Delta Air Lines, Inc.

1924–2000

Delta Air Lines, Inc. is one of the largest and most successful air carriers in the United States. Originally founded as a crop dusting service in 1924, Delta was led for 40 years by an agricultural scientist and pilot named Collet Everman Woolman. Until his death in 1966 Woolman dominated the operations of Delta. In this sense he was similar to his three major competitors, Eddie Rickenbacker at Eastern, Juan Trippe at Pan Am, and Howard Hughes at TWA. Expansion through acquisition characterized the era that followed. Then, in the 1990s Delta adopted an aggressive business strategy in order to retain market share in an increasingly competitive airline industry. The new strategy was an enormous success, and in 2000 Delta enjoyed a net income of more than $1 billion and carried a record 117 million passengers. Entering the new century the airline had extended its route network to serve 221 cities in 48 states, and an additional 118 cities in 47 foreign countries.

From Crop Dusting to Passenger Transport

The history of Delta may be traced to 1924, when Collet Everman Woolman and an associate joined a conversation with some Louisiana farmers who were concerned about the threat to their crops from boll weevils. Woolman knew that calcium arsenate would kill the insects, but the problem was how to effectively apply the chemical. Having learned to fly the boxy "flying jennys" during World War I, Woolman considered dropping the chemical from an airplane. He engineered a "hopper" for the chemical and later perfected the system, and then began selling his services to farmers throughout the region. As a result, the world's first crop dusting service, named Huff Daland Dusters, was born.

In 1925 Woolman left the agricultural extension service to take charge of the duster's entomological work. In 1928 the crop dusting operation broke away from its parent company to become Delta Air Service. Woolman continued his crop dusting business across the South and expanded into Mexico and South America. The company began to diversify by securing air mail contracts, and in 1929 inaugurated passenger service between Dallas and Jackson, Mississippi. Later, routes to Atlanta and Charleston were added.

Delta began its climb to prominence when the U.S. government awarded it an airmail contract in 1930, remaining in business even during a temporary but costly suspension in the airmail contract system in 1934. By 1941, the company, now called Delta Air Corporation, would be awarded three more airmail contracts. During World War II, Delta, under contract to the War Department, devoted itself to the allied war effort by transporting troops and supplies. Delta returned to civilian service in 1945 and entered an age of growth and competition never before seen in the airline industry.

The Growth of Air Travel After World War II

On May 1, 1953 Delta merged with Chicago and Southern Airlines and continued to prosper as a major regional trunk carrier through the 1950s and 1960s. In June 1967 Delta merged with Delaware Airlines and officially adopted the name Delta Air Lines.

In order to remain competitive, in 1986 Delta announced its intention to take over the Los Angeles-based Jet America; however, the $18.7 million deal never materialized.

1972–1982

Delta's exposure to the northeast part of the country increased with the acquisition of Northeast Airlines on August 1, 1972. In July 1976 Delta purchased Storer Leasing, a move that added several jets to the existing fleet of about 200. Recognizing the value of high technology, Delta formed two computerized marketing subsidiaries, Epsilon Trading Corporation in 1981 and Datas Incorporated in 1982, to coordinate and sell more passenger seats on all Delta flights.

Delta's consistent growth could be partially attributed to its successful transition of leadership. In the early days of commercial air transport airlines were run by individuals who would be better described as aviation pioneers first and as businessmen second. At American, Eastern, Pan Am, TWA, and Delta, these men established what could be described as almost dictatorial operations, retaining their posts as long as possible. Many of these leaders were majority stockholders who categorically refused to share their power or prepare successors to operate the company after them. For many airline companies, when the chairman did eventually die, there was a difficult period of readjustment to the new management.

The departure of Delta's Woolman, however, was not surrounded by difficulties. He suffered a heart attack in his late 60s and was forced to relinquish some of his duties to Delta's board members. As Woolman's health deteriorated the board members gradually assumed more of his duties until his death at age 76. Although Woolman's absence was deeply felt at Delta, business continued as usual, and the airline was able to make a smooth transition to a more modern, corporate style of collective management. Under the new consensus-style management, Delta quickly became recognized for having one of the best planning and management teams in the airline industry. The company also earned a reputation for being on very good terms with its employees, treating its workers as family. By maintaining pay and benefits above the unionized competition, Delta was able to keep the majority of its employees non-unionized.

Although the company did not invent it, Delta was the first airline to widely employ the so-called "hub and spoke" system, in which a number of flights are scheduled to land at a hub airport within approximately 30 minutes, enabling passengers to make connections for final destinations conveniently and quickly. By the early 1990s the "big push," as it was called, was occurring about ten times a day at the Atlanta hub. Delta was also operating hubs at Dallas-Fort Worth, Boston, Memphis, and Cincinnati.

On the whole, Delta's management style remained conservative throughout the 1970s. While it boasted one of the most modern jetliner fleets in domestic service, the company developed a reputation for purchasing new planes only after they had been proven, often in a costly way, at other airlines. This "wait-and-see" policy saved the company a large amount of money. Only after competing airlines had used the Lockheed 1011 for several years did Delta purchase the plane, and Delta began replacing its fleet of Boeing 727s with the 757, 767, and MD-88 in the late 1980s, later than most, with the intention of using these technologically advanced and fuel efficient planes for at least 20 years. This 15-year strategy for flight equipment and support facility planning was typical of Delta. According to the vice-chairman and chief financial officer at the time, Robert Oppenlander, "Success is based on the long term maintenance of a technical edge, which is cost efficiency."

Delta also became known for having the most conservative balance sheet in the industry. With a debt-equity ratio that was consistently below one to one (meaning that their debts were usually outweighed by their net worth), the company was able to do most of its financing internally. This conservative approach was aptly summed up in a statement by the late chairman W.T. Beebe: "We don't squander our money on things like goofy advertising."

A New Business Strategy for the 1980s

1986–1993

In the 1980s, however, Delta assumed a more aggressive corporate personality, as its commitment to internal growth became increasingly threatened by a general trend in the industry toward external growth. Throughout the 1980s, Delta became relatively smaller, as companies such as TWA, Texas Air, and Northwest expanded through mergers. In order to remain competitive, in 1986 Delta announced its intention to take over the Los Angeles-based Jet America; however, the $18.7 million deal never materialized. Later that year Delta went ahead with the $680 million purchase of another air carrier based in Los Angeles: Western Air Lines. As Delta's chief executive officer, David Garrett, explained, "For a merger to be worthwhile, two plus two has to equal seven." Enlarged by Western's hubs in Los Angeles and Salt Lake City, Delta management was able to make that kind of math work, in spite of initial difficulties integrating Western's unionized work force into Delta's system.

In 1987 Ronald W. Allen, who rose through the ranks of Delta's personnel administration department, was named the airline's CEO. An aggressive and outgoing business person, Allen proved willing to make larger and riskier investments. Shortly after taking office, for example, he negotiated a $15 million dollar deal for Delta to become the official airline of Walt Disney World.

In the late 1980s and early 1990s, recession, rising fuel prices, and war in the Middle East all contributed to declining passenger traffic and inflated costs. Thanks in part to its financially solvent status, Delta weathered the industry troubles comparatively well, despite a 1991 operating loss of $450 million. Small, financially weak, and regional airlines were hardest hit by the trouble; Delta was one of the prime beneficiaries of the failure in January 1991 of Eastern Airlines, which like Delta had a significant portion of its routes in the southeastern United States. After Eastern's demise, Delta flew over 80 percent of traffic out of Atlanta.

In 1991 Delta made a major move toward becoming an international player by purchasing a $1.7 billion package of assets from Pan Am, outbidding chief rivals American and United. The package, which included the assumption of $668 million of liabilities, gave Delta a hub in Frankfurt, Germany, dozens of European routes, including flights from Miami and Detroit to London, a New York shuttle route, and 21 Airbus A310s. As with the purchase of Western, the deal was viewed by some in the industry as a departure from Delta's traditionally conservative business stance, and possibly too costly a purchase. Delta management, however, termed it a necessary stop in a consolidating purchase-or-be-purchased airline market: "We think it is a very conservative move," Allen told Fortune magazine, adding, "To have missed this opportunity would have been the risky course."

Delta appeared to have adapted well to the expansion-oriented market. Whereas Delta fliers used to joke that, though you might not know whether you would go to heaven or hell when you died, you would definitely have to change planes in Atlanta, the airline's customers could now fly to Europe via its Frankfurt hub, or to Latin America via Miami. As it adapted to the aggressive and expanding modern market, Delta strove to maintain its policies of good labor relations and attention to service. Delta's employees were still among the highest paid in the industry and, like founder C.E. Woolman, Allen sometimes rode on Delta flights to interact with passengers. Indeed, Forbes magazine queried in a 1988 headline: "Is Delta too nice for its own good?" At the time, however, its emphasis on people seemed not to have crippled Delta.

Record Profits, New Problems: Heading into the Twenty-First Century

By 1992 it became clear that the financing agreement with Pan Am had come at a bad time for Delta. The general economic recession and continued high fuel prices, combined with the weight of Pan Am's heavy debt, resulted in net losses of $506 million for fiscal year 1991. In an effort to lower costs, Delta was forced to reduce its work force by five percent, in addition to implementing wage freezes and salary cuts. At the same time, the company was eager to integrate Pan Am's extensive European routes into its system, hoping to restore itself to profitability by improving its position as an international carrier. However, the lingering effects of the recession, as well as the recent Gulf War, had precipitated an overall decline in commercial air travel. To counteract this trend, Delta announced reductions of 45 percent on transatlantic fares at the onset of the summer 1992 season, resulting in record traffic of 8,511,966 passengers in August. In April 1993, in an effort to increase its share of transpacific air traffic, Delta launched new non-stop flights between Los Angeles and Hong Kong.

1991–2001

Initially, the stronger emphasis on overseas routes paid off for the company, leading to profits of $60.4 million in the first quarter of fiscal 1993, compared to a net loss of $125.2 million for the first quarter of the previous year. Inspired by this success, Delta strove to further expand its international presence by entering into code-sharing agreements with a number of foreign carriers in 1994, including Virgin Atlantic, Vietnam Airlines, and Aeromexico. Code sharing allowed an airline to purchase tickets from its rivals and resell them to its own customers, providing greater scheduling flexibility and control over prices. While some considered the practice deceptive, by the mid-1990s it had become prevalent throughout the airline industry, with the number of code-sharing partnerships reaching 389 by 1996. For its part, Delta established 14 such contracts with other airlines between 1992 and 1996.

Another wave of heavy losses in the first three months of 1994 forced the company to undertake a more drastic cost cutting scheme, and in April Delta launched its Leadership 7.5 program, a restructuring initiative designed to streamline operations. The goal was implied in the program's name; Delta hoped to reduce the cost of flying to 7.5 cents per mile, per seat, with an overall aim to cut operating expenses by $2 billion over a three year span. The reorganization called for a reduction of 20 percent of the company's work force, a realignment of its domestic route system, and a discontinuation of some of its less profitable European routes. These drastic measures brought quick results, and the company was able to claim a net profit of $251 million for the fourth quarter of fiscal 1995.

Delta's impressive financial comeback was not without costs to its reputation as a "family" corporation. The reduction of the company's customer service team resulted in a significant increase in passenger complaints, and by 1997 Delta dropped to last place in on-time rankings among the ten leading U.S. airlines. The decline in customer service was hardly unique to Delta. Overall, the annual number of airline passengers in the U.S. jumped to 640 million in 1999, compared to 453 million in 1991, with the ratio of seats filled reaching an all-time high of 71.3 percent. Overcrowding, frequent delays, and poor service resulted in a substantial increase in the numbers of complaints lodged with the Department of Transportation in 1999, prompting Congress to consider legislation that would impose stricter regulations on the airlines' business practices.

The airline industry also faced a number of labor disputes at the beginning of the new century. The expiration of the Delta pilots' contract in May 2000 was followed by several months of unproductive negotiations. When the impasse dragged into December, the pilots retaliated by refusing voluntary overtime during one of the airline's busiest seasons, forcing Delta to cancel 3,500 flights over the course of the month. The new year brought little relief, and another 1,700 cancellations followed in the first ten days of January 2001. While the company enjoyed net profits of $897 million in 2000, and saw its total number of passengers reach an all-time high of 120 million, it was clear Delta still faced several unresolved issues, both with customer service and labor, as it continued on its quest to become the nation's leading airline.