Monday, August 19, 2002

Delta healthier than bigger airlines

The Associated Press

        ATLANTA — With its two bigger rivals cutting employees and contemplating bankruptcy, Delta Air Lines is sitting on nearly $3 billion cash, slashing costs and looking toward profitability next year.

        Last week, the biggest U.S. carrier, American, said it would lay off another 7,000 employees and United, the No. 2 airline, said it could file for bankruptcy in the fall if its employees can't agree on additional cost cuts.

        Three other airlines — Midway, Vanguard and US Airways — already have filed for bankruptcy protection.

        But Delta, the third-largest carrier, is a picture of health compared to some of the company's ailing rivals, analysts agree.

        The company has $2.8 billion in the bank and positive cash flow — a far different scenario from last fall, when the company bled up to $8 million a day. It even turned a small operating profit in June.

        United, however, has $10.5 billion in long-term debt, including $900 million due by the end of the year.

        At Delta, no extra employee trimming is expected, even though the airline does expect additional cuts in capacity this winter because of continued slack demand.

        “You can place the major hub and spoke carriers very simplistically into two boxes: those that are losing an enormous amount of money and those that are losing a lot of money — and it's a huge distinction,” said Rich Bittenbender, an airline analyst with Moody's Investor Service.

        To be sure, Delta has suffered its share of steep losses — $583 million so far this year atop a record $1.2 billion loss for 2001.

        It continues to feel pressure from low-cost carriers such as AirTran Airways and JetBlue, and doesn't expect revenue to recover until the middle of next year.

        Delta's passenger traffic was down 6.6 percent in July, less of a decrease than American and United saw. Capacity also fell 6.6 percent in terms of seat miles from a year ago.

        “There is no question that we are moving through a period that will later be regarded as one of the toughest in aviation history,” chief executive Leo F. Mullin wrote in an e-mail this month to Delta's 75,000 employees.

        “Yet, Delta has done so many things correctly in the past ... that we have every reason to expect we will navigate our way through this difficult period successfully.”

        Mullin frequently tells audiences his company will not merely survive, but thrive.

        One difference at Delta?

        Employee productivity, which some attribute to the lack of unions at the company. Pilots remain the only organized work group since Delta's 145 pilot ground training instructors voted this month to end their representation by the Transport Workers Union.

        “Although on the face of it, Delta's wages are among the best in the industry, they operate an efficient airline,” Bittenbender said.

        That leaves Delta with a unit cost advantage over not only American and United, but several smaller airlines. Delta officials say managers enjoy more workplace flexibility, with the results traced directly to the balance sheet.

        Delta has remained ahead of American and United with costs per available seat mile. Delta averages 10.05 cents per seat per mile, while American is at 10.78 cents per seat and United is at 11.32 cents.

        Labor officials contend Delta simply pays to keep unions at bay, noting that heavily unionized Southwest Airlines has remained profitable throughout the industry's troubles.

        Delta also says it has recovered revenue by spending more than its peers on efforts to reduce “the hassle factor” of air travel in the new era of tight airport security.

        Delta gives its most loyal customers expedited lines at many airports and customers on its Boston-New York-Washington shuttle get 20,000 extra frequent-flier miles if they are not processed in 20 minutes or less.

        In October, Delta announced plans to cut 13,000 employees, but found 11,000 willing to take early retirement and voluntary leave programs ranging from one to five years. It also has reduced the number of pilots it will furlough to 1,400 through next year.

        Officials say the leave programs boosted employee morale because workers had more input, instead of just facing pink slips.

        The company also points to a fuzzier factor — disparate employee groups generally get on well and work cooperatively. To foster such cooperation, Delta began a daylong seminar in May called “Our Airline Our Business,” styled around a board game.

        The class allows employees to be airline managers, with winning groups measured on financial performance. White and red poker chips represent cash. So far, more than 12,000 employees have completed the session, with 40,000 scheduled through year's end.

        “If you present people with the absolute truth, they're going to come to the same conclusions on their own,” said Frederick Reid, Delta's president and chief operating officer, who implemented the $2 million program.


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