"But Mr. Grinstein wants Delta to shed some of the hopelessly unprofitable spokes. Those into its Dallas hub are likely to be at the top of the list."
Flight Upgrade
With Delta Reeling, Chief Plans
Unusual Bet on Premium Routes
As Losses Mount, Mr. Grinstein
Pairs Cost Cuts With Extras;
Leather Seats in Coach
Big Risks in Crowded Skies
By EVAN PEREZ
Staff Reporter of THE WALL STREET JOURNAL
August 16, 2004; Page A1
ATLANTA -- One sweltering day in June, Delta Air Lines Chief Executive Gerald Grinstein tried to pep up a crowd gathered to mark the struggling airline's 75th anniversary. His best shot: the tale of how Delta overcame disaster when the stock-market crash of 1929 grounded its first attempt to evolve from crop dusting to carrying passengers.
Seven months after taking over as CEO of the third-largest U.S. airline, the 72-year-old Mr. Grinstein is working feverishly to save Delta from catastrophe again. Already in trouble before the Sept. 11 attacks and in near free-fall since, Delta has had losses of more than $5.6 billion over the past three years and racked up $20.6 billion in debt. If it keeps burning through cash at its current rate of more than $4 million a day, it may be forced to file for bankruptcy in the fall, according to internal company calculations.
http://online.wsj.com/public/resources/images/Grinstein_Gerald-GD55208152004195208.gif
Like his rivals at the other traditional carriers, Mr. Grinstein has improved Delta's efficiency by taking a careful look at low-cost Southwest Airlines. But instead of simply hoping that customers won't notice the cuts, Mr. Grinstein is pairing them with service improvements, aiming to chart a new flight path for a profitable full-service airline. In a time when plane tickets have become largely a price-driven commodity, he wants to take a page from Starbucks and customize the flying experience on Delta to justify charging a modest premium.
Many specifics of Mr. Grinstein's plans remain closely guarded, and he declined to be interviewed. But according to people familiar with his thinking and to accounts of recent discussions among senior management and investors, Mr. Grinstein has plans to gamble Delta's future on an unusual strategy. It would cede some market share in the U.S.; increase spending to improve customer service and amenities; and, most radically, focus Delta on tapping the last truly rich vein of passenger aviation: flights across the Atlantic, to Latin America, and between the East and West coasts. Those long routes are the last passenger-airline sector in which major airlines have held their own against low-cost competitors, and where more passengers remain willing to pay for the comfort of spacious jets and attentive service.
"Our aim should be to become a long-haul carrier," Mr. Grinstein said in one meeting with employees earlier this summer, according to several people who were present. Quizzed by a doubter who said the idea sounded like the last-gasp strategy of now-defunct Pan Am in the 1980s, Mr. Grinstein rejoined, "No, that's the future," these people said.
http://online.wsj.com/public/resources/images/P1-AB836_Grinstein08152004222916.gif
How much of Mr. Grinstein's big vision for Delta will survive once the ideas meet reality isn't certain. In a meeting this week, the chief executive will begin to try to win over the board to important elements of his plan.
The risks are clear, in a business where rivals would likely move quickly to challenge any well-laid plans and where restructuring often proves difficult. In the transcontinental markets, for example, UAL Corp.'s United Airlines, the No. 2 carrier, has announced it plans a new premium service for some routes. Industry analysts say it's partly to head off Virgin Group's plans for a flashy new domestic U.S. discount carrier. Already, the premium revenue of the transcontinental market lured airlines into increasing capacity and caused a bruising competition this spring. Some of Delta's plans are similar to a strategy British Airways pursued after it embarked on its own restructuring in 2000. That project is still a work in progress.
Meanwhile, in talks with the rank and file, Mr. Grinstein has criticized prior management's mistakes and presented himself as a sharp departure, despite having been a Delta director for the past 17 years.
Leaders of Delta's pilots union have blasted the company's demand for $1 billion in give-backs from a contract negotiated just months before Sept. 11 pushed the airline industry into its worst crisis since the 1970s. The union questioned whether Mr. Grinstein is purposely pushing the company into bankruptcy. Delta officials quickly dismissed the suggestion and asked for "cooler rhetoric."
Mr. Grinstein has tried big turnarounds before, to mixed results. The Harvard-educated lawyer and former "shadow senator," as chief aide to the late Sen. Warren Magnuson of Washington state, was a board member of Western Airlines when it turned to him as chief executive amid a financial crisis in 1985. Partly thanks to pay concessions he helped wring from employees, Western emerged as an $860 million acquisition for Delta in 1987. After the deal, Mr. Grinstein became a major player on Delta's board.
In 1989, Mr. Grinstein became CEO of Burlington Northern Inc., where he had a harder time trying to rescue a problem-plagued business. He left soon after he oversaw the railroad's 1995 acquisition of Santa Fe Pacific Corp. -- a deal that grew messy and expensive after rival Union Pacific Corp. tried to make its own bid for Santa Fe.
Delta was about to go through its own trials. In the late 1990s, at the height of the road-warrior business culture, Delta was churning out record profits under CEO Leo Mullin. But its fortunes soured amid rising competition from discounters and the economic slowdown before and after the terrorist attacks in the U.S. Mr. Mullin laid off 16,000 employees. At the same time, however, Delta's board granted Mr. Mullin and other executives special retention bonuses and retirement accounts.
Last November, Mr. Mullin announced his retirement amid stalled early contract talks with pilots and the festering controversy over the management perks. The board turned to Mr. Grinstein in January, tasking him with getting a deal with the pilots and pulling Delta out of its dive. At Delta's shareholders' meeting in April, Mr. Grinstein acknowledged the anger of employees and shareholders alike. "It seems to me that what we have is a delicate situation where the bonds between management and employees have been damaged and need to be restored," he said.
Mr. Grinstein, who maintains a grandfatherly demeanor despite demanding bone-crushing concessions, is still working to get some at Delta to follow his lead. Even as he stressed to employee groups the importance of being more passenger-friendly, the airline faced anger from many of its high-mileage "Medallion" frequent fliers, who were contending with fewer perks in its SkyMiles loyalty program.
"They drove away God knows how many silver and gold Medallion members, which is sheer lunacy," says one heavy Delta flier, Robert Shostack, a New York textile executive. One group of Medallion members bought billboard and newspaper ads to protest the cutback in perks.
Delta defends the changes. Meghan Glynn, a spokeswoman, says roughly the same number of customers earned Medallions after the changes, but they generate more revenue "as a result of customers purchasing a slightly higher mix of fares in order to maintain or improve their status."
In recent weeks, Mr. Grinstein has stepped up a campaign to rally managers and the rank and file around his vision. At the heart of the design is the question of whether, after a decade in which air travel has become as commoditized as coffee, an airline can "pull a Starbucks" and charge more for premium offerings.
Part II below
Flight Upgrade
With Delta Reeling, Chief Plans
Unusual Bet on Premium Routes
As Losses Mount, Mr. Grinstein
Pairs Cost Cuts With Extras;
Leather Seats in Coach
Big Risks in Crowded Skies
By EVAN PEREZ
Staff Reporter of THE WALL STREET JOURNAL
August 16, 2004; Page A1
ATLANTA -- One sweltering day in June, Delta Air Lines Chief Executive Gerald Grinstein tried to pep up a crowd gathered to mark the struggling airline's 75th anniversary. His best shot: the tale of how Delta overcame disaster when the stock-market crash of 1929 grounded its first attempt to evolve from crop dusting to carrying passengers.
Seven months after taking over as CEO of the third-largest U.S. airline, the 72-year-old Mr. Grinstein is working feverishly to save Delta from catastrophe again. Already in trouble before the Sept. 11 attacks and in near free-fall since, Delta has had losses of more than $5.6 billion over the past three years and racked up $20.6 billion in debt. If it keeps burning through cash at its current rate of more than $4 million a day, it may be forced to file for bankruptcy in the fall, according to internal company calculations.
http://online.wsj.com/public/resources/images/Grinstein_Gerald-GD55208152004195208.gif
Like his rivals at the other traditional carriers, Mr. Grinstein has improved Delta's efficiency by taking a careful look at low-cost Southwest Airlines. But instead of simply hoping that customers won't notice the cuts, Mr. Grinstein is pairing them with service improvements, aiming to chart a new flight path for a profitable full-service airline. In a time when plane tickets have become largely a price-driven commodity, he wants to take a page from Starbucks and customize the flying experience on Delta to justify charging a modest premium.
Many specifics of Mr. Grinstein's plans remain closely guarded, and he declined to be interviewed. But according to people familiar with his thinking and to accounts of recent discussions among senior management and investors, Mr. Grinstein has plans to gamble Delta's future on an unusual strategy. It would cede some market share in the U.S.; increase spending to improve customer service and amenities; and, most radically, focus Delta on tapping the last truly rich vein of passenger aviation: flights across the Atlantic, to Latin America, and between the East and West coasts. Those long routes are the last passenger-airline sector in which major airlines have held their own against low-cost competitors, and where more passengers remain willing to pay for the comfort of spacious jets and attentive service.
"Our aim should be to become a long-haul carrier," Mr. Grinstein said in one meeting with employees earlier this summer, according to several people who were present. Quizzed by a doubter who said the idea sounded like the last-gasp strategy of now-defunct Pan Am in the 1980s, Mr. Grinstein rejoined, "No, that's the future," these people said.
http://online.wsj.com/public/resources/images/P1-AB836_Grinstein08152004222916.gif
How much of Mr. Grinstein's big vision for Delta will survive once the ideas meet reality isn't certain. In a meeting this week, the chief executive will begin to try to win over the board to important elements of his plan.
The risks are clear, in a business where rivals would likely move quickly to challenge any well-laid plans and where restructuring often proves difficult. In the transcontinental markets, for example, UAL Corp.'s United Airlines, the No. 2 carrier, has announced it plans a new premium service for some routes. Industry analysts say it's partly to head off Virgin Group's plans for a flashy new domestic U.S. discount carrier. Already, the premium revenue of the transcontinental market lured airlines into increasing capacity and caused a bruising competition this spring. Some of Delta's plans are similar to a strategy British Airways pursued after it embarked on its own restructuring in 2000. That project is still a work in progress.
Meanwhile, in talks with the rank and file, Mr. Grinstein has criticized prior management's mistakes and presented himself as a sharp departure, despite having been a Delta director for the past 17 years.
Leaders of Delta's pilots union have blasted the company's demand for $1 billion in give-backs from a contract negotiated just months before Sept. 11 pushed the airline industry into its worst crisis since the 1970s. The union questioned whether Mr. Grinstein is purposely pushing the company into bankruptcy. Delta officials quickly dismissed the suggestion and asked for "cooler rhetoric."
Mr. Grinstein has tried big turnarounds before, to mixed results. The Harvard-educated lawyer and former "shadow senator," as chief aide to the late Sen. Warren Magnuson of Washington state, was a board member of Western Airlines when it turned to him as chief executive amid a financial crisis in 1985. Partly thanks to pay concessions he helped wring from employees, Western emerged as an $860 million acquisition for Delta in 1987. After the deal, Mr. Grinstein became a major player on Delta's board.
In 1989, Mr. Grinstein became CEO of Burlington Northern Inc., where he had a harder time trying to rescue a problem-plagued business. He left soon after he oversaw the railroad's 1995 acquisition of Santa Fe Pacific Corp. -- a deal that grew messy and expensive after rival Union Pacific Corp. tried to make its own bid for Santa Fe.
Delta was about to go through its own trials. In the late 1990s, at the height of the road-warrior business culture, Delta was churning out record profits under CEO Leo Mullin. But its fortunes soured amid rising competition from discounters and the economic slowdown before and after the terrorist attacks in the U.S. Mr. Mullin laid off 16,000 employees. At the same time, however, Delta's board granted Mr. Mullin and other executives special retention bonuses and retirement accounts.
Last November, Mr. Mullin announced his retirement amid stalled early contract talks with pilots and the festering controversy over the management perks. The board turned to Mr. Grinstein in January, tasking him with getting a deal with the pilots and pulling Delta out of its dive. At Delta's shareholders' meeting in April, Mr. Grinstein acknowledged the anger of employees and shareholders alike. "It seems to me that what we have is a delicate situation where the bonds between management and employees have been damaged and need to be restored," he said.
Mr. Grinstein, who maintains a grandfatherly demeanor despite demanding bone-crushing concessions, is still working to get some at Delta to follow his lead. Even as he stressed to employee groups the importance of being more passenger-friendly, the airline faced anger from many of its high-mileage "Medallion" frequent fliers, who were contending with fewer perks in its SkyMiles loyalty program.
"They drove away God knows how many silver and gold Medallion members, which is sheer lunacy," says one heavy Delta flier, Robert Shostack, a New York textile executive. One group of Medallion members bought billboard and newspaper ads to protest the cutback in perks.
Delta defends the changes. Meghan Glynn, a spokeswoman, says roughly the same number of customers earned Medallions after the changes, but they generate more revenue "as a result of customers purchasing a slightly higher mix of fares in order to maintain or improve their status."
In recent weeks, Mr. Grinstein has stepped up a campaign to rally managers and the rank and file around his vision. At the heart of the design is the question of whether, after a decade in which air travel has become as commoditized as coffee, an airline can "pull a Starbucks" and charge more for premium offerings.
Part II below