Delta’s CEO explains why your Sky Club is so crowded

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Brian Kelly: What’s up, my favorite Talking Points listeners? I’m Brian Kelly, The Points Guy. And today is Episode 2 of our special Delta week. If you haven’t heard, Episode 1 dropped with some exclusive Delta SkyMiles and Amex news. Amex and Delta announced they’re completely revamping their entire portfolio of co-branded credit cards starting this January, but we have the news now, so make sure you check that out. And then head over to thepointsguy.com/deltacards for all the details in text on what’s in store for their whole co-branded portfolio.

Brian Kelly: But on this episode you’re in for a treat. We recently stopped by the Skift Global Forum, which is the largest travel industry intelligence and marketing platform on the planet. They provide news, info, data and services to all sectors of the industry, and that includes airlines. So lucky us, we got this exclusive one-on-one time with Ed Bastian, the CEO of Delta Air Lines. We talked economy:

Ed Bastian: Over the last two years, we’ve been in the top 25% of growth companies in the Fortune 100, Delta Airlines has.

Brian Kelly: Delta’s future:

Ed Bastian: The biggest thing you’re going to see at Delta is you’re going to see the face of our airports change dramatically.

Brian Kelly: And more:

Ed Bastian: We made a decision as a company to freeze our carbon footprint at 2012 levels a number of years ago. And to this point, we’ve grown as an airline 25%, yet our carbon footprint has remained intact.

Brian Kelly: Here’s Episode 2 of Delta Week on Talking Points, with Ed Bastian, the CEO of Delta Air Lines.

Brian Kelly: Today we’ve got the CEO of the largest airline in the world, by revenue at least — the CEO of Delta Air Lines, Ed Bastian. Ed, thank you so much for joining us.

Ed Bastian: Thank you, Brian. Good to be with you.

Brian Kelly: You’ve been at Delta for a while now. And Delta outpaces its major competitors in a lot of different metrics, from on-time arrivals…. And as a frequent flyer, if you ask around the TPG office, there are tons of hardcore Delta loyalists. How do you describe the success you’ve had at the airline and the performance in competition to your peers?

Ed Bastian: Well, you know, when you go through a restructuring process like we did, it’s pretty humbling. You wind up asking yourself what’s really important, how did you get in trouble as an industry — and it wasn’t just Delta, the industry went through a very difficult restructuring phase. And it was very clear to us (that) one of the reasons why we got into trouble was we lost the connection with our own people. The Delta people are everything in our industry. We love to talk about our industry, about the planes and the technologies and the airports. And everybody has all the same. It’s truly the people that make the difference, that put the exclamation point on the service, and so we need to get back with our people. And so when we went through the restructuring, we also said that we need to get bigger also, because we went through this hostile takeover attempt with US Airways.

Brian Kelly: Yep.

Ed Bastian: So the first thing we did was we got out and we bought Northwest, so that we had a complementary partner that we could go to market with. And to this day you have those Northwest — not just the leaders, but also the territories and the regions and Minneapolis and Detroit and Tokyo and Asia — it has been powerful in terms of transforming Delta.

Ed Bastian: We needed to give our employees the tools to do an awesome job with reliability and performance. That first year following the merger with Northwest, we internally called it the summer of hell, in 2010. We had airplanes constantly out, constantly broken, a lot of cancellations. We had 6,000 cancellations that year alone for maintenance. We said, “We’ve got to cancel cancellations.” And I’m proud to say this past year, our maintenance cancellations were down to 60. 6-0..

Brian Kelly: Wow.

Ed Bastian: From 6,000 to 60.

Brian Kelly: Wow.

Ed Bastian: So a 99% improvement in maintenance performance.

Brian Kelly: And when you said “giving your employees the tools,” was that investing in the actual workshops? Investing in the technology that they have on their hands to identify maintenance issues before they become a cancellation?

Ed Bastian: Well, a lot of predictive engineering technology, just a lot of root cause analysis as to what was failing. Having the right tooling, having the right parts on hand where they were needed rather than having to wait six hours for a part to be shipped to a different location. And really engaging the people. And it took us years to go from 6,000 to 60. It wasn’t overnight. But what it did is it provided a foundation of reliability. So this past year we had 250 days of the year without a cancellation for any reason — maintenance, weather or any reason. No one in the industry is starting to get anywhere close to that.

Ed Bastian: And the other thing, Brian, that we did is that culture and values and the spirit of service is really precious and something that I always think is our most important competitive advantage. When you give people that are really passionate about serving customers a crappy product to serve, they get angry.

Brian Kelly: Yeah.

Ed Bastian: They get angry, right? They’re angrier than the customers. They’re not good at apologizing. They’re not good at trying to explain what went wrong.

Brian Kelly: Mm-hmm.

Ed Bastian: They want to make things right for the customers at all times. And so we talk about losing the heart of your people. The easiest way to lose the heart of people who love to serve, is by giving them something that they can’t serve with. So when we eventually got to the point where the tools and the reliability and the performance, they were just so engaged with us. And they allowed us to put up kind of a punctuation point — a smile — on the service level.

Brian Kelly: Delta gives profit-sharing to employees. Recently you gave what, a 4% bump across the board to most of your staff? How much of that plays into them being happy versus the good product and all of the other things? Is the profit-sharing key to Delta’s success?

Ed Bastian: Well, two things. First of all, we’re committed to our people (to) get the best pay. They’re the best performers; they need to have the best pay. The 4% increase went to recognize our people in a couple of categories to make sure everybody knows that we feel like they’re the best performers at what they do and are compensated accordingly. But even more important than the pay, even more important than the profit-sharing, is they want to win. They want to have the tools and the support and the investments, whether it’s in having an improved catering process… Catering is still an area that we have a lot of opportunity to improve in, whether it’s in wheelchair service for customers…. Now you’re down to the smaller items. We’ve got the bigger issues fixed. And these are the things actually that are drawing my attention. How do we make certain the cabins, while they’re clean, are even cleaner? How do we make certain that all parts of the family, not just the Delta employees but the contract staff, are engaged with us to provide a better service experience for our customers?

Brian Kelly: Some airlines, I won’t name them, are cutting back on cleaning. And how do you pitch it to your board, because you’re a publicly-traded company, that it is in the best interest of shareholders to invest in these things, even though they’re quite costly to do that? I know other airlines, it’s everything is just numbers on a spreadsheet. And it seems like Delta takes a different approach. Do you think you’ve earned that credibility from the board now to know what the long-term investment is?

Ed Bastian: We certainly have. And our strategy as a company is to be a premium brand, is to derive premium revenues and take that premium that we get and reinvest it back into the business in technology and cleanliness and airplanes and airports, wherever we can. And each of the last 10 years we’ve been doing that. So we’re on a journey to continue to get better. You know the one thing that, when you’re on a continuous improvement journey, (is) you realize is that there’s always more to do. There’s always improvement you can make. And then we continue to see the improvements come and our customers recognize it. Our people are happier about it. They see that we care about their work conditions. We care about what their break rooms look like. We care about that there’s adequate reserves for them to be able to work a difficult summer schedule. We care about the technology in their hands that it works.

Ed Bastian: A few years ago, we had a fire in our technology center, right? And we’ve got a brand new facility up. So there’s a lot of things people don’t see that go on behind the scenes. It’s all focused on providing the best opportunity for your people to win financially, quality of work, and then get out of their way and let them delight customers. And that’s the secret sauce.

Brian Kelly: I was recently at your headquarters and was blown away by the tech ops. And you now have an engine repair business that seems to be booming. You have an oil refinery. Is it safe to say Delta Airlines is now a parent company for so much more? And are there going to be new investments in non-actual airline activities? Do you plan to open up more engine repair shops?

Ed Bastian: We do. The MRO business that you’re talking about is the largest in North America. And we’re going to double that in the next few years. And there will be organic growth opportunities as we build out our engine specs on the new gear turbo fan and the new Rolls Trent platforms. But there could be acquisition opportunities to fold in there. I don’t know. It’s something that we think about. We always want to make certain that the acquisitions and the growth of the enterprise are adjacent to what we do. They’re not unique in themselves. So the refinery, while it’s unique, the reason we did it was to try to reduce our fuel costs. And we’ve done that by putting more supply into the market. And it’s kind of kept our jet fuel cost at bay, which has allowed us to keep our pricing to customers at bay and continue to grow the airline.

Ed Bastian: You’re going to see us look at mobility in a broader sense. Mobility is so important in everything you see. In the technology world a lot of it’s centered on mobility. Well, mobility affects us in various ways. But the core is a lot about, kind of, what’s going to make the experience of our people better, and that’s why we do what we do.

Brian Kelly: What’s most exciting to you looking five, 10 years out in the travel experience? From Hyperloop or driverless cars to drones taxiing people from Hartsfield Airport to downtown. What do you think in reality as travelers we can expect to see in the next five years?

Ed Bastian: So I have a little more pragmatic vision. Over the next five years I don’t think you’re going to see Hyperloop taking over the Downtown Connector. I’d love to see it happen, I just think it’s much further out. But what I think the other biggest thing you’re going to see at Delta is you’re going to see the face of our airports change dramatically. We’ve done a lot to improve the flight experience for our customers. The seats, the product on board, the cabin environment, the service they receive, the Wi-Fi, the entertainment options on board.

Brian Kelly: Mm-hmm.

Ed Bastian: But it’s the airports. It’s where the bottleneck is. That’s a stressor for our customers. And we’ve got new airports going up in LaGuardia, in LAX, in Salt Lake City, in Seattle. We’re modernizing Atlanta and Minneapolis, and Detroit’s going to get a face-lift at some point. And we’re creating, even in the smaller markets like the Raleighs and Austins, kind of looking at what we can do there to enhance the facility. It’s not just the airports. It’s the clubs. The environment that we have for our premium customers to go into the lounges and be able to escape the airport just a touch and provide a little calm. It’s going to take a number of years. It’s the most difficult construction that exists because you’ve got to build on top of your operation real-time while you’re running at peak levels. But the product, at the end of the day, I think is going to be amazing. We’re going to change the security apparatus. Our airports were built for the 1960s environment. And we’re building for truly the next century.

Brian Kelly: You know, speaking of clubs, I think that is probably Delta’s Achilles’ heel today. I fly all the major carriers. United’s Polaris lounges are pretty stunning. Sit-down service and a true business class, non-crowded environment. American has done a pretty good job with Flagship, especially dining, for first-class customers.

Ed Bastian: Yup.

Brian Kelly: I think the Sky Clubs, they can be packed. It’s a one-size-fits-all sort of experience. It seems like you’re alluding to that changing. How quickly can Delta One Suite passengers expect a personalized experience away from someone?

Ed Bastian: That is contemplated as part of the rebuild of the airports. So whether it’s in LaGuardia, whether it’s in LAX, whether it’s at JFK, whether it’s in Atlanta, we have plans in all of those big markets, the big international markets and gateway services, to create the Delta One experience. You’re right. We’re a victim of our own success. People want to be on Delta. We’ve made the lounges another reason why to be in, and now they’re crowded. And we’ve got to find more space and we’ve got to build out together with our partners. American Express, what they’re doing with the Centurion Lounge, is a perfect example. We can be side by side with them in some markets. Airport space is at a premium. And it’s tough to allocate the kind of lounge space that you’d really like given the limitations in the gate plots. But as we create bigger gate areas and bigger gate holds, because they’ve talked a lot about flipping the airport around, people don’t need to be spending time in lobbies anymore. They want a first point of contact. They want to make us with the security process, get through security, and then have a much bigger gate plot to serve and provide amenities. We’re going to be doing that in the next few years.

Brian Kelly: Speaking of victim of your own success, the new Delta One Suite, I just flew it on a 777 from LA to Atlanta the other day, and it’s a great product. I was on the first flight to Tokyo when the A350 launched. That being said, Delta was the first to have lie flats across, 100% lie flats across the Atlantic. But now when you look at those 767-400s, and the tiny seat that sinks into the ground, compared to your new seat, it’s a huge delta, no pun intended. Are you happy with the speed of refurbishments and …

Ed Bastian: We’re going fast. The 767-400 is in the process of being refurbed as we speak.

Brian Kelly: Mm-hmm.

Ed Bastian: So by the end of this year, those 400s are going to be rolling off the assembly line. And by next year they will be complete. You’re right. The 400s were the very first product that we put the lie flats on. So it’s a lot of generation of improvement …

Brian Kelly: I’ve flown them many times.

Ed Bastian: Many times, and I have too. 10 years ago it was pretty cool.

Brian Kelly: Yeah.

Ed Bastian: Today, it’s pretty tired. And we recognize that. But the new experience is going on all of our international aircraft.

Brian Kelly: Speaking of aircraft, do you miss the 747?

Ed Bastian: I do. I do a little bit. I love that upper class. And I spend a lot of time in that airplane. I made a lot of trips to Tokyo when we first bought Northwest to get to know the market and we were doing something with JAL. I think one year alone I made almost 15 trips to Tokyo. So I spent a lot of time on that old seat, which is one of the reasons it was one of the first airplanes that …

Brian Kelly: Upper deck — was it 62K or, no …

Ed Bastian: Yeah.

Brian Kelly: I forget which…

Ed Bastian: yeah …

Brian Kelly: My first time to Japan, I flew Delta both ways.

Ed Bastian: This is a business cabin seat that certainly wasn’t Delta One or it wasn’t even a flatbed, but when we put the flatbeds in, it made it a private experience. Really. I thought that was classic.

Brian Kelly: I have to ask: So, I’m an A380 lover and no U.S. airline ever did will order it. Did Delta ever seriously consider the A380 for the fleet?

Ed Bastian: No.

Brian Kelly: No.

Ed Bastian: We have partners who have it. And I love the airplane, I fly it a lot. It just doesn’t make economic sense.

Brian Kelly: Some of the things you must be thinking about is an economic downturn, there’s also environmentally flight-shaming that’s now kind of taking off in Europe. What are the biggest threats to your business? Is it the economy? Is it the environmental impact of flying?

Ed Bastian: Well, those are two important factors. Certainly sustainability is key. I think that is an existential threat and we’re doing an awful lot replacing planes rapidly. Every airplane we take out of the sky and put a new airplane in is 25% more fuel efficient. This year we’re going to have 80 new airplanes entering the fleet. Next year we’ll have another 80. We’ll have the domestic fleet renewed here over the next couple of years.

Ed Bastian: We made a decision as a company to freeze our carbon footprint at 2012 levels a number of years ago. And to this point we’ve grown as an airline 25%, yet our carbon footprint has remained intact. I mean that’s one of the things we’re doing and eventually we need to reduce it. But any growth we have as a company is being offset. And whether it’s through the new engine technologies through a use of biofuels, which we’re starting to learn and invest in, or elimination of single-use plastics, electrifying our ground equipment. Those are all things that are contributing every year to kind of 1-2% year-over-year improvement in overall fuel consumption. Fuel is 98% of the footprint that we create. So it’s appropriate that we take this thing, and I think get much greater visibility towards what we’re doing and much greater accountability as a result.

Ed Bastian: On the question on the economy, the economy is doing well. The question wherever you go (is), “How long can this last?” And it continues to last. The U.S. consumer is healthy, the U.S. consumer drives the majority of our business, it drives — 70% of the U.S. economy is the U.S. consumer. Travel is — you know better than anybody — is a huge growth vehicle. People think about travel and the airlines specifically as a relatively mature industry that’s gone through a lot of volatility and a lot of difficult times. I see its future as really bright. Over the last two years we’ve been in the top 25% of growth companies and the Fortune 100, Delta Airlines has, and we’re continuing to grow this year. We’re growing at 7% a year in terms of total revenues. Our economy may be growing 2%. So think about that. Where in the old days we used to try to meter our growth based on where GDP estimates are, we’re now expanding for lots of good reasons. Customers are demanding the opportunity to fly.

Brian Kelly: I mean, it’s a great time for airlines. Growth is good, economy’s good. I do want to bring up the Middle East airlines and versus the U.S. airlines. It almost seems as a flier — and I fly all airlines for our business — it seems the battle, it seems kind of unnecessary, especially since the Middle Eastern airlines are not having as good of economic fortunes as you. And I know the recent White House meeting that you didn’t go to, does that signal that this fight really isn’t as important as some parties make it out to be? Or truly are the Middle East big three an existential threat to the U.S. economy or airlines?

Ed Bastian: There’s no question they’re an existential threat. And no, I don’t think anything has cooled relative to our interest here. What changed was last year the administration signed agreements with the UAE as well as with Qatar that would essentially lock down any growth they’d have in what’s called “fifth freedom flying.” While we have basis to object to their flying from the Persian Gulf to the U.S. as many times a day as they do, all subsidized by their governments, that is what it is. What we cannot have is them using “fifth freedom” rights to fly from Europe to the U.S., from Asia to the U.S., from other parts of the world to U.S., and bypass the traditional routings of not just the U.S. airlines, but the international airlines as well. That would be an incredibly inappropriate use of subsidies.

Ed Bastian: You mentioned the 380 — the 380’s a plane you love. Unfortunately, it’s done now. And the reason it’s done is because it was built on false economics. It was built on subsidies. The Emirates, the UAE subsidized that airplane. They built their entire business model around that airplane. It couldn’t go anywhere else to any place that wasn’t subsidized. No one had the financial might to make it work. Open skies is predicated on free and fair competition, giving both parties the opportunity to compete without interference. Well, when you got $50 billion of subsidies that you’re fighting against … So the threat long term is less the Persian Gulf. It’s more if these airlines decide to fly from Paris to New York or from Frankfurt to Atlanta or from Munich to San Francisco, what are we going to do? Are we just going to turn over? Because they’re all subsidized, they’re all paid for by the government. And are we just going to turn over our traffic rights to these carriers? I don’t think so. And that’s the fight. And that’s why we’re watching Air Italy, which is performing miserably. They’re losing hundreds of millions of dollars, and hopefully it will fall under its own weight. But we got to have transparency and accountability. Tariff issues are a big deal in the world today, whether it’s China or the WTO. We thinkour issue here is really important for the future of the U.S. aviation industry.

Brian Kelly: All right, let’s take a quick break right here and we will be back.

[Commercial break]

Brian Kelly: Switching gears a little bit. So you just signed a new deal with Amex and we’ve got a lot of the Delta Amex customers. That’s a huge driver of growth for you in the co-brand space. How do you keep that growing? With capacity on planes increasing a certain amount each year but with so many new co-branded cardholders?

Ed Bastian: Well, you know, we are the fastest growing segment of the entire American Express portfolio. We are, I think close to 25% of their revolver portfolio that they maintain is sourced out of Delta. The growth of the Delta brand, that Delta card is lock and step with American Express’ growth as an enterprise. So I think we both have that opportunity. And when you take a great brand like American Express and all the value in the brand and the creativity of its people with Delta together, we’ve got great ideas. We’re going to be looking at what we can do to continue to launch and relaunch the platforms and there’s work that Sandeep and the team are doing there.

Ed Bastian: You look at acceptance. Amex still has a lot of opportunity internationally to enhance acceptance and they’re going there. Consumer spend, as I mentioned, is healthy, particularly in the U.S. Amex is growing close to double digits year on year. The Delta portfolio is growing on top of that at an even higher rate. So customers love the value that the card provides, they love the fact that they’ve got Amex standing behind it. And it’s our responsibility to give customers even greater value for the currency. And that’s why you see us investing in using currency for other means — not just the purchase of frequent flyer trips, but also purchases on Delta or purchases for upgrades or anything else that you can think a currency could be utilized for

Brian Kelly: And even CLEAR, I know you guys invested, what, 7% into CLEAR? CLEAR is in a lot of the Delta airports expansion and acceptance on that platform is still key for a lot of people. Is that something you’re pushing, CLEAR to be in more and more airports?

Ed Bastian: Yeah, they are. They are anxious to be in more and more airports. It’s really some of the airport authorities have space limitations to kind of carve out. And it’s seen as a premium service in a lot of airports, authorities don’t necessarily think that CLEAR should be given preference over some of their other security queues. So we’ve got it in most of our major cities and that’s something you’re going to continue to see expand. We’ve done well with that investment. We’ve already monetized a portion of it. It’s good to see United come in. It’s not a platform that we think should be exclusive to Delta.

Brian Kelly: Waiting in lines less is a good thing for everyone. All right, let’s end it with some fun things. Delta is expanding the route map. I was actually originally booked on the JFK-Mumbai inaugural, but I had to move my trip up. And Delta flies with tons of destinations. What Delta destination do you fly to to get away from it all?

Ed Bastian: West Palm Beach, Florida.

Brian Kelly: West Palm Beach.

Ed Bastian: I’ve got a home down there.

Brian Kelly: Nice.

Ed Bastian: When I’m in West Palm Beach, everything is better.

Brian Kelly: And final question, when you’re flying in economy on Delta, are you a window or aisle seat person?

Ed Bastian: I’m very much an aisle seat.

Brian Kelly: Yeah. I guess that gives you a better vantage point of what’s going on.

Ed Bastian: But I’ve been sitting in 33E a number of times recently, so I find the middle seat more than you would imagine.

Brian Kelly: What, do you get the 1,000 SkyMile bonus for the middle seat?

Ed Bastian: I don’t even get that.

Brian Kelly: Do you have a SkyMiles account?

Ed Bastian: I do not. Actually I shouldn’t say that. I do, but I haven’t looked at it recently.

Brian Kelly: Ed Bastian is a miles hoarder. We got to change this. You’ve got to use those miles. No.

Ed Bastian: Yeah, no, I fly coach because I like to see what’s going on. I think it sends the right signal to our customers as well as our own employees in terms of how we, we value our customers’ time and seats. But I always walk away with interesting stories. People spot me back there and … all the time, I never get away with it. And it’s engaging. They find it entertaining. And I meet a lot of people. A lot of our customers that fly out front for business are flying in the back for personal or other use, or using miles, or whatever they do. And so there’s always a good interchange between the cabins. It’s nice for us to be humble and human, and I think people are entertained by that.

Brian Kelly: Certainly. And one final question. So it was announced you’re going to be keynoting CES, the Consumer Electronics Show in Vegas, in January of 2020. The first time an airline CEO is ever keynoting. Do you know what you’re going to say yet?

Ed Bastian: I do, I do.

Brian Kelly: Can you give us any hints?

Ed Bastian: The theme is we’re going to be putting the C back in CES. Putting the consumer back into the electronic show. I was out there last year and I shared the stage with Ginni Rometty of IBM and that was part of her keynote. And the one thing I walked away from (it with) is it’s really very much about a lot of electronics, a lot of mobility, a lot of gizmos, very little about the consumer. We’re bringing the consumer back into electronics and making the consumer travel experience that much better.

Brian Kelly: Awesome. Ed Bastian, thank you so much for joining us on Talking Points and safe travels.

Ed Bastian: Thanks, Brian. Good to be with you.

Brian Kelly: Many thanks to Ed Bastian, CEO of Delta Airlines and his awesome team on the ground at Skift Global Forum. Skift Global Forum, now in its sixth year, is the largest creative business forum in the global travel industry, with more than 1,100 attendees from 40 countries and more than 550 companies.

Brian Kelly: This episode of Talking Points was recorded at The Shops at Columbus Circle, located in the heart of Manhattan. It offers some of New York City’s best shopping, dining, entertainment, and views of this beautiful city and Central Park. It’s an iconic indoor and public destination that attracts over 16 million visitors, both New Yorkers and tourists, annually. It’s the place to dine, shop, live, entertain, work and be entertained.

Brian Kelly: Thanks to my own team at TPG: my amazing assistant, Christie Matsui, Scott Mayerowitz on our editorial team, Wallace Cotton on our social and community team, and Nat Row on video podcasting. And to my podcast crew: Margaret Kelly and Caroline Schagrin, you guys amaze me. I’m Brian Kelly. Safe travels.