Sunday, May 08, 2016

At Delta Air Lines, a smooth change in leadership: Ed Bastian, who helped guide the airline through bumpy times, is now CEO

Ed Bastian officially took over as Delta Air Line’s new CEO on Monday and is touring the major hubs to connect with the local employee and customer base.


In the years after the 2001 terrorism attacks and the recession scrambled the fortunes of the airline industry, Delta Air Lines imposed severe pay cuts on employees in order to subsidize much lower airfares.

In April 2005, the company’s corporate controller, Ed Bastian, grew tired of fighting the strategy and quit, going to work for a smaller firm here in the airline’s hometown.

A new chief executive arrived at Delta and, just four months later, recruited Bastian back as chief financial officer. In the decade since, Bastian helped two CEOs take Delta through bankruptcy, fend off a hostile takeover and acquire Minnesota-based Northwest Airlines. The result: Delta is now the world’s second-biggest airline by revenue and traffic, just slightly smaller than American Airlines Group.

And last week, at age 58, Bastian took charge of it.

“It’s an evolution. It’s not a revolution,” he said. “Every year, we keep getting better.”

While May 1 marked the official handover, former Chief Executive Richard Anderson gave up his office to Bastian on the day in February when the transition was announced.

Anderson, a former CEO at Northwest who also worked in the Twin Cities as a top executive at UnitedHealth Group, moved to Houston and is still affiliated with Delta as executive chairman of its board of directors.

“I give Richard enormous credit,” Bastian said. “It’s very hard for leaders to walk away and retire when there’s so much enthusiasm and excitement going on in the business, and, as we say, there’s a lot of gas still left in the tank.”

In interviews in Atlanta and Minneapolis last week, Bastian said he aimed to maintain Delta’s fiscal discipline and its position as an on-time, premium airline. The company is using half of its free cash flow to pay down debt or buy back shares and the other half to invest in business improvements.

“As far as management transitions go, this is about as seamless at they come,” analysts at Buckingham Research Group, a stockbrokerage in New York, wrote when it was announced. “We’re comfortable Delta remains a solid free cash-flow story for as far as we can see,” the analysts wrote.

Since that announcement, Bastian has been conducting weekly meetings with about 100 employees at a time, and “Ask Ed Anything” videos have been released regularly to the staff.

When he visited the Twin Cities last week, he met employees and customers. Delta flies more than 70 percent of all passengers into and out of Minneapolis-St. Paul International Airport and the two entities’ successes are intertwined. “Atlanta is our headquarters, but Minneapolis is our second home,” Bastian said.

Bastian also expects to be more engaged with customers through social media.

“I think what I’ll be doing that’s a little bit different from Richard is that I’ll be experimenting with social technology, or social media, in other ways so that people can reach me and access me,” he said. “We are such a large organization and we are wanting to maintain as much contact as possible.”

Asked if he will actually manage his own yet-to-be-created Twitter account, Bastian said, “I imagine I will get comfortable with managing it, yes.”

This move aligns with Bastian’s recognition that Delta’s customer base is changing.

“We’ve got an awful lot that we are working on in terms of the changing demographics of our customer base — the millennial generation,” he said.

Delta targets business travelers that pay premium fares. But it has changed its fare structure and airplane cabin configurations to capture lower-fare travelers, as well.

The introduction of Delta’s “basic economy” fares are designed to compete with low-cost carriers for price-sensitive travelers. The tickets offer lower prices, no travel changes and seat assignments upon check-in. Delta plans to expand this program while also tailoring its Comfort-Plus seats to those who fall between the first-class traveler and low-cost-only passenger.

After graduating from St. Bonaventure University south of Buffalo, N.Y., Bastian began his career at Price Waterhouse as an auditor. At a young age, he uncovered a multimillion-dollar fraud scheme that led to the firing of several firm partners. By the time he was 32, he had made partner. Bastian moved over to PepsiCo’s Frito-Lay division, where he worked on international finance for six years.

He joined Delta as its corporate controller in 1998 when the industry was enjoying the fat spoils of the Internet boom and the glut of wealthy business travelers that it produced. But the dot-com bubble burst in 2000 and the Sept. 11 attack in 2001 combined to send the airline industry into a slump that lasted years.

At the worst of it, when Delta was forcing employees to shoulder more of the burden, Bastian walked out. After he came back, he worked with CEO Jerry Grinstein on a turnaround plan.

When Grinstein left, Bastian was considered a potential successor but the board instead hired Anderson, who had the Northwest experience. Anderson turned around and promoted Bastian to president and CFO. From 2010 to 2016, Bastian wore solely the hat of company president, until last week’s ultimate promotion.

“Richard is a very close friend and close partner,” Bastian said. “He and I have worked side-by-side for the last nine years, and every significant decision that Delta has made — rather related to employees, related to geography, network, cost — we were together on the decisionmaking process.”

In the last five years, Bastian said, the company shaved its debt from $20 billion to about $5 billion. Moody’s upgraded Delta from junk-bond status to investment grade earlier this year, citing the aggressive debt reduction strategy.

And over the next five years, Delta plans to refurbish 80 percent of its aircraft with better lighting, in-flight entertainment and other upgrades.

Low fuel costs, better on-time performance and high demand netted Delta a $4.5 billion profit last year. It doled out $1.5 billion in profit-sharing to its 80,000 employees, the largest profit distribution ever given by any corporation, Delta said. For its workers in the Twin Cities, that meant an average bonus of around $16,000.

On the day the bonus was announced, Bastian went from party to party at the headquarters on the edge of Hartsfield-Jackson International Airport — one hosted by pilots, another by flight attendants, another by ground crew. The reservations staff had a Star Trek-themed event.

As he walked back to the main building, Bastian joined some younger staffers for selfies in front of a giant greeting card — certified by Guinness World Records as the largest ever — that was inscribed with the names of all 80,000 Delta employees.

Bastian said he intends to have more fun on the job. But he added, “We have much more to do.”

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