New York John F Kennedy Airport’s main terminal building, an architectural icon of civil aviation, illustrates the fast pace of commercial aviation like no other structure. The world-famous Terminal 3, with its roof resembling a big flying saucer, opened in May 1960 as ‘Worldport’ of Pan American at the former Idlewild Airport. This is where the airline with the blue globe logo soared to world dominance — and where in the 1980s its gradual demise became most visible.
In 1991 Delta Air Lines from Atlanta, then mainly a domestic airline, took over Pan Am’s transatlantic routes from Terminal 3 shortly before the latter declared bankruptcy in December that year. Two decades later, Terminal 3 was so obviously run down that even Delta’s Chief Financial Officer, Paul Jacobson, admitted: “Customers compare that [terminal] to service levels in the third world, and I believe they’re right.»
On May 23, 2013, the last passengers used Terminal 3. Melancholy over the closure was very limited. During the most recent hurricanes to hit New York, more and more rainwater seeped through the roof. The building simply wasn’t up to today’s standards. The day after Terminal 3’s closure a new era for Delta at JFK began when it moved into an extension of the nearby Terminal 4, a development which enlarged the structure by a third and created nine new international departure gates.
The new hub means Delta will be able to process 5 million more passengers annually at JFK than it could in Terminal 3 — capacity it dearly needs to play a major role on the lucrative international markets to and from New York. Delta’s adverts claim it is New York’s biggest airline but it only dominates JFK, while United occupies the top spot at the former Continental hub in Newark.
«We have momentum at Delta,» said Perry Cantarutti, Senior Vice President Europe, Middle East and Africa at Delta, in an interview with AIR International in New York.
On the financial side Delta has become a role model for the industry within a short time. As recently as the 2005-2006 financial year this famous airline with its proud heritage racked up a huge loss of $10 billion within just 24 months. Today, it’s the most profitable legacy carrier in the world.
One major reason for the turnaround was the successful merger with Northwest Airlines in the autumn of 2008, which led to cost-cutting of $1 billion. “For the first time since 2000 we had a profitable first quarter and 2013 will become our most profitable year ever,» said Cantarutti.
With more than $1 billion in profit after taxes, 2012 was a banner year for Delta following a healthy profit in 2011. It is currently the biggest airline worldwide, although the imminent merger of American
Airlines and US Airways will push it to number two. “The Delta of today is a totally different Delta from six or seven years ago,» says Cantarutti. “At that time we were a domestic airline that served some international markets.»
In 2005, Delta had only 20% of its seat capacity deployed in international markets.
By 2010, the figure had increased to 40% and has now grown further to 45%. Delta’s goal is to have 50% of its capacity deployed on international routes. This change goes back to the merger with Northwest, the first big tie-up in the long-overdue consolidation of the US airline industry. United and Continental came next, followed later by Southwest and AirTran and now American and US Airways.
Northwest, which was based in Minneapolis, brought a very dense route network within Asia from the important hub in Tokyo-Narita to the new Delta, complementing the European routes developed since its partner’s takeover of Pan Am’s network. “Today, Delta is the number one in transatlantic traffic among all competitors, number two from the US over the Pacific and ranking third to Latin America,» explained Perry Cantarutti. “This means we have now deployed our capacity much more evenly between domestic and international routes than before. During the peak season, we have 150 departures a day alone to Europe, the Middle East and Africa.»
In the summer months, the network is enhanced by a number of seasonal routes, like non-stop flights from JFK to Malaga, Athens, Pisa and Venice. In the UK, Delta operates ten daily flights to five US gateways from London-Heathrow as well as daily services from Manchester to Atlanta. All these routes are operated by Boeing 767-300ERs or -400ERs. In other parts of Europe, Delta also follows a strategy of direct routes from key US hubs to regional airports. In Germany it serves not just Frankfurt and Munich but also Düsseldorf and Stuttgart. The airline is currently pondering new destinations like Hamburg. “But not before 2015; that’s simply a question of capacity being available,» Cantarutti said. Capacity is a field where Delta acts cautiously. “This year we’ll have a flat capacity growth or a maximum of 1%, if at all,» he added. “Our biggest goal is to deploy larger aircraft and improve passenger loads and yields,» said Delta’s Chief Executive Officer Richard Anderson. He embodies the stereotypical Southerner with his slow drawl and laid-back style, unlike many of the alpha males in top posts in the airline industry. Formerly boss of a health company, he took over Delta at the worst of its times in late 2007 and focused on stability. “Delta leads the US industry revival — we aspire to be the leading and most punctual airline in the world.
“Delta leads the way in consolidation with our quite successful merger with Northwest and we aim for long-term and sustainable returns for our shareholders.» The CEO expects Delta will carry about 165 million passengers in 2013.
But despite his demeanour, Anderson is perfectly willing and able to take bold steps if he sees an advantage for his company.
For example he was the first airline boss to purchase his own oil refinery. The facility, in Pennsylvania, enables Delta to produce much of the kerosene it needs in-house, sell other by-products and most importantly save the refinery surcharge airlines normally have to pay on their fuel. Experts estimate an annual turnover of $300 million at Delta’s refinery. “Owning a refinery was an important step for us to regain control over our own destiny,» Anderson explains.
The annual output of the refinery, which is being built in a town called Trainer, will be 3 million gallons (about 11 million litres) of kerosene. In total, Delta currently spends around $12 billion annually on fuel. “Since we own the refinery we were able to push the cost for Jet A1 fuel below market prices,» Anderson enthuses. “That’s an enormous benefit.»
Another important project is due to come on line in the autumn of this year after the European Union gave the green light in June to Delta’s takeover of 49% of the shares in Virgin Atlantic Airways previously owned by Singapore Airlines. At the opening of the new Delta terminal in JFK, Richard Anderson and his Virgin Atlantic counterpart, Sir Richard Branson, appeared together, with the charismatic Branson making a show of cutting off Anderson’s tie. This might be a symbol of things to come in the partnership, with Branson’s airline infusing ‘coolness’ into the more staid Delta.
For Delta, becoming a major shareholder in Virgin Atlantic is an essential way to increase its so-far meagre share in the lucrative transatlantic market out of Heathrow. The two airlines’ deal to cooperate on flights to London’s major airport alone creates three times as much premium traffic as Paris-CDG. The route has 2.7 million passengers travelling every year. London-Los Angeles is the second-most important EU-US market with 1.4 million travellers every year.
In early 2013 Delta had just 14% of the market between London and New York, but together with Virgin its share will rise to 36%, close to market leader British Airways’ 39%.
“In the future we’ll offer 23 daily round trips between us from Heathrow to the US, nine of which are to JFK and back,» Perry Cantarutti said. Teamed up with Virgin he expects a turnover of $3 billion annually. Delta’s share of the total UK-US market is set to rise from 8% to 25%. “This is the last piece of a puzzle for Delta in becoming the largest transatlantic carrier,» Richard Anderson said.
On transpacific routes Delta is already well positioned. Between the start of its merger with Northwest and the final integration of its services into Delta’s network in July 2013, capacity on these routes has grown by 22% while Delta’s US legacy competitors saw 14% growth.
For the Asian routes, Delta follows a multi-hub strategy. There is just one Asian route each from JFK (to Beijing) and Atlanta (to Tokyo-Narita), attributed by Richard Anderson to the lack of range of most of the current long-haul aircraft. “Only the A350-1000 or the 787-10 could enable us to do more non-stop flights from our biggest hubs,» said the CEO.
However, Delta makes up for this with transpacific routes from its hubs at Seattle, Los Angeles and Detroit. The latest routes were launched in June from Seattle to Tokyo-Haneda and Shanghai. The importance of Tokyo-Narita as Delta’s main Far East hub can’t be overstated. It was there that Northwest started a dense network of intra-Asian connections 60-plus years ago and Delta continues to offer a number of onward connections around Asia with its alliance partners in SkyTeam. “We offer more flights from the US to Narita than any other US airline, with 14 non-stop connections daily. It’s our top-performing ‘operational hub in the world and an important asset to Delta,» Anderson said.
On routes to Latin America, Delta has, by contrast, a comparatively weak position and offers just nine destinations, mostly from Atlanta. Instead, Delta is a small shareholder in both Aeromexico (3.5%) and GOL in Brazil (3%) and covers many cities in those partners’ countries. “Aeromexico is one of our most successful investments -Mexico’s aviation is growing at double the rate of the US and that creates a tremendous opportunity for Delta,» Anderson said.
He also has high praise for GOL, despite its recent problems. “It’s a remarkable achievement for GOL to have become the biggest domestic airline in Brazil. They have good market dynamics and we’ll work with them for the long term and assist them in maturing their business model.»
Delta is and remains an important player in US domestic aviation too. “That’s at the heart of our business,» stressed Perry Cantarutti. With a network of 241 US cities served, the offering is a bit bigger than that of United (234 destinations), although American (175) and US Airways (154) together might overtake Delta. The airline has seven hubs in the US, also reflecting the legacy of Northwest Airlines, whose former main hubs in Minneapolis and Detroit have been kept. That at Memphis has recently been abandoned because Delta ended cooperation with Mesaba Airlines, the operator of 50-seater Bombardier CRJ regional jets at the airport. Delta claims the deployment of bigger jets at Minneapolis won’t be economically viable.
Atlanta is by far the most important network base with 940 daily departures, followed by Detroit (502), Minneapolis (434) and, since recently, New York LaGuardia (271) where Delta is the biggest operator since taking over 132 slot pairs from US Airways. Other hubs are Salt Lake City with 260 daily departures, New York JFK (146) and Cincinnati (118).
Delta remains decidedly conservative in its fleet policy. In marked contrast to other big US carriers, it has yet to place a mega-order for next-generation jets, either for medium or long haul. “We wait for the new aircraft to prove themselves before ordering any ourselves,» Richard Anderson told AIR International. “We’d rather get towards the end of a production line because the airplane has probably been stretched, and stretched economics are always better than the original economics.»
Currently Delta operates around 730 jets with an average age of nearly 17 years. “Our fleet is in good shape right now,» Anderson insists, pointing to the 100 ordered Boeing 737-9o0ERs, of which Delta will get one a month from this autumn. “We’re looking forward to an on-time, glitch-free delivery,» he stresses. The last 40 delivery slots for the 737-900ERs can be converted by Delta into orders for the new 737 MAX.
Delta inherited an order for 18 Boeing 787-8s from Northwest. Three years ago it deferred their delivery date to 2020. Anderson hints at a possible change of Delta’s strategy in renewing the long-haul fleet: “And before that, we’ll have a competition between the 787 and the A350.» He has, however, definitely ruled out the A380: “It is just too big. Our passengers want frequency.» There are rumours that Delta is mulling additional wide body orders, either of the A330, of which Delta is the biggest operator in America with 33, or the Boeing 777, but there is no confirmation yet.
The deal under which Delta will take over 88 Boeing 717s from AirTran in the autumn is notable — they are no longer needed by the low-cost carrier after its merger with Southwest Airlines. The aircraft, along with the CRJ900s of Delta’s regional partners, will replace the last 17 DC-9-50s. These veterans, currently flying out of Atlanta, are due to be retired by early 2014. Delta took them over from Northwest, the last big operator of the type in the US, the McDonnell Douglas-built aircraft now being more than 34 years old.
Delta’s current in-flight product, especially in premium classes on long-haul routes, makes the airline a serious competitor to other network carriers. The so-called full-flat seats in business class were retrofitted to long-haul aircraft in less than 18 months, compared to Lufthansa, for example, taking about four years for the same major product upgrade. “By the end of 2014 our total fleet will have increased to about 800 aircraft and it’s very complex to offer a consistent standard of cabin configurations,» Delta’s fleet manager Mike Kotas told AIR International. “Currently we’re retrofitting 50 aircraft in a period of four months to the new full-flat standard. In total, 175 jets will get the new business class.»
This is a complex venture, as Delta’s long-haul fleet boasts no less than 32 cabin versions and four different types of business class seats alone. “But in the end it’s worth doing it commercially. The customer wants to find the newest product onboard within a short period of time,» added Kotas.
So is Delta Air Lines today something like the legitimate successor of Pan Am? “The world has changed so much since Pan Am. They were not allowed to serve domestic routes,» commented Richard Anderson.
“We are a world carrier, not a US flag carrier. Delta wants to appeal to all passengers and we’re proud to have transformed it into an everyman’s airline.»