MIAMI — Richard Anderson is at the reigns of one of the world’s leading airlines. He sits at the same desk and in the same office Delta’s founder, Collett E. Woolman, sat at when he moved the company to Atlanta in 1941. Anderson is well-versed in the industry. He has more than 25 years of aviation experience. It all started when he began working for Continental in 1987. Three years later, he joined Northwest Airlines, and during his 14 years at Northwest, he was in charge of TechOps at one time and later became the CEO of Northwest (2001 to 2004).
He left Northwest to join United Health Group in 2004, but he rejoined Delta in 2007.
It is very clear that he wants to make Delta a place where people want to be. He and his wife help with some of the landscape around the offices, and he even helped design a few of the conference rooms and the new Delta Flight Museum.
As part of the #InsideDelta experience, we had the opportunity to sit down with Richard Anderson and talk to him about Delta.
Being An Airline CEO
What is a typical day like for you?
I wake up really early in the morning to read stuff for work and take care of some emails. I still take home a lot of paper. I know this sounds terrible to technologists that blog a lot, but I still print everything out and make notes in the margins when I am reading. Just like when you are in school, you have to do your homework, and I take care of mine really early in the morning.
I’ll have coffee with Sue and my dog, and if I don’t have something early in the morning, I try to be here by about 8:30 AM.
Once I arrive, I will open the reports and see what happened overnight.
After catching up, I have strings of meetings throughout the day. I do have a lot of things outside the office, and I travel quite a bit.
I try not to get behind. Right now, I think I only have 12 emails pending in my in box I am able to answer them a lot quicker if they are printed out so I can answer by hand and have them typed.
Since I try not to get backed up, I try to never touch paper twice.
Richard Anderson and Flying
Do you remember your first flight?
Yes. I was living in Amarillo, Texas, and I flew on a Trans-Texas DC-9-10 to visit my grandma in Houston. I was probably 20 years old, and the flight went Amarillo, Lubbock, Midland, San Antonio, and Hobby. It was the old linear route system in the United States. There were very few one-stop or nonstop flights since the hub and spoke system is the result of deregulation.
But, we mostly took Greyhound buses when I was growing up as a kid, or I would hitchhike.
Did you ever participate in interstate hitchhiking?
Yes, I did some interstate hitchhiking. Though, I frequently hitchhiked home to Amarillo from college in Lubbock.
How often do you fly?
I probably fly internationally on average once a month, but domestically, I fly all the time. Typically, I fly to Washington, New York, or to one of our other hubs or gateway operations (Boston, Detroit, Minneapolis, Seattle, and Los Angeles). I fly just like you do.
Do you fly to go on vacation or mostly stay home?
I do fly to go on vacation. Sue (Anderson’s wife) and I do like to go out and see the world some. We prefer backroads vacations. Though, we probably don’t like to travel as much you do since you are all travel writers.
Do you have a percentage of the system that you have actually visited?
No, but I have hit a lot of the system.
Do you ever fly the competition?
I do fly the competition more on the basis of convenience like if there is a faster [way] to get to Shanghai or to another point in the world. A lot of the time I will just go buy a ticket to fly.
Do you ever fly the competition just out of interest?
I do it out of interest too. Those two end up coalescing. A lot of the time it is because I need to get somewhere, but it is a good way to see the service on another carrier.
Is there a situation that you learned something from flying another airline?
I am certain that there have been some of those. I cannot think of any off the top of my head, but you should always be open to people who are doing things differently than you are.
Delta is very unique. The fleet seems to be conservative while things like Trainer are sometimes very radical. You seem like a contrarian operator. Do you agree or disagree with that statement?
I would say that we are probably a bit contrarian only because the old way of doing business has sometimes not been successful.
Our fleet strategy is contrarian to what Boeing and Airbus want us to do. But now that you have been over to TechOps and you’ve seen this tremendous capability we have and the great technicians, you can understand perfectly that the key to running a really great airline is the capability of your technicians and engineers. So, we are pretty contrarian on our fleet.
For instance, the manufactures think you should have a spare engine compliment of about 13%. So if you had 100 engines hanging on airplanes, you should have 13 spare engines. We generally have five to six because we have the engine shop that turns engines really fast, and the technicians are quite skilled.
Does all this get factored in when deciding which wide body aircraft to purchase?
Yes, our maintenance capabilities do get figured into this calculation.
You have been pretty clear in saying that the A350 and 787 are “not for us.” Any thoughts?
The A350-900 XWB and the Boeing 787-9 Dreamliner are for us. The 777 is on the list along with the A330neo that Airbus will announce.
Is the 777X on the list?
No, the 777X is not on the list. However, the A330neo with the new engine option is on the list.
When will Delta announce a wide body order?
It will be sometime before the end of the year. They are going through the analysis now. There are many teams of people that are pouring through the data to make sure that we understand all of the operation assumptions of the airplane.
Any comments on the integration with the refineries you have recently acquired?
The key thing that we have set out to do is to beat the industry average price per gallon of fuel by about a dime per quarter. This quarter, we are going to beat it by 14 cents a gallon which is a huge number. If you look back over the past two years, we have consistently beaten the industry’s average price of fuel per gallon by a pretty sizable number.
However, the refinery gives you more information and knowledge about the marketplace then you would get if you did not have these assets. I call it “boots on the street.” We have a refinery. We are buying crude oil, selling refined products, and moving products in the marketplace. This has resulted in us hiring a cadre of oil experts that are headed by Graeme Burnett who was the president of Total Petrochemicals in North America. Grame brought a whole cadre of people to Delta.
I worked at a refinery in Texas City when I was in college. But, I do not really know anything about running a refinery. This has made us hire really smart people that understand the industry and mesh with our company’s culture. As an organization, we have become much smarter in managing fuel and prices.
Can you talk about Seattle?
Seattle is a dramatically underdeveloped international market, and it is a great gateway for us long term. I think we are up to ten international wide body flights out of Seattle right now, and it is going very well.
Now, you have begun challenging Alaska Airlines by starting more flights to Seattle. Any comments?
I will give you a fun statistic about how hubs work.
Here in Atlanta, I think there are 100 local people per day also known as 100 PDEWS (which stands for 100 passengers daily each way) that fly to Paris, but we fly four wide body flights nonstop each way. It is the power of a hub, and in order for a hub to really work, you need to have a lot of domestic feed.
So for all of those in Spokane, Washington that want to go on all ten wide body flights, they all get on one airplane to a hub. This is the same thing in Savannah, Georgia. Anybody who is going to go to any of the 65 nonstop cities we serve from Atlanta will all get on one airplane. See how efficient it is? At the same time, it brings in the traffic that is needed to operate a gateway.
There are very few city pairs in the world that have enough local traffic to make flights. JFK-London is one of the few that has an enormous amount of local traffic. However, there are not too many of these. Most require a lot of domestic feed like Atlanta-Paris. So, we are building the feed that is needed to make Seattle an international gateway.
As an outsider, it seems like Delta is opportunistic and at times provocative like with naming an aircraft “Spirit of Seattle.” Additionally, there has been a lot back and forth between Alaska and Delta. It seems like you may be going for something bigger than international feed.
You have to build up a big hub to support the international feed. This is quite a competitive business. If you take a look at the dynamics in Atlanta, Southwest and Delta compete, and if you look at New York, it is quite contested with multiple airline hubs. However, the analogy I use in Seattle is that Boeing has to compete with Airbus, and Microsoft has to compete with Apple. The marketplace is contestable, and this is good for people in the Pacific Northwest.
You are going into Seattle and doing something that Alaska cannot do. Thoughts?
It is just like us going into London Heathrow where we have a much smaller position than British Airways and Virgin Atlantic. Different markets have different competitive positions, and you have to work to leverage the competitive potions with the assets you have. We do this around our system pretty well, and this is important for Seattle.
Seattle is a relatively underserved market, especially when you look at Vancouver. Seattle is one of the fastest growing cities in the United States, and the Pacific Northwest has a great outlook for economic growth. Plus, its local revenue base is bigger than Minneapolis even through Minneapolis has a great local traffic base.
With Seattle being built to be a gateway to Asia, where does Detroit stand?
It is still hugely important for Asia because that is the east coast Asia gateway, and Seattle is the west coast Asia gateway. Both of these hubs have the perfect geography and huge local markets so they end up being the perfect gateway to Asia.
With the other two major U.S. carriers overflying or routing most through Japan, how is the relationship with Korean?
It is evolving because historically Delta had no network in Korea or in Asia. There was only one nonstop flight, but after the Northwest merger, all of a sudden we had this huge network.
Naturally, the traffic was shifted more onto Delta’s network rather than Korean’s. However, we still have a good relationship, and we have ambitions to make our relationship more successful for our partners at Korean.
Could we see a joint-venture with Korean?
We have an ATI with them, but we are evolving to the joint-venture. We want to see it evolve, and they have been a good partner for a long time. Going through this adjustment phase from one nonstop flight a day to Asia to multiple nonstop to Asia takes some adjusting.
Can you talk a little about Virgin Atlantic?
We have an incredible bright future for the Delta/Virgin joint-venture. If you think about 2008, we did not even fly to Heathrow airport because we were legally not allowed to. Once we were allowed, we could not get any slots, but we were able to get some from Air France and KLM.
What the joint-venture means is that we really have the number two position in London since we are tied with Virgin Atlantic, and if you look at the branding in the marketplace, Virgin is number one based on customer surveys. We are able to connect the Delta network (distribution, corporate travel agreements, etc.) with Virgin, and we are able to learn a lot from them about branding.
They are such a well branded company, and Richard Branson is focused on what the Virgin brand means to its customers. We always want to hear Richard Branson talk about the brand during the quarterly meetings.
On the flip side, Virgin Atlantic is all of a sudden in all of our corporate travel agreements which is huge.
This joint-venture is going to be incredibly successful.
What is behind mixing flying later this year?
We are going to continue to scramble the egg because they have a great great brand. When we mix flying like this, we have the two leading brands in the market with the power of out hubs which strengthen both airlines.
Money talks. Is there any concern about marginalizing loyalty by “less spendy” programs?
No. We are still going to have the loyalty program for all of our customers. Loyalty programs started before the industry program was deregulated, and they were based upon the Civil Aeronautics Board (CAB) view of one mile equals one dollar and the stifle. How many of you know what the STIFLE is? (Crickets chirping). I am going to teach some bloggers some terms?! The STIFLE stands for standard industry fare level.
Since the CAB equated this with miles, it became standard for frequent flier programs. As the industry was deregulated, mileage was not a proxy for the customer or the airline. Now, the loyalty programs are like Capital One and other bank rewards model.
We are adapting and evolving with the marketplace.
How do you feel about United following you on switching to a revenue based frequent flier program?
As a general rule, I don’t comment on what others do. I am generally more focused on what we are doing at Delta and not what others are doing or thinking about.