As Delta Air Lines rakes in billions of dollars in profits, CEO Richard Anderson is increasingly flying a route less traveled and diverging from the rest of the industry.
As if to emphasize the point, Delta last week abruptly announced it would quit the leading U.S. airline industry lobbying group, Airlines for America, over differences on policy issues. Delta planned to depart next spring, but the trade group responded by telling Delta not to bother hanging around because its board had voted the carrier out immediately.
The unfriendly breakup comes as Delta, along with American and United, sits atop a markedly consolidated industry. It points toward the company’s — and Anderson’s — view of Delta’s size and influence nationally. Delta has not shied away from taking unpopular positions and ruffling feathers.
In its announcement, Delta said the $5 million it pays in annual dues to Airlines for America can be better used for its own business and to support “what we believe is a more efficient way of communicating in Washington on issues that are important to Delta customers and employees.”
“Sometimes carving out a leadership position means you break from the pack,” said Robert W. Mann, an airline consultant based in New York. “As a leader in the space financially, they feel they have the chops to take the stand…. Sometimes it makes sense to spend your own money your own way,” he said, noting that $5 million can go a long way lobbying in Washington.
Airlines for America’s dues are based on the size of the carrier, meaning larger airlines pay more, and a smaller airline may get a significantly larger voice through an association.
But costs were not likely the main driver for Delta, which had been a member for decades and just logged a record $1.3 billion third-quarter profit.
The airline said A4A, as the industry group is called, "failed to support Delta on several key issues" in recent years, including its contention that certain Middle East carriers unfairly get government subsidies, and issues with the Export-Import Bank. The U.S. House of Representatives voted Tuesday to revive the Ex-Im Bank, a defeat to critics including Delta.
A4A in a press release said Delta “has not been aligned with other A4A members on a few key industry positions.”
Those issues also include debate over the future of air traffic control.
Delta supports air traffic control modernization under the Federal Aviation Administration instead of creating a non-government entity to run the system — putting it at odds with the industry as a whole.
Anderson has worked personally with the FAA on modernization as chair of the NextGen Advisory committee, which makes recommendations on implementation of NextGen upgrades. The project would shift air traffic control from a ground-based to a satellite-based system, enabling more direct routes and other efficiencies. But cost and timetable concerns already dog the effort.
Uncharted skies
Anderson, 60, has a reputation as a bold and relentlessly competitive leader.
After succeeding Gerald Grinstein at Delta’s helm following a rough trip through bankruptcy court, he kicked off a series of huge airline mergers by acquiring Northwest Airlines in 2008. Three other deals — United-Continental, American-US Airways and Southwest-AirTran — followed, consolidating the industry.
Under Anderson Delta took the unconventional step of buying an oil refinery in a move to gain more control over the influence of fuel prices on airline finances.
His tenure has been marked by a long run of profits in an industry known for volatility. Anderson says he considers Delta’s peers to be not other airlines, but “high quality industrial transport companies” like UPS, FedEx and big railroads. It’s a higher standard from a financial performance standpoint that’s related to Delta’s effort to gain an investment-grade credit rating — a rarity for airlines.
Mann likened Anderson to Robert Crandall, American Airlines’ leader in the 1980s and 1990s.
“He was not a follower,” Mann said. “And in that respect I think Richard Anderson is carving out the Crandall mode here.”
More recently, Anderson has been emphasizing Delta’s operational performance and particularly, its ability to avoid flight cancellations.
He recently told employees that the company has had 185 days this year with no flight cancellations, excluding any by regional jet flights operated by Delta Connection partners.
“Our competitors in the U.S. probably look at that number and just wonder how we do it,” Anderson said. “Even if we tell them [how] they wouldn’t be able to do it.”
The low cancellation rate also created tension with other carriers, however. Delta recently ditched a standard industry agreement with American Airlines that included terms to accommodate passengers on each other’s flights during flight cancellations.
Delta said American was sending its passengers to Delta at a five-to-one ratio and that the deal “was no longer mutually beneficial” given its own “industry-leading” performance.
Unified voice
A4A president and CEO Nicholas Calio said in a written statement last week that the association is “most effective advocating for the traveling and shipping public when we speak with a unified industry voice.”
American CEO Doug Parker, chair of A4A’s board, said the group “will continue to be more effective as an industry advocating for our customers and employees with a unified voice in Washington.”
Some of the disagreements leading to Delta’s bail-out highlight conflicting priorities that players in the same industry can hold.
For example, JetBlue did not agree with Delta and other airlines in their criticism of the Mideast carriers. JetBlue, which is not part of a global alliance like Delta, United and American are, has partnerships with the three carriers at the center of the debate.
Meanwhile, in the fight over the Ex-Im Bank, Delta butted heads with Boeing — a major aircraft supplier — and that’s a fight no other airline has taken on in such a way.
Anderson served as chairman of A4A just three years ago, and was a vocal advocate for the association and its agenda. Anderson and Calio led a name change to Airlines for America — doing away with the previous name, Air Transport Association — and pushed for priorities like a national airline policy.
More recently, though, Anderson had stopped attending A4A meetings.
George Hamlin, of Fairfax, Va.-based Hamlin Transportation Consulting, said that as disputes accumulated, Delta executives may have faced the question, “Am I carrying some of my competitors or the rest of the industry? That’s probably outside of my fiduciary duty to my shareholders.”
“Anderson and his team are running a company for its sake,” Hamlin said, “not for the industry’s.”
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