As the 1980s came to a close, Delta Air Lines seemed to be a model for the industry.
– It finished the decade with the healthiest balance sheet in the airline business.
– It survived the decade-long shakeout, rattle and roll of airline deregulation and emerged as the nation`s third-largest carrier.
– It consistently received the fewest complaints from airline passengers, according to U.S. Transportation Department records.
– And it was chosen as America`s favorite airline just about every time a magazine or consumer group polled frequent travelers about which carrier they preferred to fly.
Nevertheless, Atlanta-based Delta entered the 1990s as the Rodney Dangerfield of airlines.
Despite the accolades, the fiscal health and the No. 3 position in the pecking order, Delta just wasn`t getting much respect or attention from a lot of Wall Street airline analysts, from the news media outside of the Southeast or even from some of its peers in the industry.
As late as last spring, they mostly regarded Delta as little more than a genteel southern homebody with few aspirations beyond being a top-notch domestic carrier primarily serving travelers bound to or from the Southeast.
The perception was that the fight for global supremacy in the airline industry was going to be a two-airline race between the nation`s two largest carriers-American and United. Delta, just about everyone thought, would be content to stay home in Atlanta and stick to its knitting.
But no one is thinking that way anymore.
Following some uncharacteristic wheeling and dealing by its management, Delta last summer won bankruptcy court approval to buy the assets of a broke Pan American World Airways.
After outbidding American and Trans World Airlines and plunking down nearly $1.4 billion, Delta bought Pan Am`s prized routes between New York and Europe, its German hub in Frankfurt, routes to London from Miami and Detroit, and the East Coast shuttle that Pan Am operated between Boston, New York and Washington, D.C. In the process, Delta absorbed about 7,800 Pan Am employees. The deal catapulted Delta into the race with American and United for dominance of the international airline market. In fact, according to some industry insiders, it put Delta in position to eventually surpass both carriers.
”In the past, they perhaps were sometimes too methodical and analytical in deliberating whether an acquisition would fit their needs. Consequently, they undoubtedly lost some good opportunities for growth,” said Harold L. Sirkin, a vice president of Boston Consulting Group Inc. in Chicago, which provides management consulting to the transportation industry. ”This time, however, Delta pulled off a heck of coup.”
Virtually with a stroke of the pen, Delta got from Pan Am access to more destinations in Europe than any other U.S. carrier. In addition, it obtained the rights to provide service from Frankfurt to points in the Middle East, Africa and Asia.
Such a deal would have been unthinkable 67 years ago when Delta got its start as a crop-dusting service in Monroe, La. In fact, officials at the airline`s sprawling, campus-like headquarters next to Atlanta`s Hartsfield International Airport are fond of telling visitors that had the boll weevil not come up from Mexico before the turn of the century to devastate the cotton fields of the South, there might not have been a Delta Air Lines.
The Pan Am deal also would have seemed preposterous to many industry observers even as the current decade began to unfold.
As the industry entered the `90s, American and United alone were doing the wheeling and dealing. Their appetite for acquiring routes and assets of financially weak carriers was voracious, and their willingness to spend billions of dollars to dominate international air travel with routes to Europe, Asia and Latin America seemed boundless, even as the economy showed signs of faltering.
By contrast, Delta`s concentration on customer service, strengthening its domestic route system and expanding slowly overseas seemed to many about as exciting as watching magnolia blossoms wither under a Georgia sun.
”It doesn`t bother us not to be perceived in the same light as American or United,” said W. Whitley Hawkins, Delta`s 59-year-old president and chief operating officer. ”We`re aggressive. It`s just that we`re not flamboyant about it as some of our competitors are. We`re laid-back aggressive.”
By mid-1990 Delta had established routes from the U.S. to 29 cities in 13 countries around the world, including England, France, Ireland, Japan, Korea, Mexico, the Netherlands, Germany, Taiwan and Thailand.
By mid-1991 it added service to six new foreign destinations: Berlin;
Copenhagen; Hong Kong; Manchester, England; Nagoya, Japan; and Toronto.
As a result of its acquisition of Pan Am`s European and Middle Eastern routes, it now serves 57 foreign cities in 34 countries, including Russia, Poland, Romania, Czechoslovakia, Israel and Turkey.
That kind of growth internationally ”will continue at a steady, controlled pace in the decade of the 1990s,” says Ronald W. Allen, Delta`s 49-year-old Georgia-born chairman and chief executive.
Meanwhile, Delta has expanded its domestic route system to the point where it serves 163 U.S. cities. Its hubs, in Atlanta, Cincinnati, Dallas-Ft. Worth, Salt Lake City, Los Angeles and Orlando, are strategically well-placed, according to industry insiders and analysts.
Even so, the carrier is developing additional hubs at Boston`s Logan International Airport and at John F. Kennedy International Airport in New York.
”The only hole in their system, perhaps, is a lack of a hub in the upper Midwest,” said Boston Consulting`s Sirkin.
Furthermore, Delta is not exactly a newcomer to the growth-by-acquisition game. In fact, it made its first purchase of another carrier almost 40 years ago, when it acquired Chicago & Southern Airlines in 1953.
Nearly 20 years later, in 1972, Delta acquired Northeast Airlines and in 1987 it quietly merged with Western Airlines, a move that let Delta expand its operations on the West Coast.
Having been ignored, in fact, has perhaps worked to Delta`s advantage, according to some industry insiders. Because no one really took notice of its growth, none of Delta`s competitors bothered to seriously challenge it.
Being ignored is one thing, but being criticized can be harder to take. And Delta was subjected to a lot of criticism as the industry shakeout heated up on the approach to the `90s.
The criticism came not from its customers, but from some industry insiders, including some who had worked for Delta.
The airline`s failure in the `80s to use its size and considerable financial muscle to whomp its rivals while they were still relatively weak was a mistake, these critics argued.
Delta, they said, was slow to innovate, reluctant to take risks and unwilling to take advantage of a deregulated environment to assert its dominance.
As a result, the critics complained, Delta was nothing more than a sleepy, plodding dinosaur, a gracious, charming dinosaur befitting its southern roots, but a dinosaur nonetheless.
Even when American and United began their bids for global supremacy, Delta was content to sit on the sidelines, the critics said.
Worse yet, they said, Delta didn`t even appear to have the stomach to defend itself against forays by American and United on its Southeast turf.
When American established hubs in Raleigh-Durham and Nashville, marketing them as alternatives to flying into Delta`s principal Atlanta hub, Delta appeared not to notice, the critics said. The same thing happened when United set up hub operations in Washington, D.C., and in Orlando, they noted.
In a 1988 book entitled ”Delta Airlines: Debunking the Myth,” author Sidney F. Davis, a former Delta attorney, took his former employer to task for letting competitors ride roughshod over it in their quest for industry dominance.
Delta, he wrote, is a ”chivalric anomaly, a `gloves-on` competitor.”
”If there was a Marquess of Queensberry rule book for airline industry competition,” Davis said, ”Delta would cling to it while the competitors used every trick in the book to win at Delta`s expense.”
What caused Delta to finally take off its gloves, according to industry analysts, were the acquisitions last year by United and American of routes from the U.S. to London`s busy Heathrow Airport.
United acquired Pan Am`s Heathrow routes and American got those that had belonged to Trans World Airlines. With those purchases, United and American significantly expanded their reach into Europe. They also assured themselves of being among the top carriers in the world.
If Delta had any hope of staying within striking distance of its two competitors, it had no choice but to make a major move, several analysts noted.
So, when the balance of Pan Am`s routes to Europe went on the auction block, Delta didn`t hesitate to bid. And to the surprise of many industry insiders, it didn`t back off an inch when some of its rivals significantly increased the cost of the Pan Am assets with their bids.
”United`s deal for Pan Am`s Heathrow routes and American`s for TWA`s routes was a wakeup call for Delta,” Sirkin said. ”They decided that when people discussed airline supremacy, three names woud be mentioned at the top of the list, not just two. They needed the Pan Am deal to keep them in the ballgame.”
But Delta`s Hawkins denies that the United and American Heathrow deals caused the carrier to make a grab for Pan Am`s Frankfurt hub and its European routes.
”We weren`t interested in Heathrow; we wanted Frankfurt all along,”
Hawkins said. ”We wanted a more centralized hub for our European operations, and Frankfurt fit all of our criteria.
”Our purchase of each one of Pan Am`s assets was well thought out. It wasn`t a rash decision. In fact, it was a good, sound conservative decision in keeping with the way we`ve always done business.”
Delta`s way of doing business, however, hasn`t been enough to spare the airline from the huge financial losses virtually all carriers have been experiencing as a result of the recession, increased labor costs, fare wars and the Persian Gulf crisis.
In the 1991 calendar year, Delta lost $239.5 million, almost as much as rival American lost.
Moreover, its Pan Am deal has not put an end to the criticisms. When Delta backed away from its pledge to finance a scaled-down Pan Am in return for acquiring the former U.S. flagship carrier`s European routes, Pan Am employees accused the airline of deception.
Delta officials denied the accusation, saying they backed out of the financing arrangement only after it became apparent that propping up Pan Am would be so costly as to jeopardize its own survival. Nevertheless, Pan Am Corp. last week filed a $2.5 billion suit against Delta, charging the carrier with breach of contract and not dealing in good faith.
Delta, furthermore, has yet to convince detractors that it will be able to operate Pan Am`s vast European operation successfully. And try as it might, it can`t seem to convince critics that minding its courtly southern manners is simply good business.
But almost everyone agrees Delta has some strengths that its competitors do not have. If it comes to the point where only one or two of the Big Three U.S. carriers survive the shakeout, those strengths, most observers say, may well tip the balance in Delta`s favor.
Besides a stable and conservative management, analysts point out, the airline has a good strategic plan and one of the youngest aircraft fleets in the business.
But perhaps Delta`s greatest strength, the analysts say, is its unusually dedicated and loyal work force. And the reasons for that, Delta officials will tell you, are that they are among the highest paid in the industry, not one has been laid off since the 1950s and, except for the pilots, they are all non-union.
”Delta`s southern hospitality really comes out through its employees;
it`s no gimmick,” Sirkin said. ”They are very service-oriented and truly believe that each of them, personally, has a stake in the company`s long-term survival.”
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Next week: A profile of United Airlines.
