Delta Air Lines Inc.

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Delta Air Lines Inc.

Hartsfield International Airport
Atlanta, Georgia 30320
U.S.A.
(404) 765-2600

Public Company
Incorporated: in 1934 as Delta Air Corporation
Employees: 39,000
Sales: $4.517 billion
Market value: $2.894 billion
Stock Index: New York

Delta Air Lines is one of the United States’ most successful air carriers. With the exception of 1983, the company hasn’t lost money since 1947. Originally founded as a crop dusting service in 1924, Delta was led for forty years by an agricultural scientist and pilot named Collet Everman Woolman. Until his death in 1966 Woolman dominated the operations of Delta. In this sense he was similar to his three major competitors, Eddie Rickenbacker at Eastern, Juan Trippe at Pan Am and Howard Hughes at TWA.

The company started in 1924 when Woolman and an associate joined a conversation with some Louisiana farmers concerned about the threat to their crops from boll weevils. Woolman knew that calcium arsenate would kill the insects, but the problem was how to effectively apply the chemical. Having learned to fly the boxy “flying Jennys” during World War I, Woolman considered dropping the chemical from an airplane. He engineered a “hopper” for the chemical and later perfected the system, and then began selling his services to farmers throughout the region. As a result, the world’s first crop dusting service, named Huff Daland Dusters, was born.

In 1925, Woolman left the agricultural extension service to take charge of the duster’s entomological work. In 1928 the crop dusting operation broke away from its parent company to become Delta Air Service. Woolman continued his crop dusting business across the South and expanded into Mexico and South America. The company began to diversify by securing air mail contracts, and in 1929 inaugurated passenger service between Dallas and Jackson, Mississippi. Later, routes to Atlanta and Charleston were added.

The airline began its climb to prominence when the U.S. government awarded it an airmail contract in 1930. The company remained in business during a temporary but costly suspension in the airmail contract system in 1934. The company, now called Delta Air Corporation, was later awarded three more airmail contracts by 1941. During World War II Delta, under contract to the War Department, devoted itself to the allied war effort by transporting troops and supplies. Delta returned to civilian service in 1945, and entered an age of growth and competition in the airline industry never seen before.

On May 1, 1953 Delta merged with Chicago and Southern Airlines and continued to prosper as a major regional trunk carrier through the 1950’s and 1960’s. In June of 1967 Delta merged with Delaware Airlines and officially adopted the name Delta Air Lines.

Delta’s exposure to the Northeast increased with the acquisition of Northeast Airlines on August 1, 1972. In July of 1976 Delta purchased Storer Leasing, a move which added several jets to the existing fleet of about 200. Recognizing the value of high technology Delta formed two computerized marketing subsidiaries, Epsilon Trading Corporation in 1981 and Datas Incorporated in 1982. These organizations were created to coordinate and sell more passenger seats on all Delta flights.

Delta’s consistent growth can be partially attributed to its successful transition of leadership. In the early days of commercial air transport airlines were run by individual men who would be better described as aviation pioneers first and as businessmen second. At American, Eastern, Pan Am, TWA, and Delta, these men established what can be described as almost dictatorial operations and retained their posts as long as they possibly could. Many of thse men were majority stockholders who categorically refused to share their power or prepare any successor to operate the company after they died. In many airline companies, when the chairman did eventually die, there was a difficult period of time readjusting to new management.

The departure of Delta’s Woolman, however, was not surrounded by difficulties. He suffered a heart attack in his late 60’s and was forced to relinquish some of his duties to Delta’s board members. As Woolman’s health deteriorated the board members gradually assumed more of his duties until he finally died at age 76. Fortunately, the airline was able to make a smooth transition to a more modern, corporate style of collective management. Although Woolman’s absence was deeply felt at Delta, business continued as usual.

Delta is recognized for having one of the best planning and management teams in the airline industry. Specifically, Delta’s management is agile and responsive to problems which arise. A sound financial policy allows greater flexibility in decision-making even at the highest levels. And a concensus-style of management may be said to afford Delta cohesiveness and enduring stability.

Delta has the highest productivity in the “trunk,” or domestic, airline business. The company is on very good terms with its employees who are noticeably non-unionized. Their willingness to adjust to the needs of the company provides Delta with the unique ability to weather hardships in the airline industry. Actually only the pilots and the dispatchers are organized employees. The machinist’s union, for example, reports that it is difficult to organize Delta employees because the company maintains pay and benefits above its unionized competition. As long as the company outperforms union contracts there is no incentive for the worker to unionize.

Delta is known for treating all of its employees as “family,” and has gone a long way to avoid layoffs. During the 1973 oil crisis and the 1981 PATCO strike, for instance, the airline refused to release workers even though its profitability was compromised. In the absence of union rules and constraints, employees are able to be moved on a regular basis to other positions in order to fill temporary labor shortages. These measures are a major reason why the company remains competitive.

Although the company did not invent it, Delta was the first airline to widely employ the so-called “hub and spoke” system. Under this system a number of flights are scheduled to land at a hub airport within approximately 30 minutes. This allows passengers to make connections for final destinations conveniently and quickly. The “big push,” as it is called, occurs about ten times a day at the Atlanta hub. Regarded by management as an effective marketing tool the “big push” is not, however, immune to problems caused by bad weather or maintenance delays. Delta also operates hubs at Dallas/Fort Worth, Boston, Memphis and Cincinnati in addition to Atlanta.

Delta has the most modern jetliner fleet in domestic service. They are not known for purchasing new models until they have been proven, often in a costly way at other airlines. This “wait and see” policy saved the company a large amount of money when it refrained from purchasing Lockheed’s 1011. Only after competing airlines had used the L-1011 for a number of years did Delta purchase the plane. At the present time Delta is replacing its Boeing fleet of 727s with the 757, 767 and MD-88. These are technologically advanced and fuel efficient planes which Delta plans to employ for the next 20 years or longer. In fact, the decision to replace the 727 was made in the early 1970’s. It is typical of Delta that a 15 year strategy for flight equipment and support facility planning is used. According to vice chairman and chief financial officer Robert Oppenlander, “success is based on the long term maintenance of a technical edge, which is cost efficiency.”

Delta is known for having the most conservative balance sheet in the industry. With a debt-equity ratio that is consistently below one to one, (meaning that their debts are usually outweighed by their net worth) the company can afford to do most of its financing internally. Such a conservative character is aptly reflected in this statement by the late chairman W.T. Beebe: “We don’t squander our money on things like goofy advertising.”

Recently, Delta has taken on a more aggressive corporate personality. Its committment to internal growth has been threatened by a general trend in the industry toward external growth. Delta is becoming relatively smaller as companies such as TWA, Texas Air and Northwest expand through mergers. In 1986 Delta announced its intention to take over the Los Angeles-based Jet America. However, the $18.7 million deal never materialized.

Later that year Delta went ahead with the $680 million purchase of another air carrier based in Los Angeles, Western Air Lines. Delta’s chief executive officer, David Garrett, explained that “for a merger to be worthwhile, two plus two has to equal seven.” Enlarged by Western’s hubs in Los Angeles and Salt Lake City, Delta management might be able to make that kind of math work. Yet there are problems with integrating Western’s unionized workforce into Delta’s system. Nevertheless, as Garrett noted, when Delta merged with Northeast Airlines in 1972 Northeast’s unions dissolved.

This airline has adhered to the principles of its founder, C.E. Woolman, by placing a high value on people, both its customers and its personnel. Woolman used to ride on flights and mingle with the passengers in an effort to gauge the public opinion concerning his airline. He was once quoted as saying: “We have a responsibility over and above the price of a ticket, let’s put ourselves on the other side of the counter.”