Fresh from bankruptcy, Delta poised to soar, executive says

Delta Air Lines Inc. had to suffer the indignity of a 19-month detour into bankruptcy court, but Delta chief operating officer Jim Whitehurst says he thinks the carrier came out of the process well - and better than some of its rivals.

Mr. Whitehurst, who sat down for an interview with The Dallas Morning News last week to discuss Delta, its Dallas/Fort Worth International Airport plans and the airline industry, gives his company an "A" for how it transformed itself.

"Other airlines have gone through bankruptcy, and they've emerged with disaffected employees, disaffected customers, but with a better balance sheet and a lower cost structure," he said.

Delta, which closed its D/FW hub in early 2005, came out of bankruptcy April 30 with lower costs and an improved balance sheet, plus a refreshed fleet and a workforce with good morale and an understanding of the importance of good customer service to a profitable airline, he said.

Delta's primary focus was to close the gap in unit revenue - how much it was paid in fares for every seat flown a mile - between Delta and its competitors. That requires good service that customers recognize and appreciate, and the carrier's efforts are paying off, Mr. Whitehurst said.

Among other questions and answers, Mr. Whitehurst offered the following opinions:

What are your plans for Dallas/Fort Worth?

D-FW is a very important city and [D/FW Airport is] a very important spoke in our network. We serve our major hubs out of D/FW. Atlanta, JFK [Airport in New York], Salt Lake City and Cincinnati all have service. We also are very, very strong into Florida, so we have an Orlando flight as well. We'll continue to look at frequencies in those markets.

There are no plans to add any new markets. Over time, as we continue to build up, is it possible we'd add a city or two? Yes. But to be clear, this is a spoke in our network, it's not something we look to build into a focus city or a gateway or a hub by any stretch.

Nor any plans to shrink it, either?

No, no. We're very pleased with the performance. We're very pleased with the JFK service, very pleased obviously with the other hubs' service. We have no plans to shrink it at all.

Given Delta's cutbacks at D/FW, have you retained many of your premium passengers who had Platinum, Gold or Silver Medallion status in your SkyMiles frequent-flier program?

Certainly we don't offer the breadth of network that we used to offer here or that American Airlines has. But that said, yes, vs. other cities that are non-hubs, we have a much disproportionate share of what we call "heavy metal" fliers, as well as just frequent-flier members on our airplanes.

After boarding zones 1, 2 and 3, which are generally for your more premium customers, you've boarded 65 percent of the flight [at D/FW], because it's all people with elevated status.

You've added back a daily flight from D/FW to JFK, where you have an international hub. How has that affected your international traffic out of D/FW?

It's a noticeable effect. Most of the core cities in Europe - London, Paris, Frankfurt, Rome - those types of cities, we serve out of both Atlanta and JFK. We then really divide up another set of cities in Europe between JFK and Europe.

High-business-content airports that can be going to a lot of small cities will generally fly through Atlanta, so places like Düsseldorf or Vienna will fly to Atlanta because it offers by far the best connectivity of any hub in the world. We can connect people from Oklahoma City or Baton Rouge, or anywhere, basically, into Atlanta to connect to those markets.

In JFK, there's a lot of feed there, but nothing like Atlanta, which is the largest hub in the world. So we focus that more on what I call ethnic markets - markets that have a lot of ethnic concentration in the Northeast. So, Istanbul, all the Eastern European capitals, Kiev, Budapest, Bucharest, all those types of markets.

By putting in a D/FW-to-JFK flight, we now offer a convenient one-stop to a whole set of cities that you otherwise had to double-connect on Delta or are very hard to get there on American. It works out well that we now offer one-stop service to all of Eastern Europe and areas that were hard to get to before out of Dallas.

You've been adding a lot of international flights and attracted some naysayers who think that international capacity is growing too much.

Well, A, we're not going out and buying new airplanes to do this. Delta was the only carrier that had an entire international wide-body fleet flying around our domestic system. We've been reallocating aircraft from domestic to international. It is not a major expansion of Delta. It is a move of capacity from domestic to international. International is much more profitable.

Second, it's working. If you look at what analysts are saying, if you look at our revenue performance, where we've nearly closed the full revenue gap that we had over the past couple of years, it's clearly working in all the markets that we've started. We've continued to add more markets, because they're profitable and continue to grow.

Our European competitors, they obviously don't love all the growth, because we are much lower-cost than the European foreign-flag carrier. We are a low-cost entry into many of those markets.

From our U.S. carriers, obviously less competition is better. So you have a lot of self-interests in a lot of the complaining you hear. But if you look at the numbers, it clearly bears itself out.

Others in the industry have said we have too much capacity flying in the U.S. markets. Does Delta agree?

To be clear, we're probably the largest shrinker domestically. ... We're shrinking domestically as we grow internationally. We continue to move wide-bodies out, so overall domestic [capacity] is shrinking.

That said, we feel the current supply-demand balance in the United States is certainly reasonable. It's hard to say there's too much capacity when we're flying at record load factors. I know a lot of carriers are complaining about capacity, but look at our load factors. Clearly, there's plenty of demand out there.

Now, I don't know if it's a very good business idea to be growing. So we're not trying to grow domestically for that reason. I understand the reasons for growth, but quite frankly, I don't see how it works.

Obviously, you have a couple of airlines in Texas that are growing. I don't see how those incremental flights are going to be profitable, because by definition they're unhedged in terms of fuel prices. And they're marginal performers, because if they had been great performers, we'd have been flying them already. It's tough to make a lot of incremental capacity work, but those are the decisions those airline managements are making.

But from our standpoint, we're very pleased with how our loads look and our yields look domestically. They can grow if they want to. It doesn't really impact our plan.

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