DEL.ICIO.USNo autopilot for Delta CEO on merger, fuel costs
Deeper problem, says Richard Anderson, is how airlines mirror economy.
The Atlanta Journal-Constitution
Tuesday, September 02, 2008
One year into Richard Anderson’s tenure at the helm of Atlanta-based Delta Air Lines, the company is on the brink of becoming the world’s largest carrier through its purchase of Northwest Airlines. But some of the biggest challenges may be yet to come. Delta and other carriers are flying through a turbulent period in the airline business, including high fuel costs and a weak economy. And Delta still has a number of hurdles to overcome to complete its merger.
Fortunately for Anderson, he isn’t entirely new to airline mergers.
Vino Wong/vwong@ajc.com/Staff Photographer
In his first year as Delta Air Lines CEO, Richard Anderson, 52, has overseen major cutbacks,international expansion and a merger with Northwest Airlines.
As a junior attorney in his first airline industry job, Anderson was at Continental Airlines when executives pulled off a merger combining Continental with People Express, Frontier Airlines and New York Air in 1987.
“At Continental, I saw it firsthand,” Anderson said.
Now, just more that 20 years later, he’s overseeing a merger of his own.
Even before he officially stepped into the chief executive position at Delta on Sept. 1, 2007, speculation was rampant that he would move to acquire Eagan, Minn.-based Northwest, where he was chief executive three years earlier. In April, the two carriers announced their deal.
Shareholders are scheduled to finish voting on the deal at shareholder meetings Sept. 25. For the U.S. Justice Department review of the merger, Anderson said Delta has submitted about 10 million pages of documentation and expects a ruling by the end of the year.
Once the two carriers combine, Anderson said the Atlanta headquarters will be larger, though the company will retain executive offices, reservation centers, a data center and flight- training facility in Minnesota; and some employees from Atlanta may move there. Anderson, a native of Galveston, Texas who comes off as friendly with a down-home tone, often talks about the importance of retaining Delta’s culture in the merger. The airline’s family-like environment has evolved over decades.
But Anderson’s policies and descriptions from some who work closely with him paint a picture of a leader with a different style — one who closely oversees operations, takes more of a no-nonsense approach and isn’t afraid to make unpopular decisions.
When Anderson summarizes accomplishments during his first year at Delta, along with the announcement of the merger he ticks off a laundry list of statistics and details on everything from customer service rankings to unit revenues. He has some regrets, saying he wishes Delta had hedged more of its fuel cost and reacted more quickly to adjust to high fuel prices and a weak economy.
“Richard is incredibly hands-on, very operational, and that is a change” compared with previous Delta chief executives, said Delta president and chief financial officer Ed Bastian.
In a document called “Rules of the Road,” one of the first Anderson distributed at Delta after he arrived, Anderson writes: “We run a meritocracy…. No ‘new jobs’ for non-performers.”
He also instructs: “Always be collegial even in tough conversations.”
One of those tough conversations came when Delta moved to terminate Delta Connection contracts, including with Mesa Air Group’s Freedom Airlines. Mesa sued Delta, and a judge ruled the airline must resume the flights pending a trial.
Anderson will also face scrutiny from others watching to see how the airline lives up to its promise to not cut any frontline workers as a result of the merger or eliminate any of the combined carrier hubs. Delta is already shrinking its hub in Cincinnati by 22 percent this fall compared with a year earlier, among other cuts.
“I think the jury’s still out on what kind of leader he’ll be for Delta,” said Cathy Cone, head of a group of retired Delta employees. “It’s going to be a real challenge to merge the two companies.”
Integrating two airlines whose operations sprawl across the world is a monumental task, involving the combination of everything from fleets to flight schedules, work forces and information-technology systems.
“We want to get the merger done and get it successfully integrated,” Anderson said. But that’s not his only major challenge. “The issue that we face perennially in this business is this unbelievable cyclicality,” Anderson said.
Historically, the health of the airline industry tends to mirror the economy: When the economy is weak, the airline industry suffers, and when the economy is strong the industry benefits.
In the second quarter of this year, Delta lost $1 billion, after recording $1.2 billion in special charges for write-downs, severance and closing some facilities at airports. Excluding the special items, Delta reported a $137 million profit. A year earlier, Delta had a $274 million profit, excluding special items.
Anderson said Delta must grow revenues 8 to 12 percent a year while improving cost efficiency by 5 percent a year — even when it’s cutting back flight capacity. Delta can accomplish that, he said, through the Northwest acquisition, and through growth of other businesses such as cargo and maintenance.
He hopes Delta will be consistently profitable by 2010.
To cope with the financial strain, airlines including Delta have been raising fares and tacking on fees this year.
For Hartsfield-Jackson International Airport general manager Ben DeCosta, the additional fees are only one of his concerns. He believes the fees reflect on the airport’s customer service rankings.
“I think people are tolerating it. But I think, across the board, people are not happy about it,” DeCosta said.
Of Anderson, DeCosta said, “He’s got such a tough job.”
RICHARD ANDERSON FILE
• Job: Chief executive officer of Delta Air Lines since Sept. 1, 2007.
• Age: 53.
• Born: Galveston, Texas.
• Education: University of Houston, B.S., 1977. South Texas College of Law, J.D., 1982.
• Work history: Anderson started his airline career at Continental Airlines in 1987. He moved to Northwest Airlines in 1990 and rose through the ranks to become chief executive in 2001, a position he held until 2004. Anderson then became an executive at UnitedHealth Group. He returned to the airline industry last September as chief executive of Delta, where he has been a board member since May 2007.
• Biggest accomplishment at Delta: Orchestrating a deal to acquire Northwest Airlines.
TO DO LIST
On Delta CEO Richard Anderson’s to do list:
• Get Delta and Northwest shareholder approval of the acquisition of Northwest Sept. 25.
• Get U.S. Department of Justice approval for the merger by the end of the year.
• Close the deal shortly after Justice approval.
• Combine the two carriers smoothly and efficiently over the subsequent two years.
• Continually adapt to high fuel costs and bring the airline to consistent profitability.
• Improve customer service to get the top ranking among network carriers in J.D. Power’s airline customer satisfaction rating.
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