Remarks by
Jerry Grinstein - CEO
To the: Georgia Chamber of Commerce
January 10, 2005
* * * * * * * AS PREPARED, NOT NECESSARILY AS DELIVERED * * * * * * *
I'm honored to be here with what appears to be most of the leaders in
Georgia's business community.
The partnership between this state and Delta Air Lines extends back to
1930, when our air service to Atlanta first started.
Seventy-five years later, you and the companies you represent, and all
your employees and families continue to be important to us, as customers and as the foundation of a strong community.
More than 27,000 Delta people [Delta, Delta Technology, and ASA] live
and work in Georgia. Altogether, our airline's impact on the state economy is estimated at $11 billion.
We know you're crucial to Delta's success, and we believe - and hope
you believe - that we play an important role here in Georgia.
I want to assure you that our goal at Delta is to weather the current
industry storms and continue serving you now and for the next 75 years.
Change Ahead
There is no doubt, though, that the storms now raging through the
airline industry are extraordinarily fierce.
Two legacy carriers (UA, US) and three smaller airlines (Hawaiian,
Aloha, ATA) currently are operating in bankruptcy. More than 25 percent of all domestic seats today are operated by airlines in Chapter 11. And some of
those airlines will not survive the process.
Though not to this extent, heavy losses and failures have always been
part of the industry. Nearly ten years ago, former Northwest Airlines executive Mike Levine described the industry this way:
"Historically, the airline business has not been run as a real business
. . . that is, a business designed to achieve a return on capital that is then passed on to shareholders. It has historically been run as an extremely
elaborate version of a model railroad --- one in which you try to make
enough money to buy more equipment."
Today, that analysis remains painfully accurate. But in my view,
changes - vast changes - are finally coming. I think the next two years will bring the most dramatic and exciting changes in the history of aviation.
These changes will affect everyone -- customers, investors, employees,
vendors, suppliers, and every airline now flying.
How Delta Saw It
My intent this evening is not to deliver a Delta commercial. But
because how our airline responds to these challenges could significantly impact this state and this region, I'd like to share with you some of the thinking behind the strategy we're pursuing.
As 2004 began, it was clear that the long-standing airline industry
pattern for network carriers of living from up-cycle to up-cycle was a thing of the past. Newly cost-conscious consumers who shopped the web for the best fares plus the growing presence of discount carriers with low, low cost
structures signaled a new era.
Network airlines were going to have to figure out how to survive - and
hopefully thrive - in a competitive environment that had changed
structurally and permanently.
Here's what Delta knew at that time: Our costs were too high, our
balance sheet was depleted, and our passengers didn't trust our fares.
We realized, too, that we had lost some of our focus on what Delta
customers valued.
And, we knew we were too complicated. Delta had too many plane types to
be as operationally efficient as, for example, Southwest. Our Frequent Flyer
program resembled some errant IQ test. And our fare structure was a mystery
to almost everyone.
Basically, had we continued on our course, Delta as you and the rest of
the world know us could not have survived.
Delta's Direction
As our company looked ahead, a basic premise was that we would work to
avoid bankruptcy.
Since deregulation in 1978, more than 140 carriers have filed for
bankruptcy. Only two of those -- Continental and America West -- have
emerged as viable competitors.
Now, throughout the first several months of 2004, Delta was engaged in
a strategic reassessment. We were working to develop a plan that would
rebuild the Delta brand.
Some equity remained from our airline's long-standing reputation for
excellent service and its designation in past years as a great place to
work.
The attribute that had faded in Delta's relationships with both
customers and employees was trust. We knew that restoring that trust would be a crucial component of any future success.
As our company renews its commitment to customers, we're also working
to strengthen the relationship with Delta people - including those who live
here in Georgia.
Of course, given the industry situation, our airline had no choice but
to embark on a transformation process. We needed to take our foundation as a
respected, established company and make create from that a carrier that
could survive, compete and succeed in the new marketplace.
Delta had to achieve very low costs, very low fares, and simplified
operations.
This past September, we announced a new transformation plan designed to
accomplish all those things. With dramatic industry developments coming
fast and furious, we knew the content and the timing for a new strategy
launch would never be perfect.
And we knew we would make some mistakes. But what was also absolutely
clear was that erring was better than sitting still, which would doom us.
Delta's Progress - Simplifares
Since then, we've launched many initiatives, including several aimed at
improving the customer experience. These include refurbishment of aircraft
interiors, the addition of technology such as airport kiosks that saves you
time, and the simplifications of the SkyMiles program for our Medallion
members.
Last week, we made a lot of news when we announced another initiative,
the expansion of Simplifares - Delta's new, simple, and affordable domestic
pricing structure for all of our passengers.
We agree with Albert Einstein, who once said: "Everything should be
made as simple as possible." You can't deny that there is a certain genius to that theory. So we took it to heart. Simplifares is not a gimmick and it is not a sale. Rather, it is a fundamental change in the way we do business.
We are cutting unrestricted fares by as much as 50 percent on some
routes, getting rid of archaic Saturday-night-stay requirements, and reducing the change fees that make so many passengers irate.
Delta is peeling back layers of fare complexity --- and replacing them
with an easy-to-understand, value-priced alternative. We want every passenger to know they are getting real value for their money. Delta believes that is a fundamental component if we are to restore trust to our relationship with customers.
To make these and other changes possible and still remain a viable
company, Delta is working to reduce costs by an estimated $5 billion in annual savings as compared to 2002.
We're halfway to our goal, with the remainder of the savings already
targeted.
Operation Clockwork
I also want to tell you about another exciting initiative we're
launching at the end of this month that we're calling Operation Clockwork.
Operation Clockwork is designed to reduce delays and improve on-time
performance, which you have told us is the number one factor in customer
satisfaction.
On January 31, Delta will restructure its Atlanta airport operations.
We'll reschedule flights to remove the peaks and valleys of arrivals and
departures, creating a smooth, steady flow.
The result will be less congestion for aircraft - and therefore fewer
delays - and also less crowding for passengers in the terminal.
By creating this continuous flow, Delta can increase the average number
of daily departures at the Atlanta airport from 970 to 1051, while at the same time reducing the average number of flights arriving each hour from 88 to
69.
The efficiency gains from this initiative alone will free up the
equivalent of 19 aircraft which Delta can use to provide customers with more
destinations and more frequent service.
In the coming months, Delta will continue its transformation process
with these and other, new initiatives.
One thing we know is that we can't compete in this marketplace if our
costs are too far out of line, and we can't win business if we don't put
customers first. This is certainly not news to all of you in the business
community. But it is a balance that the network carriers have struggled to
achieve. Delta intends to strike that balance, because it is essential for
our long-term presence.
Thank you for bearing with me so late into the evening. Franklin
Roosevelt often advised fellow politicians on the secrets to a successful speech. A good speaker, FDR said, should be sincere, be brief and then be seated. And very soon, I will be. But I want to assure you that, despite the gloomy forecast for the industry as a whole, I remain encouraged about our progress at Delta because I believe that we have the people and the plan to succeed.
Already, we have overcome considerable odds. As a result, we've built a
strong platform from which to execute the next phase of our strategic plan.
And we are going forward with drive and determination.
Finally, I want to thank you again . . . all of you who have done so
much to support us and work with us as we navigate some difficult financial
times.
I know many of you have worked aggressively on our behalf in support of
Delta's bid to offer daily non-stop service between Atlanta and Beijing -
one of the first new routes open between the U.S. and China in more than 20
years. This would be a terrific boon to the economy in Georgia and
throughout the Southeastern states. As always we appreciate your business.
And we truly value your support.
We know you depend on us to maintain Georgia's position as the
transportation center of the south. The going over the next several years
will be tough for Delta, with significant challenges.
Our goal is to continue to lead the way with a new breed of airline
that you can continue to count on.
Thank you.
Statements in this speech that are not historical facts, including
statements regarding Delta's estimates, beliefs, expectations, intentions,
strategies or projections, may be "forward-looking statements" as defined
in the Private Securities Litigation Reform Act of 1995. All
forward-looking statements involve a number of risks and uncertainties that
could cause actual results to differ materially from the estimates,
beliefs, expectations, intentions, strategies and projections reflected in
or suggested by the forward-looking statements. Information concerning
risks and uncertainties that could cause differences between actual results
and forward-looking statements is contained in Delta's Securities and
Exchange Commission filings, including its Form 10-Q for the quarter ended
September 30, 2004 filed with the Commission. Caution should be taken not
to place undue reliance on Delta's forward-looking statements, which
represent Delta's views only as of November 15, 2004, and which Delta has
no current intention to update.