brand power is showing and investors are seeing that and they're hearing that. And by the way they experience that when they're on Delta. Our industry is one an investor can actually see for themselves. And 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 chronologically, we're four years older, all the changes we made and retired a lot of old fleet and brought in a lot of new planes.

The technology of the app is a huge driver of loyalty in our business. And customers that have that experience with the app tell us it's one of the best apps they use, period and again, 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, they want to see what's coming next, where can they go and what they can use with their points. It's really a lifestyle app that they use. And then we've added a free Wi-Fi on top of that so that they can continue to stay connected in their journey and it's fast and it works well and it's free.

So you put all that together, Karen, customers hear that story and they say, okay, we see something moving and we're moving beyond just the commodity category. We're moving into the branded world. Branded products, branded consumer products generate multiples that are easily two to five times the multiple, not two turns, but two to five times the multiple that the airlines traditionally have generated. And I think it's going to be a good investment over time, but you got to prove it then it's just the consistency and the reliability because people have been burned in the past and they want to make sure it's safe.

Karen Walker:

That I think is interesting because and just looking myself, I think as you've seen us come out of the pandemic and any service industry or anything where you have a choice if you like of it isn't necessarily something you have to buy, but you're going to choose. You're seeing more and more people go, they want to be associated with a good brand. And so that equals dollars, but it's bigger than that. It's also about wanting to be associated with the good brand. It's really hard to do, but in the airline industry, but it proves you can do it.

Ed Bastian:

And we're building in a new demographic, the younger consumers that are coming. It's one of the reasons we went with the Wi-Fi because we're building a whole new generation of customers. We've already in the last year added over 2 million new members of our SkyMiles program. These are customers we already had, we didn't know who they were, just so that they could tap into the Wi-Fi and become members of our program. And now we can serve them better and we understand them. 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 as a result of that. So it wasn't just a strategy of serving today, it's really serving the future as well.

Karen Walker:

And that particular audience you just mentioned, that younger audience, they tell other people, they like to boast. "Hey, when I fly with Delta, I get free Wi-Fi." So word gets around.

Ed Bastian:

It does.

Karen Walker:

You've just talked very well there on one of the biggest challenges I think that the industry has. But of course there's a lot of challenges for the industry in general. You're also of course on the IATA board. Can you just briefly, I mean sustainability of course comes to mind, but maybe you'd like to just touch on that or other key general industry challenges that everyone needs to focus on for the next couple of years?

Ed Bastian:

No question. Sustainability comes to the top of that chart and all of us have described that as our existential challenge. We don't have a solution at the moment. Our dependence on fossil fuel and jet fuel is, 98% of our footprint is coming in the form of jet and we don't have any economic alternative at present. We do have some alternatives currently being developed in biofuels and some sustainable aviation types fuels, but they're coming at a tremendous cost, two to four times the price of what a cost of jet fuel is, which is not cheap in itself. And as a result, we don't have the capital that we can afford to do this through traditional conventional means.

So what you all need to do is make sure that our constituents are far beyond just the airline industry, reaching out to the energy producers, reaching out 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, which many, many people depend on sustainable travel to keep their businesses growing. And we're building coalitions and we've got a couple of good plans. One particularly that Delta's built up in Minneapolis, which I'm really excited by. And we have an opportunity, and I believe it's real, to take up to 50% of our jet fuel consumption in Minneapolis, that hub and turn it into a sustainable aviation product within the next 10 years, which is not that far when you think about how far we have to go.

But it requires a coalition of the willing and attract capital and attract interest and of course government support, not mandates, but government incentives to go in and invest alongside us. Because if you're an energy producer today, they want their role, well intention, and I know many of them very well, and they'll tell me, listen, we want our own refinery. So I understand that. Yeah. We'd be happy to produce and invest, but we're not confident that you can afford it. There's going to be a customer on the other end of it, which is true.

But 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 less than 10%, within 10%, sorry, of what the jet fuel marketplace is. And I think once we start producing that level of scale, that will put pressure on jet fuel prices, which will in turn incent people to want to invest in this space all the more. So it's going to take a lot of local initiatives. There's no global solution to this. It's going to take a lot of local initiatives and our Minneapolis hub, which we have a lot of great customers and a lot of support in the local Minneapolis marketplace, including the state of Minnesota, I think could be a model that people all around the world can look to.

Karen Walker:

So a lot of moving parts and a lot of cooperation essentially. And if you do all that on a local scale but then replicate it all around the world.

Ed Bastian:

It can be replicable, not everywhere, but in many large markets. You think about one of the other advantages that we have a refinery that's near our hub. We're centered in a large feedstock region. Being up in the upper Midwest in the heartland, we have companies like Cargill working as part of this coalition with us. We're looking to build a plant to recycle and to create the new product coming from the heartland because sustainable aviation fuel can't be transported through the pipelines. It has to be consumed as locally as possible. So by definition it's going to be local.

Karen Walker:

Ed, you've been so generous with your time today. I know you have so much going on, so I really do appreciate you talking with us. I also want to just wish you and team Delta continued huge success. It really is quite a story. As you say, it's not just one day or one year. It's that consistency that has built up year over year. It's fantastic. So I am personally greatly looking forward to presenting that Airline of the Year trophy to you on May 31st at the awards gala dinner in Dubai, so.

Ed Bastian:

I look forward to seeing you there and being with you. And as we say at Delta, we're ascending for the last 15 years. Keep climbing. We want to keep getting better and we want to keep not just for Delta, but for our industry, keep rising above the challenges and working together where it makes sense and working as marketplace competitors where it makes sense and just continuing to drive great outcomes for customers and our communities.

Karen Walker:

Excellent. Well, we're going to really celebrate all of that in Dubai, so thank you very much indeed. Thank you also to our producer Guy Ferneyhough and of course a huge thank you to our listeners for following Window Seat. Remember to follow us on Apple Podcast or wherever you like to listen. Until next time, this is Karen Walker disembarking from Window Seat.