I know it’s been almost a month since by visit to Delta, but I still have just a couple more posts. Today, it’s time for a good old-fashioned Across the Aisle.
In a very strange legacy of the old days, Delta’s exec team has its own office building that’s full of wood trim and is somewhat imposing. With that first impression, I expected some serious formality for my meeting with Glen Hauenstein, EVP Network Planning, Revenue Management and Marketing. Glen is not what I expected. When I walked into his large office, he was welcoming but quiet (the latter of which seems to surprise many). We headed over to his sitting area to have a wide-ranging chat on the business.
Cranky: Tell me more about your current planning strategy. You’ve added flights in Raleigh, there’s the new Heathrow flying. I don’t quite understand if there’s a set strategy here or if it’s just opportunistic.
Glen: The US domestic carrier model is evolving and there are lots of changes. In the last year, American has vacated nonstop service from Raleigh/Durham and St Louis. The airline industry has an amazing ability to fill voids. Look at Eastern. They disappeared and the void was filled almost instantly.
So, we’re always looking for opportunities in markets that are underserved by other carriers. We’re willing to experiment. If we weren’t willing to experiment, we wouldn’t have found things like Africa. By nature, it’s a very risky business, so you have to be willing to take risks.
Cranky: Ah, so it’s about American right now?
Glen: When American chooses to vacate Hartford to Raleigh/Durham, we chose to fly it with a regional jet. That’s not against American, one man’s loss is another man’s gain. I don’t know if this will work, but it’s worth trying.
Cranky: Let me stick with the American theme for a second. What about New York City, where you compete with them? How are things going?
Glen: We’re very pleased with our New York performance, especially this year. That’s a big lynchpin. Look at the total seats in the metro area and we’re in a virtual dead heat with Continental.
Cranky: Now I have to ask, what does it mean for you to “win” New York. Delta likes to say that a lot, but it’s not clear exactly what that means. How do you win and beat the other guys?
Glen: It’s not necessarily about beating the other guys. For us to win, we have to have a long term sustainable franchise. Does that mean others have to lose? More reporters like to drum that up. This isn’t a war, it’s about market equilibrium.
Right now, we’re really working hard on LaGuardia. We’re adding bigger clubs, better concessions . . . just trying to make the New York experience better.
Cranky: That brings me to the slot swap. Where does that stand right now? I know you have the litigation, but do you think there’s hope for this?
Glen: Clearly we have litigation that’s proceeding, but we’d hope that this could be resolved without it. There are several new facts that have come out since that order. First is JetBlue entering National. Second is the Continental/United agreement with the DOJ at Newark. Hopefully we get another opportunity to talk to the government because legal action is a last resort.
Cranky: But you’re going ahead with fixing up LaGuardia even though you were proposing to switch terminals there?
Glen: Making our customers wait for the resolution [to the swap] wasn’t something we could do. I’m pretty excited about how the LaGuardia experience will change.
Cranky: Sticking with the other big New York issue, what about the 3 hour ground delay rule? New York is obviously the epicenter of that. What do you think about it?
Glen: I think the government’s intentions were honorable. Whether it has the desired end result depends on who you’re talking to.
Cranky: Have there been more cancels because of it?
Glen: We have turned back flights getting close to 3 hours and have canceled them. The total number is not that great, but if you’re on a plane that gets turned back at 2.5 hours and cancels, then it becomes very personal.
The first of part of solving a problem is deciding whose problem it is to solve. It has to be a collaborative effort [and not just on the airlines]. Government has come to solutions before that have worked. When you have tarmac delays approaching 3 hours, there is something wrong in the equation.
Cranky: Let’s head to the other side of the country. You’ve tried to build up LAX a couple of times and it hasn’t worked. So what are your plans for our side of the country?
Glen: Well, we have a four corner strategy. We have great positions in New York, Atlanta, Seattle, and now LAX with Alaska. With Alaska, it’s our intent to position the two carriers together as much as possible. The terminal relocation has been delayed a couple times, but it looks like there’s a firm date in early 2011 now. Putting more feed into that gateway is important. Long haul does really well for us.
Cranky: I’m curious about Alaska, because they also work with American. Is the current setup sustainable?
Glen: Alaska has been a great partner and we’ve had a very successful launch of new services with them. For example, 73 percent of people on our new Transpacific flights from Seattle are connecting. Some of that is from Delta hubs, but Alaska is a big part of that. The travel experience is seamless. It will be great for Seattle too. Being able to provide long haul to connect with Alaska, it’s worked out. It’s a great relationship and we’re excited about the future there and in LA.
Cranky: Let’s talk about our favorite buzzword, ancillary revenue. Is there any low-hanging fruit left? What’s next?
Glen: It’s an opportunity to give consumers more choice. On one end of the spectrum is the Spirit model. We don’t aspire to be that, but I do admire their model. This industry is on the verge of letting customers choose what’s important to them. Airlines have always been viewed as a “yes or no” company. Allowing consumers to choose from a menu, build your own airline seat/experience is great. The ability to segregate out people who just want the rock bottom fare versus the person who wants it all, it’s something we don’t really do well today.
Different airlines have different approaches to the merchandising side of the model. It gives the opportunity to differentiate experience. One issue is that the guy paying $700 is sitting next to the guy paying $79. The reason we can have 15 flights in a market is both of those guys. But in the product delivery itself, how do you make that $700 person feel like they’re getting more. It’s about differentiating the product.
Cranky: Now, from the SkyMiles side, how do you deal with the highest elite members not necessarily bringing the highest value?
Glen: Every industry has that issue. We’re figuring out how to recognize the highest yielding customers. It’s not so much a problem of Diamond members not deserving to be there but rather there are Silver and Gold members who should be higher.
Cranky: Is SkyPriority one of the vehicles for that?
Glen: It’s one, I think. There is a large amount of work on the tech side so our most valuable clients are taken care of. It’s important. Go back to places like Raleigh/Durham. We are the largest carrier, but people have many choices.
Cranky: Let’s switch gears a little here. I’m hearing that your summer operational performance was not very good. Have you figured out what happened?
Glen: We gave ops a very challenging schedule to achieve. In turn, ops was trying to streamline some of its practices. We may have crossed in the night on that. By the second week of August, they were at the top of their game. A sign of a good airline is when they face those challenges head-on, find it really quick. It was clearly not something we were excited about, but it got fixed.
Cranky: Before I let you go, I have to ask you about one of my favorite things. You were at Alitalia right?
Glen: Yeah, it was a very interesting place. Until recently it was owned by the state. So imagine if there was one US airline and it was run by the government. How would that be? Given that constraint, I’d say they’re actually doing pretty well. But things are changing.
Cranky: Thanks for taking the time to talk Glen.
Glen: My pleasure. Have a safe flight home.
And with that, I was off to chow down on some good ole’ Southern cookin’ (followed by the customary triple bypass). Thanks once again to the Delta folks for bringing me out there. This was a great way to get a better understanding of where they’re trying to steer this ship. Of course, steering a massive airline this size is a lot easier to talk about than it is to achieve. So now we get to sit back and watch as they work to make big changes.