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Twin Cities hub remains key asset for Delta Air Lines

Twin Cities hub remains key asset for Delta Air Lines
REUTERS/Jonathan Ernst
Delta employees earned an extra $91 million in "shared rewards" payments in 2012 for hitting Delta goals that cover baggage handling, flight completions and on-time arrivals.

On a recent flight to North Dakota, I met a man in his 20s who gives new meaning to the phrase long-distance commuting.

Every three weeks, he leaves his wife and young children in Finland to fly to Minot, N.D., to work in the oil fields for 21 days. Then he flies back to Helsinki to be with his family for three weeks and returns to North Dakota for work on flights he books on Delta Air Lines.

When I asked him what he thought of Delta, he smiled and said he enjoyed the food on his Amsterdam-to-Minneapolis flight. Then he added that he likes flying on Delta because "the planes are always on time."

Delta executives and front-line employees have been obsessed with producing stellar operational numbers. They know they can attract repeat customers if they get people to their destinations on schedule.

On Valentine's Day, Delta's Twin Cities employees will be recognized for leading the company in operational excellence. Bill Lentsch, a Delta senior vice president, told Minnesota senators last week that the Twin Cities was named "hub of the year" for reaching numerous Delta operational goals.

Across the airline, Delta employees earned an extra $91 million in "shared rewards" payments in 2012 for hitting Delta goals that cover baggage handling, flight completions and on-time arrivals.

Largest profit-sharing in Delta's history

Delta CEO Richard Anderson will be at Minneapolis-St. Paul International Airport on Valentine's Day to celebrate the "hub of the year" award with Minnesota employees. His visit also coincides with the distribution of $372 million in profit-sharing payments to Delta employees for their work in 2012. The Atlanta-based airline has about 74,000 employees. In a Thursday report to employees, Anderson said that this will be "the largest profit-sharing payout for our employees in the history of Delta."

When Delta acquired Eagan-based Northwest Airlines in 2008, Northwest brought a history of strong operational performance to the merger.

Under an agreement with the Metropolitan Airports Commission, Delta must maintain a certain level of flying at the Twin Cities airport.

However, the concentration of Fortune 500 companies in the Twin Cities is a boon for Delta, which is a major reason why the Twin Cities is Delta's second-largest hub. Based on the number of seats on Delta departing flights, Atlanta is the biggest hub and Detroit comes in third.

A few hours before Gov. Mark Dayton delivered his State of the State address last week, the Minnesota Senate Commerce Committee learned how Minnesota businesses are using Delta to connect to top export markets. Almost half, 49.1 percent, of Delta international corporate account trips from Minnesota are going to Europe. Slightly more than 28 percent are going to the Asia Pacific region. Africa and the Middle East are attracting about 9 percent of the Minnesota business travelers.

While federal regulators had the authority to approve Delta's acquisition of Eagan-based Northwest Airlines, the state lawmakers were naturally curious about Delta's presence and commitment to Minnesota four years after the merger.

Northwest's headquarters is gone. The operations control center and pilot flight simulators have been consolidated into Delta's headquarters in Atlanta. MLT Vacations employees were relocated to Georgia. And other Minnesota-based jobs have been lost as a result of the merger.

9,700 Delta employees in Minnesota

Yet, Delta's Lentsch reported that the airline still employs 9,700 Minnesotans, and that employment figure rises to 12,000 when Delta's regional airline operations are included. He told the senators that the employment will grow by 200 to 300 people when Pinnacle Airlines, a regional carrier, moves its headquarters from Memphis to the Twin Cities later this year.

The number 142 was a key figure shared with legislators. Delta flies to 142 nonstop destinations from the Minneapolis-St. Paul International Airport.

Corporate and Delta interests converge over nonstop service. It helps business people who want to travel efficiently and it allows Delta to reap revenue from business people who fly frequently.

Leisure travelers have been irritated by the relatively high fares they pay when flying out of the Twin Cities, where Delta operates the majority of flights. Lentsch got a mild expression of that concern at the Senate hearing when Sen. Paul Gazelka, R-Nisswa, exclaimed, "Boy these prices are high."

It gave Lentsch the opportunity to explain dynamic fare pricing and Delta's decision to buy an oil refinery to gain more control over its fuel costs. While Delta operates most flights out of the Twin Cities, it faces low-fare competition from Southwest, Sun Country and Spirit airlines.

The Delta-Northwest merger was approved by the Bush administration on the eve of the 2008 presidential election. At the recent Minnesota Senate hearing, it was apparent that many state legislators see a symbiotic relationship between Delta and the business community.

Delta said it has corporate accounts with "virtually all large businesses based in Minnesota," and "works with thousands of small to medium sized businesses that together generate hundreds of millions of dollars in annual revenue."

At peak travel season in July 2012, Delta was operating 477 daily departures out of the Twin Cities. The top six business markets at the Twin Cities airport and Delta's departing seats per day were:  Atlanta (1,888 seats); New York (1,696); Chicago (1,407); Detroit (1,387); Los Angeles (1,254) and Seattle (1,115).

Delta reported to the Senate committee that it serves 39 destinations within Minnesota's top 10 export markets of Canada, China, Japan, Mexico, Germany, South Korea, Belgium, United Kingdom, Singapore and the Philippines.

In a global economy, the presence of a connecting hub in the Twin Cities allows Minnesota businesses of all sizes to travel the globe with speed.

Fedor can be reached at lfedor@minnpost.com.

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Comments (6)

Is this the Delta I fly?

As a Minnesota business owner who travels constantly for work across North America and abroad - on Delta, and a Diamond Medallion flyer since they instituted that level of 'privilege' -- I would suggest that you host a focus group of Delta Diamond flyers. Most are business executives or road warriors. They are very easy to find - at any Delta club in the world. Ask them what they think of this story. Certainly stop into the Delta Club between the F & G concourse of MSP and get a few more frequent flyer opinions about your story. If you do this, I think you will write a different story.

I say this having written the same to Richard Anderson: I want Delta to be great. I want them to care about MN and serve us (better) as an important hub. The Delta team I interact with for the most part is excellent - almost in spite of instead of enabled by their employer. I want them to get even more bonuses. And most importantly I expect a better customer experience. We deserve better.

Delta's foray into the oil

Delta's foray into the oil refinery business has not gone well.

"Not gone well"? Based on what?

The refinery has been operational for less than 6 months. It didn't instantly produce a profit, therefore things aren't "going well"?

Well...

...they paid $150 million for the refinery, supposedly spent $100 million to upgrade the refinery, and have lost $160 million in the first two quarters of operation of the refinery. Not to mention the hasty departure of the executive responsible for the deal in the first place.

It makes one wonder why an airline would be able to do a better job running a refinery that the refining company that used to own it. They might be able to work it out in the long run, but it's not looking good so far.

The refinery started

The refinery started producing jet fuel, and thus became fully operational, in late September 2012. It lost $63 million in Q4 2012. Where's the second quarter and other $100 million you stated coming from?

The "thinking" being bandied about here is extremely short-sighted, with little knowledge of business economics or airline operations. The refinery saves Delta money because they don't have to pay the crack spread on the jet fuel produced there that they'd otherwise have to purchase on the open market/thru hedges, thus making actual jet fuel costs lower. The $100 million spent on refinery improvements were meant to maximize jet fuel production, which benefits East Coast operations first and foremost, not to mention the gasoline, distillate, and other refined product swaps Delta established with other refiners. And if the testing of shipping in cheaper Bakken crude via rail proves using Bakken-sourced crude is economically viable, they will be lowering their input costs, thus saving more money. With crude and jet fuel costs once again on the rise, Delta's looking at a pretty decent ROI on the refinery purchase. It could have its $250 million investment paid back in less than 18 months just in jet fuel cost savings. Want more? http://www.fool.com/investing/general/2013/02/08/3-big-myths-about-delta...

Complex business

Running an oil refinery is a complex business. Delta is getting into a business that is full of complexity and headaches. So if Delta doesn't do any more hedging on fuel and its refinery goes down for a number of reasons what next? Does it reduce flights because of lack of fuel? Common sense would make it sound like Delta would want the price of crude to go down but if it goes down too far there may be reduced drilling in ND that would hurt their supplies. It is a huge gamble by Delta which is something really out of their comfort zone.