Wed June 6, 2012
Delta CEO Pushes For National Airline Policy That Lets 'Free Market Work'
Originally published on Wed June 6, 2012 6:29 pm
"Airlines are expecting a banner year," NPR's Yuki Noguchi is due to report on All Things Considered later today.
More planes are flying with full passenger loads, as any frequent flier will tell you. Mergers have helped cut costs. Ticket prices are up. Airlines are charging fees for bags. Fuel costs have eased a bit.
In these relatively good times, what does an airline CEO want?
"We're advocating that the U.S. government ... get serious about adopting a national airline policy," Delta Air Lines' Richard Anderson told All Things Considered co-host Robert Siegel this afternoon.
That's not to say airlines want more regulation. What they're looking for, Anderson said, are fixes to the air traffic control system, a reduction in "the tax burden on the industry" and a emphasis on letting the free market dictate where their industry heads. In his view, China and other competing nations have national policies and the U.S. needs to respond in kind.
Oh, and those baggage fees that airlines have added in recent years? Delta's "cost of transporting bags is in the hundreds of millions of dollars" annually, Anderson said. There's the fuel it takes to carry bags, the infrastructure required to move them and track them, and the "thousands of employees we hire." It is "a significant cost" that the airlines need to recoup, he said.
Much more of Robert's conversation with Anderson is due on All Things Considered. Click here to find an NPR station that broadcasts or streams the show. We'll add the as-broadcast version of the interview to the top of this post after it airs.
From related stories:
-- Delta "collected an industry-leading $767 million in reservation cancellation and change fees, and another $863 million in baggage fees" in 2011. (Time Moneyland)
-- "Starting this summer major airlines may be asking you to pay to check your carry on luggage. Airlines say they have been too lenient with oversized bags, but that will come to an end." (KKTV.com)
ROBERT SIEGEL, HOST:
More on the airline industry now with Richard Anderson, who is the CEO of Delta Air Lines. Welcome to the program.
RICHARD ANDERSON: Thank you for having me, Mr. Siegel.
SIEGEL: And first, Yuki's outlook about ticket prices, about right? That we shouldn't expect cheaper fares anytime very soon.
ANDERSON: Well, it's an intensely competitive business. So ultimately, the prices will be determined by the marketplace. But with fuel prices still at very high levels if you look at the last 10 years, the fuel price has to be priced into the ticket.
SIEGEL: That was a pretty upbeat report, though, on profits in the industry, and things are pretty good. Delta has been profitable recently. You recently told the U.S. Chamber of Commerce that the industry is hurt by the lack of a U.S. airline policy. What do you mean by that? What is an airline policy?
ANDERSON: Well, if you look back over the last 20 years, the industry has gone through a difficult restructuring. And a piece of what we need to do as a country is make a volitional determination that the airline industry is a strategically important industry for the U.S.
SIEGEL: But you know that much of the U.S. today regards, well, for example, the federal money that went into staving off a complete collapse of the banking sector because it was judged a strategically necessary industry or the auto industry which was judged a necessary industry. Much of the country regards this as hugely, overly activist on the part of the government and is running against it all the time. Is this really a moment in which the federal government could say we're going to have an industrial policy about airlines, and we're going to get involved in its economy?
ANDERSON: Well, I think if you encapsulated what we need as an industry, it's to continue the deregulation of the industry. We're not asking for more regulation or more taxes. But if you look at what our competing countries in China, China views aviation as a strategic asset, and it makes real investments in its infrastructure and makes policy advances so that its carriers prevail in markets around the world.
SIEGEL: Delta is famously buying an oil refinery these days. First of all, is that working out? That is, does it make sense to become an integrated company that in effect is refining its own fuel?
ANDERSON: Yes. And I believe the trend that you see Delta undertaking is a trend that companies in the U.S. and around the world will more and more undertake because we are in a large commodity price bubble that doesn't appear to be abating. It's important for us to continue to improve our business model, and that means going upstream in our supply chain.
SIEGEL: Do you run a risk of an airline becoming - if it's good enough at figuring out the fuel economy, it might take its eye off the ball which is being an airline?
ANDERSON: That's a fair criticism. What we have done is set it up as a separate subsidiary with a separate board, and we've hired expertise and great senior management from the refining industry so we don't let our eye off the ball running a great airline at Delta.
SIEGEL: Is Delta pretty much committed now to the model that for the price of your ticket, you get a seat on an airplane and maybe not the most comfortable seat on the airplane? You want something better, you want Wi-Fi, you want food, maybe someday if you want a pillow, pay extra for it.
ANDERSON: Well, if you look at what consumers want in the U.S., they want choice. And what we're doing now with first class, economy comfort and the different other choices we give consumers is we're guaranteeing a really good solid basic product at a very competitive price. But if you wish to buy other amenities, just like if you're buying a computer, cellphone service, cable service at your home, you have a variety of choices.
SIEGEL: But you know that to a lot of people let's not talk about food but talk about paying for a bag that you're checking on the flight, that doesn't feel like a big add-on to your computer. That feels like getting a huge charge for the mouse, say, for something that's pretty necessary.
ANDERSON: The systems that we have in place and the cost of transporting bags is in the hundreds of millions of dollars. It is not a free add-on service. The fuel to carry the bag, the investment we have in infrastructure and the thousands of employees that we hire to run our bag systems are a significant cost of our business.
SIEGEL: I'm just curious. How do you think through this issue as CEO of Delta which is when people are charged for bags, the logical response to that is to carry on the most colossal piece of luggage they possibly can and stick it in the overhead compartment? At some point, this causes a certain inconvenience getting on or off the plane, but are you eventually going to shrink the overhead compartments?
ANDERSON: We're actually going the other way and putting larger bins in. But, you know, the remarkable thing about the American people, I ride coach on Delta all the time. I came up here from Atlanta for this interview, Mr. Siegel, on Delta this morning on an MD-90 in row 26. And Americans are amazingly rule-focused, and people abide by the rules.
SIEGEL: Have you come back from flying coach and a light bulb has gone on back at Delta and said, you know, there's something I figured out about what we're doing now?
ANDERSON: Yeah. I remember one particularly which is on the MD-90 airplane, we needed to put new window shades in it because the window shades were catching on the tracks and not going up and down easily for customers. Last week, I was on a flight, and a customer in front of me had a bag hit him in the head and break his glasses, so I gave him my boarding pass with my name and number on it so we can buy him a new pair of eyeglasses.
ANDERSON: So it's both micro and macro.
SIEGEL: He's getting hit by that bag, I bet, because people are carrying on too much luggage because you're charging for the checks bags is what...
ANDERSON: The bag was a legal carry-on, Mr. Siegel.
ANDERSON: And our flight attendant was trying to help somebody get it in the overhead and her hand slipped and so I came to her aid.
SIEGEL: Well, Mr. Anderson, thank you very much for talking with us today.
ANDERSON: Mr. Siegel, it is really a pleasure. I've been listening to you for years.
SIEGEL: Richard Anderson is the CEO of Delta Air Lines.
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