For a time this year, it seemed that Delta Air Lines wasn't ready when you were.
The most profitable airline in the industry and a longtime favorite of Wall Street, Delta was experiencing eroding traffic and a declining market share, and red ink began seeping into its normally strong income statements.
David C. Garrett Jr., president of the airline, which is based here, still could brag at the company's annual meeting last month that Delta's latest fiscal year, ended June 30, 1982, was the 35th in a row for which Delta showed a profit, and the 33rd consecutive year in which it paid cash dividends to its shareholders.
But its $20.8 million in earnings were down 86 percent from 1981's record $146.5 million, and came despite an operating loss -- its first since 1947. (Income from other sources and tax benefits more than offset the losses from operations.)
In the quarter ended last March, the airline reported a net loss of $18.4 million, its first quarterly loss in 25 years, and in the third quarter -- the first three months of Delta's current fiscal year -- it reported a net loss of $16.1 million.
Some of the reasons for Delta's slump were common to the industry -- the weak economy, air traffic restrictions and reduced schedule flexibility, fare wars and heightened competition stemming from deregulation. But in the past Delta had borne those problems better than other airlines.
The nation's sixth largest airline, Delta saw its passenger traffic decline 4 percent in fiscal 1982 for the second consecutive year. Its load factor, the percentage of seats filled, began falling sharply -- to a low of 43.4 percent in September, compared with an industrywide 62.5 percent. Its share of domestic industry traffic fell from 13.3 percent in 1981 to 11.5 percent in July and August, noted Julius Maldutis of Salomon Brothers.
Says one federal official: "I think Delta got caught napping."
Since deregulation gave carriers the freedom to fly new routes, Delta has faced increasing competition from carriers like aggressive Piedmont Airlines, which used to feed passengers to Delta in Atlanta. Now Piedmont itself takes those passengers to their destinations; its traffic was up 21 percent for the first nine months of 1982.
Delta also lost a significant chunk of traffic on two key routes -- from its hub, Atlanta, to San Francisco and Los Angeles -- to its longtime rival, Eastern Airlines.
"We probably did allow the competition to get a leg up on us," admits Joseph A. Cooper, Delta's senior vice president-marketing. Delta was anxious to improve the revenue it was getting from the passenger -- what the industry calls yield -- and had begun limiting fare discounts and refusing to match other airlines' lower fares. Yield did improve, but not enough to offset the decline in traffic, Cooper said.
The bad September showing led to a change in pricing policy. "We're going to be competitive," Cooper now promises. "If you get a reputation for having no discounts, passengers won't call you. . . . Everyone's looking for the low fare today, and I don't blame them a bit."
Delta now matches any airline's discounts between any two cities Delta flies, Cooper says, and it's taking the initiative with other discounts. To lure travelers who take to their cars for short distances, Delta instituted a "commuter" fare that halves the price for flights in and out of Atlanta within 375 miles before 8 a.m. and after 7 p.m. It also lowered its first-class fares for its "frequent flyers."
Jumping into the intercorporate promotion game, Delta is promising two tickets for the price of one to buyers of Polaroid cameras this Christmas. (Delta figures the offer is worth the exposure it gets in prime-time TV ads paid for by Polaroid.) And some of its former staid schedule-oriented advertising has been replaced by "supermarket-type" ads featuring fare specials.
Delta has taken several other steps to catch up with the competition. Having lagged in automation, Delta recently joined American, United and Trans World airlines' computerized reservations systems of preferred flight listings, which are used by many travel agencies. (Analysts believe Eastern's inroads into Delta's Atlanta-West Coast routes were aided by Eastern's featured schedule position in American's Sabre system.)
Moreover, Delta has begun marketing its own Datas II reservations system, which lists all airlines' flights by departure time. Delta is hoping the absence of bias in the system will appeal to travel agents and win customers. And it has just started a computerized advance seat selection and boarding pass system to match those of some of its competitors.
Officials of the 53-year-old airline think they recognized the causes of their problems and made the necessary changes soon enough. One possible indication: Delta's traffic, which fell 7.4 percent in September, rose by 385,000 passengers in October, to a level about equal with that of October 1981.
While it is changing its marketing, however, it will not revise its long-term operating philosophy despite the tougher times and criticism by some analysts, officials emphasized in interviews here. That program stresses employe relations, a careful expansion policy and continued, hefty spending on new facilities and aircraft.
"This is a long-term business, not a short-term business," Delta president Garrett says. "We've always been a very conservative airline. We try to move in a way that we can sustain . . . so that the foundation is always there and we don't have to worry about reaching back and shoring it up." When the economy turns up and air traffic control restrictions are eliminated, Delta will be "ready," he adds.
Delta plans to spend more than $3 billion over the next decade on new planes, which will make its already efficient fleet the most modern in the world. While other airlines are canceling or delaying orders for new aircraft, Delta expects to be able to pay for its new planes--20 Boeing 767s and 60 of the 757s--largely with internally generated funds, according to Robert Oppenlander, Delta's senior vice president-finance.
The airline has used conservative accounting practices over the years and is one of few to be able to use, because of its profitability, investment tax credits for aircraft purchases, which act as a direct price reduction of 10 percent. Delta also continues to use a 10-year depreciation policy, compared with the 17 to 18 years common in the industry. As a result, Delta will be able to generate $2 billion worth of depreciation alone during the period when planes worth $1.9 billion are delivered, says Oppenlander, who is said by admirers to have "the sharpest pencil" in the airline industry.
Delta's "family" attitude toward employes also is unusual for the industry. Except for 4,000 pilots and 150 dispatchers, Delta's 37,000 employes aren't unionized. Delta pays its employes the going union rates, but hasn't had to accept work rules that critics of the unions say breed inefficiency.
Despite its recent difficulties, Delta awarded a general pay raise averaging more than 8 percent for its nonunion employes in September. It hasn't laid off any employes, but has reduced its work force by about 1,000 this year through attrition, and has encouraged voluntary leaves of absence to cut payroll costs. It also transfers "surplus" employes to other jobs, which unions don't allow at other airlines.
Most of Delta's top officials, in fact, have worked in different departments, and all of them started in entry level positions, a reflection of the policy of promoting from within. For example, Garrett started out as a reservations agent, and marketing vice president Cooper began as a research statistician.
These policies have paid dividends, as demonstrated by Project 767, an employe-initiated campaign to help finance a new Boeing 767 with contributions from workers. So far nearly 40 percent of Delta's employes have pledged 2.5 percent of their salaries for a year to pay for the first of the 20 Boeing 767s Delta is buying.
"It's just a thank you from employes to the company to let them know we appreciate what the company has done for us over the years," says Billy Duzan, a member of the project committee. "We know they'll take care of us down the line."