Finance / Legal
Finance / Legal
How did Delta go from producing agricultural aircraft to one of the largest American airlines with a monument following and brand image? Let’s explore the success story of Delta Air Lines
A household name among U.S. airlines, Delta Air Lines has grown impressively over the years, surprising many.
From humble origins that did not even include carrying passengers, the airline is now one of the most successful ones in the world, with operating revenue of a whopping $47.01 billion in 2019, just before the pandemic hit. This amounts to a value greater than the GDP of 48 countries. Let this sink in for a moment.
Today, Delta Air Lines stands with an impressive portfolio. It has:
Let’s have a look at the strategies Delta Air Lines undertook in the past that have helped it gain its pace over the years to surpass hurdles of bankruptcy and falling profits to becoming a giant in the global airline industry.
The story began with the Boll Weevil. As a small beetle-like insect that feeds on flowers and cotton buds, the Boll Weevil had infested the cotton-growing areas of the United States in the 1920s.
This led to widespread devastation; however, it was also the moment when Delta Air Lines began to grow roots.
In 1924, two workers of the U.S. Department of Agriculture, Collet Everman Woolman and B.R. Coad were engulfed in discussion with the Louisiana farmers, who were contemplating ways to get rid of the Boll Weevil.
Putting his knowledge of the agricultural ways to use, Woolman knew that spraying Calcium Arsenate would kill the insect, but manual spraying would be too time-consuming and exhaustive. Immediately, he was reminded of his days of learning to fly the “Flying Jennys” of World War I, and the answer was crystal clear:
Woolman utilized the services of an airplane to spray the insecticide across the fields, providing a cure for the prevalent crop issue, therefore founding “Huff Daland Dusters”, the first-of-its-kind crop-dusting and sweeping agency in 1924.
The service was a success. Flying low, yet with a heavy payload capacity, and an unconventionally low maintenance cost, the idea of crop dusting gained fame, and so did the Huff Daland Duster airplanes.
As the problem of Boll Weevils came to an end, Woolman saw the opportunity of something bigger than mere agricultural protection - he saw the airline industry.
On 13th September 1928, Woolman, now known as Wooly to his employees, renamed the company “Delta Air Service” - their official first step in the industry. Their journey began as an airmail delivery agency, fulfilling contracts of delivering air mail.
In 1929, the airline became a passenger carrier, flying people from Louisiana to Dallas, Jackson, and Mississippi. Thereafter, routes to Atlanta and Charleston were also added.
While Delta Air Service had to take a break from carrying passengers for a little while, it restarted its passenger services in 1934, a few years before World War II, and slowly treaded ahead.
During World War II, Delta Air Service had a contract with the War Department, placing it in charge of carrying troops and supplies to required regions.
While the workforce devoted itself to the war during these years, it also incorporated itself, rebranding as “Delta Air Corporation”, and gaining three more airmail contracts in the process. As the company grew, they moved their head office from Monroe to Atlanta mid-war, in 1941.
When the war ended in 1945, it seemed Delta Air Corp. was ready to make their transition into the airline industry, and so they entered the Jet Age with a fierce competitive mind, a vision for the company, and the goal to conquer the airline industry.
The journey of Delta Air began with the most unprecedented of business ideas - crop-dusting planes.
However, as Woolman produced planes for aerial application and solved the prevalent Boll Weevil problem, it seemed the purpose of the company would have sufficed there and then in the 1920s, had it not been for the innovation and evolving business mindset of Woolman.
The founder recognized crop sweeping as one of the many ways to utilize an airplane, while a world of opportunities remained undiscovered. Evaluating these business opportunities, Woolman adapted and evolved his business idea and branched out in a mildly related industry - passenger planes.
This meant that a business idea as unique as that of crop-dusting planes went on to form the foundation of what would rise to become one of the biggest and best airlines in the world - courtesy of Woolman’s evolving business strategy and quick thinking.
Following WWII, Delta returned to its normal trajectory and focused on its airline side of the operations.
Hence, in 1945, rebranded as Delta Air Lines, Inc. Company, it resumed civilian flights.
This was definitely the industry Delta excelled at, with the National Safety Council having been officially recognized for flying 300 million passenger miles and 10 years with zero passenger or crew fatalities.
Delta took this new start to establish themselves as a full-range airline service by not only offering passengers seats on their planes but also being the first airline to fly live vegetables – 160000 tons of tomatoes.
By 1946, it had begun transporting all sorts of cargo regularly.
That was only the first of the many firsts. In the same year, Delta carried their millionth passenger and soon after, launched the first-ever non-stop Chicago-Miami flight.
Passengers were flooding in, and business was growing at an exponential rate – the Delta fleet, now offering 644 seats, again received a National Safety Award for half a billion air miles without casualties.
In 1949, the company also offered the first discounted fare night flight on the Chicago-Miami route, while also starting their own coach service.
With the success of new routes and an expanding fleet, Delta knew it was the perfect opportunity to venture into the international arena. Thus, in 1953, the airline merged with Chicago and Southern Air Lines opening its first two international destinations - the Caribbean and Caracas.
To further improve their reach and make traveling to a range of destinations much more convenient for passengers, Delta became the face of the “Hub and Spoke” model, where flights were centered in and out of hubs to lessen the duration and make connections easier.
This proved to be instrumental in the airline’s success as Delta’s network of hubs continued to grow.
During the next decade, Delta went on an elaborate scheme of improving its technological aspects both on-air and off-air. It was the first to add the DC-8, Convair 880, and DC-9 jets, taking a giant leap towards becoming a full-jet service.
It also integrated electronic SABRE reservation systems and then enhanced it further with IBM 7074 computers.
In 1967, it merged with Delaware Airlines and finally adopted the name, Delta Air Lines, officially. Once a crop-dusting company, Delta was on the charge in the American Aviation industry.
Up till now, Delta Airlines had taken a relatively head-on position with its acquisitions and changes. But the 1970s saw the company follow a more conservative and calculated approach, which proved to be more than fruitful.
In 1966, Woolman, who had spearheaded the airlines’ rise passed away after a period of deteriorating health. In many ways, his ailing health showed the company the way forward. Instead of one individual taking up all of Woolman’s responsibilities, the board members shared duties, leading to a consensus-based collective style of management. At the time, most other airlines were being run on the conventional one-man leader style which meant that whenever it was time for a change in top management, the company failed to make the transition smoothly. Here, Delta had the edge.
Consequently, in the next 10 to fifteen years, even though Delta continued to acquire or merge with other airlines, for example, with Northeast Airlines in 1972, add Boeing jets to its fleet, or launch its Delta Air Express cargo service, it didn’t undertake huge risk or spend a fortune on investments. Overall, it followed a "wait-and-see" policy, whereby instead of being the first carrier to fly a new jet, it analyzed the performance of new jets by other airlines, and then made the most fuel-efficient and performance-based decisions. This allowed it to save long-term costs, transform its fleet, and take its operations worldwide.
The post-war era can be divided into two periods for Delta. One where it was still a smaller company looking to cash in the potential in the market and grow its fleet. The second is where it has established itself and now aspired to thrive in the long run.
Initially, the company was the first to add a list of new jets to its line-up, and later on, they opted for tried-and-tested technology.
So, as a budding company, it was important to take aggressive risks and capture a consumer base but realizing sustainable profits, in the long run, meant cutting costs and making calculated decisions, they opted for a conservative approach.
Resultantly, the company was able to succeed throughout by assessing their situation and adapting to the need of the time.
While the 1970s can be fairly categorized as smooth sailing for Delta, the following years presented the company with one challenge after the other. It really tested the company’s ability to overcome competition and find new avenues to persevere.
In 1981, as a means to promote customer retention, Delta initiated its frequent flyer program. However, the move alone couldn’t help the company during the period of sub-par financial performance.
Hence, hoping it would lead to a turn of fortunes, the company planned to purchase the first Boeing 767. The problem was they didn’t really have the cash flow to meet its buying costs.
This was when the company’s resolve as a unit and the amicable relationship between employees and the management became the saving grace. In 1982, taking a hit of $30 million from the payroll, employees raised the finance needed for the company to buy the new aircraft. Fittingly, it was named “The Spirit of Delta.”
The heat from the competition became intense in the 1980s. Local airlines, including TWA, Texas Air, and Northwest, were growing through mergers and acquisitions, and comparatively, Delta was cornered into being a much smaller airline.
To get back into the top airlines, it needed to get back into the acquisitions and search for opportunities for external growth.
It started with an attempt in 1986 to take over Jet America with an $18.7 million package which proved unsuccessful. Upping the ante, the company proceeded with a $680 million acquisition of Western Airlines that not only made it the 4th largest airline in the country but also the 5th largest in the world! Soon, the company launched its first trans-Pacific service flying Atlanta-Portland and Oregon-Tokyo.
It had braved the storm of the 1980s successfully.
In 1987, Ronald W. Allen took charge of the company as the new CEO. An aggressive person and not one to shy away from taking risks, he seemed to be the perfect candidate to lead the company into a new age.
One of his first moves was to sign a $15 million deal to become Walt Disney’s official airline partner.
This approach helped the company maintain a relatively stable position in a crunch recession where fuel prices were rising, and the war in the Middle East had significantly brought down ticket sales.
Thus, even though in 1991, the company recorded an operating loss of $450 million, it was still aiming for growth opportunities.
Perhaps, one of the most transformative acquisitions in Delta’s history came in the same year in the form of a $1.7 billion package to take over Pan Am. Although the deal also involved $668 million of liabilities, it provided the company access to almost all of the international routes of Pan Am. This included multiple European passages – from Frankfurt to London – and a large fleet of Airbus A310s.
With so much to gain, this was in no way an easy deal to get. American Air and United Air were interested just as much, and the hefty investment was necessary to outbid them.
Some even termed the takeover as an over-ambitious or unneeded move, but Delta Air Lines was determined to capture the international stage.
Simultaneously, the airline never shifted its focus from keeping employees and customers satisfied, with workers being some of the highest-paid in the industry and Allen personally traveling on flights to interact with and take first-hand feedback from customers.
After the Pan Am takeover, Delta Air Lines was put on the world map as a force to be reckoned with. However, this did not mean that the heavy financing for the deal did not catch up to them.
This led the company to take a series of difficult measures to sustain itself financially. Firstly, it had to cut down on its workforce by 5% and announce pay cuts and salary freezes – its resilient employees were unfortunately put on the back foot.
On the other side, to encourage travel and increase traffic to its new routes, Delta lowered its fares by 45%. As a result, it witnessed a record number of passengers on its transatlantic flights.
These moves allowed the company to bounce back from successive quarters of net losses to rising profits. To capitalize on the situation and extend its reach in international skies, Delta entered into as many as 14 code-sharing agreements with airlines, such as Virgin Atlantic and Vietnam Airlines.
Again, in 1994, the company was faced with huge losses, and this time, it had to come up with an even more elaborate plan of cutting down on costs and shutting down unsustainable routes.
By the final quarter of 1995, Delta experienced a rapid recovery, racking up $251 million in profits. However, the major downside was having to let go a major chunk – 20% - of its workforce.
One of the biggest positives to look forward to came in the form of Delta being selected to be the official airline of the Celestial Olympic Games of 1996.
Along with gaining a huge global recognition, it enabled the company to move into the future; it started online reservations via its website to facilitate its ever-expanding clientele and launched its own low-cost carrier, Delta Express. Delta was growing exponentially as it became the first airline to board 100 million passengers in 1997. In the next year, it formed an alliance with Swiss Cargo and moved ahead on the cargo front as well.
Being named as the Airline of the Year 1998, Delta was well and truly on top of the skies!
From going through the heavy financial takeover of Pan Am to applying drastic cost-cutting measures, Delta Air Lines had to make one tough decision after the other.
But each one was necessary - sometimes for the survival of the company and sometimes for it to grow and expand its operations.
If it did not take those measures timely, it would have been left as a small regional airline or worse, ceased to exist.
Instead, it became the official airline for the world Olympics and one of the leading airlines in the world due to its hard-hitting measures and ability to make the right call in difficult times.
In the early 2000s, Delta had moved up to the three biggest airlines in the U.S.
In fact, in 2000, it was the key player in forming SkyTeam, a global alliance consisting of 19 of the world’s leading and up-and-coming airlines.
Delta Air Lines, carrying 120 million passengers online, placed one of the industry's largest orders of aircraft - 500 jets to be precise. The trajectory was onwards and upwards.
But some unfortunate and unforeseen events were to change the world of aviation drastically.
9/11 shook the world in many ways, and the airline industry found itself directly in its midst. Many carriers were forced to declare bankruptcy; Delta too suffered huge losses, but it was able to survive on the back of the last 6 successful years of profit-making.
Through a series of on-ground technological advancements, the introduction of another low-cost subsidiary airline, Song, and the largest domestic codeshare alliance, Delta adapted to the fall in air travel around the world.
However, in the long run, it could not sustain its operations without making significant changes to its cost structures.
But the challenge was huge. Delta sought to save $1 billion by reducing the wages of its pilots, which were still unionized. If it failed to do something, bankruptcy was inevitable.
In 2004, Gerald Grinstein took charge of the sinking ship as a CEO, in a final bid to find a way out of the crisis.
The company initiated Operation Clockwork, the largest single-day redesign of an airline’s schedule in history. It planned to save costs by reducing airport congestion, improving arrival/departure timings, and freeing up aircraft for profitable routes.
Unfortunately, the redesign wasn’t enough, and on September 14, 2005, the company filed for restructuring under Chapter 11 of the U.S. Bankruptcy Code.
The restructuring consisted of a well-laid out course to bring the airline back to profitability in 18 months. The company was going to lay off 10% of its workforce - 7000 employees - and the remaining were to take large reductions in their salaries. The company decided to close down or limit the operations out of its non-profitable hubs, such as Dallas. Overall, this was expected to save the company $5 billion.
By 2006, it had initiated 124 new nonstop routes and booked 41 destinations. Thus, the company never took its eye off its growth plans.
For its competitors, Delta’s restructuring appeared to be the perfect time to jump in and take over the airlines that spread over so many countries and boasted such large feet. Both United Airlines and US Airways tried multiple hostile attempts.
The company was so determined to get back on its feet that it resurged out of bankruptcy one year before the target it had set at the time of restructuring. It announced joint ventures with Air France, expanded routes with the Open Skies agreement between the US and EU, and most notably, acquired Northwest Airlines.
In 2009, an airline that had only recently been struggling to survive now had operations running in six continents of the world, with a fleet of 786 aircraft - the largest in the world - and valued at $17.7 billion.
Even then, it didn’t mean Delta was going to slow down. Not at all. With a rigorous customer-oriented approach, its revamped frequent flyer program, SkyMiles, consisted of 74 million travelers. Its employees that had to sacrifice the most throughout the series of cost-cutting were now owners of 15% of the company’s stocks.
If the stunning comeback of Delta Air Lines after filing for bankruptcy can be pinpointed to one factor, it’s the sheer resilience and determination of the company that we have seen over the years.
Not only did the company manage to significantly reduce its costs, but it also never let itself shrink its operations. In fact, it made it a priority to keep on growing and finding new routes and never gave in to take over offers.
As a result, defying all odds, a bankrupt company re-emerged as the world’s largest airline in just one year.
Having established itself as one of the world’s biggest airlines, Delta now planned to raise the bar with customer service that the aviation industry had not seen before.
Simultaneously, it continued its legacy of seeking opportunities to add new routes to its portfolio while improving performance and efficiency.
Setting the tone for what was to come, in 2010, Delta announced planned to upgrade its product with a $2 billion investment in new full-flat beds, additional first-class cabins, Economy Comfort section for long flights, individual in-flight entertainment, the world’s first in-flight wifi, and mobile baggage app, Fly Delta - a holistic approach to makes its services as convenient and comfortable as possible.
In 2014, the company made it to Forbes’ list of one of the most admired companies in the world. Even from there, Delta continued to enhance the customer experience, launching five differentiated on-board products, and giving customers a greater variety in terms of costs and luxury.
While rising fuel costs and dependency on other firms were and are a major obstacle for most global airlines, Delta Air Lines set a unique precedent by purchasing its own oil refinery. It could now better manage its jet fuel requirement and reduce the costs and dependency of having an intermediary.
At the same time, Delta made its own most notable acquisitions after the Northwestern merger. It purchased a 49% share in Virgin Atlantic. Thus, with a dominating position in London and trans-Atlantic markets, Delta furthered its reach into the West Coast and Asia.
With everything going its way, Delta Air Lines was making substantial profits. Taking the opportunity to show its commitment to its core - its employees - the airline paid its employees $1.5 billion in profit-sharing, the most in the country’s history. Thus, it came as no surprise when the airline ranked 63 in Fortune's Best Companies To Work For - the only airline in the list.
Furthermore, as a company with such global influence, Delta also realized its responsibility to the environment and promised 1% of its annual net income to charity.
To keep customers returning, it’s vital to offer the best level of service. And to ensure that, it's necessary to have a workforce of satisfied employees. Delta knew that in order to stay on top of the aviation industry, it had to invest in customer experience, and that was always going to be possible through its employees’ effort.
Hence, it pursued a comprehensive profit-sharing approach with its workers and as a result, was able to offer the best customer service in the industry!
Starting its operations from small-scale crop-dusting to becoming one of the largest airlines in the world - the journey of Delta Air Lines has been nothing short of spectacular.
From the beginning, there have been challenging situations where the company had to make tough decisions and adapt, and every time, it not only persevered but also came out on top.
A performance and clientele that most airlines only aspire to achieve, Delta is in many ways, the leader or one of the leaders of the aviation industry. It's the most awarded airline that continues to receive acclaim for its outstanding service. Here are some of its recent achievements:
The pandemic shook the world, and the aviation industry took one of the biggest hits. Firstly, with whole fleets being fully grounded due to lockdowns, then the plunge in air travel, the past two years have been very difficult for airlines - Delta included.
In 2020 alone, the company recorded a loss of $12 billion. But that was in no way the highlight of one of the airline’s most crunch times ever since it bounced back from bankruptcy.
In fact, it was how Delta Air Lines responded that is so applaudable. Passengers were naturally hesitant about returning to air travel, and Delta took it upon themselves to maintain effective communication and ensure all aspects were covered to provide customers with a safe and comfortable environment.
Delta kept its middle seats blocked despite the significant loss in revenue. It gave fliers a choice to rebook canceled flights in two years. It led the way in cleaning procedures by being one of the first carriers to use an electrostatic sprayer to disinfect all its surfaces.
These seemingly small measures have meant that customers trust the airline, and that is well into its recovery phase.
Given how the pandemic was particularly difficult for the aviation industry, 2020 figures do not reflect the growth of Delta Air Lines in recent years. Here are Delta’s 2019 numbers to assess the steady upwards journey of the company.
The journey of Delta Airlines has been unexpected, unwavering, and a true inspiration. Here are our strategic learnings from their success story:
The roots of Delta Airlines were laid to solve a problem - the crop-eating insects. However, even after industrial scenarios evolved and the initial problem was solved, the founders of the company continued to adapt.
A survey of prevalent business opportunities revealed expansion into air mail and passenger planes to be a lucrative strategy to take the mission of Delta Airlines forward, and so the company continued to spread its wings - and continues to do so today.
Whether this is by attaining government contracts amid the war, establishing new routes, or choosing the right policies during COVID-19, Delta Air Lines thrives because it seeks out new demands and complies with a tailor-made offering.
Delta Air Lines was never one to shy away from taking risks. Its journey included multiple firsts, beginning from being the first-of-its-kind crop-dusting enterprise to introducing newer planes, ideas of shipping, and routes.
However, the risks were always calculated and well-thought-out. This meant that while in the initial years, newer ideas like the Boeing were adopted and trial runs introduced, the latter years were spent perfecting their already established system. In times of competition, the company also never shied from joining forces with another, such as Southern, Western, and Northeast Airlines, keeping their competitive risk at a minimum while diversifying their portfolio, and therefore consumer base.
Delta Air Lines had the ability to see the bigger picture.
Many of the decisions that put it on the map were actually considered a mistake by other industry leaders back then - until they weren’t. The Boeing investment, which required more funds than it had, the take over of Pan Am that brought a mountain of liabilities, and the drive to look for growth even amid heavy losses meant Delta Air Lines’ strategy helped it succeed in the long-term.
The restructuring was the lowest point in Delta’s history. Its rivals were eager to take over, and many companies would have lost hope in this situation. But Delta had a plan with meaningful decisions to overhaul its operations and, at the same time, look for opportunities to grow. Thus, it emerged quicker than forecasted from the restructuring. Its comeback is a model for other companies to follow in regards to resilience, effective cost-cutting measures, and seeking growth whilst restructuring.
Customers and employees are the core of any company’s operations, and throughout the years, Delta has shown that by keeping these two parties happy, it can survive any crisis.
In fact, the profit-sharing model with employees was so successful that it helped the company back on its feet and into profits even faster than its target market. It resulted in more opportunities to enhance the customer experience, and therefore, rank as both, the best airline in terms of service and employee culture.