MIAMI — Yesterday, it was announced that Richard Anderson will step down as CEO of Delta Air Lines this May. He will be succeeded by the airline’s president Ed Bastian, and he, in turn, will be replaced by Glen Hauenstein, the current executive vice president (EVP) of Network Planning and Revenue Management. Following his retirement, Anderson will slide over to become the chairman of Delta’s board.
The U.S. airline industry just lost a modern titan
Anderson’s retirement is the fourth high profile executive change at a U.S. airline in a year, following in the footsteps of JetBlue’s Barger, United’s Smisek, and, recently, Spirit Airlines’ Ben Baldanza. Unlike Baldanza, Anderson was almost certainly not forced out by Delta, but he was approaching the mandatory retirement age of 65, so it was probably time for a change.
And Anderson will leave Delta with a sparkling resume. I have already gone on record as saying that I consider Anderson to be one of the best CEOs in the history of the U.S. airline industry, and I stand by that assertion. There certainly may be some difference of opinion, as many would prefer the entrepreneur-CEOs in the vein of Herb Kelleher or David Neeleman. But looking exclusively at CEOs as executives, there was (by my assessment) no one more accomplished than Anderson. There are several metrics that can be used to judge this, such as the the 428% increase in Delta’s share price since it bottomed out in 2011.
But all of those statistics can be summed up in one line: Richard Anderson led Delta to the position as the world’s most profitable airline and the best operational performance in the United States during a period of high oil prices. Other great industry CEOs like Gordon Bethune and Bob Crandall certainly delivered excellent financial results, but neither did so in the kind of fuel price environment that Richard Anderson had to deal with. So Anderson’s track record is undeniable.
Will Delta soften?
But despite his strategic achievements, it is equally undeniable that Anderson was a brash, sometimes grating negotiator who made his fair share of enemies ranging from labor groups, to the Middle East Big 3 airlines (Emirates, Etihad, and Qatar Airways), to even Delta’s ostensible partners such as Korean Air. With the changing of the guard, it is certainly possible that Bastian will follow in the footsteps of Anderson and adopt a belligerent negotiating stance towards the various stakeholders around him.
But based on his more pragmatic track record to date, it is also possible (and we believe slightly more likely) that Bastian will instead soften the tone and rhetoric that emanates from Delta’s C-Suite. And perhaps Bastian will ratchet down some of its more aggressive threats towards the Japanese government and pull back on the vehemence of its fight around the Partnership for Open & Fair Skies. The one place where Bastian might have no choice but to hold the line on Anderson’s previous position is on labor relations, where Delta faces a pilot group that wants to cash out.
The sage of capacity discipline has retired – Will Ed Bastian hold the line?
Another key question is around high-level strategy, and whether Bastian will follow in Anderson’s footsteps as an innovator and outlier in the aviation industry. Whether in the arena of aircraft procurement, or the purchase of a refinery, Anderson had a distinctive style of management and strategy. The key question is whether Bastian will follow in those footsteps, or move Delta closer to the pack on its strategic approach. This question touches almost every facet of the business, from fleet procurement (will Bastian buy more new planes and buy more from Boeing?) to network planning (what will the interplay between Salt Lake City, Los Angeles, and Seattle be like in the next 18 months?).
But the biggest question for airline investors and observers is going to be around capacity discipline and whether Bastian will change the carrier’s adherence to that. In many ways, Anderson was the sage, grand poobah, grandfather, or whatever term you’d like to use of capacity discipline in the U.S. airline industry. He led the charge on capacity discipline and fare increases throughout the early 2010s, and stayed closest to Wall Street’s expectations on capacity growth over the last year as fuel prices plummeted. While Anderson’s initial commitment to capacity discipline was admirable and needed to pull the industry out of the madcap early 2000s, it is somewhat archaic (like Delta’s fuel hedge portfolio) in an environment where oil is below $40 per barrel.
So, the real question is whether Bastian has the guts to take on Wall Street in order to expand Delta’s cash flow and profits and give more money back to actual investors.