When Northwest Airlines and Delta Air Lines limped into bankruptcy together on the same September day in 2005, the airlines’ executives and employees were focused on survival. But they also wanted to build business models that could withstand spikes in oil prices, downturns in the global economy and domestic competition from low-fare airlines.
Within the span of 10 years, Delta has succeeded in constructing a financial juggernaut. Delta’s transformation was kick-started in October 2008, when the Bush administration’s Department of Justice gave the green light to Delta’s acquisition of Eagan-based Northwest. Delta was the first mover in a wave of industry consolidation, which also resulted in mergers for United, American and Southwest.
Holiday travel is on the minds of Minnesotans and many of them will be flying on Delta, which has become a highly profitable carrier. For the first three quarters of 2015, Delta generated $6.1 billion of operating income on $31.2 billion in operating revenue. Its net income for the nine-month period was $3.5 billion, and Delta employees will receive $1.1 billion in profit sharing for their work over that time frame.
If you examine the Delta-Northwest merger through a Minnesota lens, it’s apparent that key fears of merger critics haven’t been realized.
Delta is keeping a major hub in the Twin Cities: Seven years after the merger was approved, it’s clear that Delta is reaping considerable financial benefits from its hub at Minneapolis-St. Paul International Airport. In an October conference call about third-quarter earnings, Delta CEO Richard Anderson emphasized “record margins” in Delta hubs, including Minneapolis and Detroit.
When the merger was consummated, some Minnesotans speculated that Delta wouldn’t maintain two large northern hubs and that Twin Cities’ operations could be downsized in favor of Detroit. That concern didn’t translate into reality. Earlier this year, Delta reported that it had 433 daily departures from the Twin Cities and 443 from the Detroit Metropolitan Wayne County Airport. Delta has been serving 144 nonstop destination cities out of Detroit and 140 from Minneapolis.
In October 2008, after the merger was approved, Delta President Ed Bastian flew to the Twin Cities to emphasize the importance of Northwest’s hub. He directly stated that it was in Delta’s financial interest to keep a healthy hub in Minnesota, citing a skilled work force, significant corporate travel accounts and an efficient airport. “We’d be fools, quite honestly, to let anything happen to that,” Bastian said at the time.
In a speech in downtown Minneapolis last year, Delta’s Anderson reinforced that message and said that Delta’s seat capacity at the Twin Cities airport is expected to increase by more than 8 percent by 2019.
Competition at MSP has increased since the merger: Delta still transports the large majority of passengers who fly out of Minneapolis-St. Paul International Airport. However, low-fare competition has expanded in the Twin Cities since the merger. Southwest Airlines launched its service in 2009 with flights to Chicago’s Midway Airport and it continued to add routes in recent years. Spirit Airlines also has become a player in the Minnesota marketplace, and it serves travelers who want no frills and low fares.
“Sun Country, which was here prior to Delta’s acquisition of Northwest, has significantly expanded its service in recent years as well,” Patrick Hogan, long-time spokesman for the Metropolitan Airports Commission, told MinnPost. “If you look at new MSP routes that airlines have announced for 2016, most are by airlines other than Delta,” Hogan said. He added that new Delta flights “focus on international service.”
In April, Southwest will inaugurate service to Baltimore-Washington, while Spirit will add Atlanta. Sun Country plans to begin flights to Denver in May. Meanwhile, Delta is adding service from the Twin Cities to Iceland and Rome on May 26.
Based on passengers carried, Southwest and Sun Country were in a virtual tie in 2014 for the second-largest carrier in the Twin Cities.
Long-time Minnesotans serve in key Delta posts: After Delta acquired Northwest, the airline’s Eagan headquarters was closed and corporate jobs located there were lost. But an understanding of Minnesota travelers, the Twin Cities’ business community and Minneapolis-St. Paul International Airport did not vanish with the merger.
Delta’s CEO, Richard Anderson, had a 14-year career at Northwest that included three years as chief executive. He served as an executive at United Health before moving from the Twin Cities to Atlanta in 2007 to lead Delta.
In addition to traveling to Minnesota for Delta meetings, Anderson continues to have close ties to Minnesota’s business community. He has been serving on the Medtronic board since 2002, and he joined the Cargill board of directors in 2006.
Bill Lentsch, a veteran Northwest executive, is Delta’s senior vice president of airport customer service and cargo operations. In that role, he’s responsible for Delta’s in-airport customer service and operations and about 25,000 employees across the airline. In the years following the merger, he was based in the Twin Cities as a senior vice president of Minnesota operations. Lentsch holds degrees from the University of Minnesota and the University of St. Thomas.
When Anderson was searching for a successor for Ben Hirst, who had served as general counsel for Northwest and chief legal officer for Delta, he selected someone with Minnesota roots. Peter Carter, a prominent attorney from Dorsey & Whitney in Minneapolis, was named in June as Delta’s chief legal officer. Carter is a 1991 graduate of the University of Minnesota Law School.
Delta expands through international opportunities: Like many large and small Minnesota companies, Delta is building its business by identifying and seizing opportunities in the global marketplace. Northwest was an especially strong merger partner for Delta, in large part because of its Asia routes and joint venture with KLM Royal Dutch Airlines.
In his conference call comments about Delta’s third-quarter performance, Anderson said that Delta had increased its stake in GOL Airways in Brazil and entered into a long-term, exclusive partnership with China Eastern to build a hub in Shanghai.
“Delta is quite unique in these investment strategies,” Anderson said. “We are the only U.S. carrier with equity investments, coupled with long-term joint ventures and commercial cooperation, with airlines in Asia, the United Kingdom and Latin America.”
During his Minneapolis speech last year, Anderson noted the Twin Cities has the highest per capita concentration of corporate headquarters among major U.S. metro areas. Those corporations are key customers for Delta’s international routes.
Delta’s pre-tax income of $2.2 billion in the third quarter was in stark contrast to the financial woes of a decade ago that sent Delta and Northwest into bankruptcy. Delta’s financial success goes well beyond the steep decline in oil prices this year.
Delta, like its peers United and American, has pricing power in a consolidated marketplace. While the airline industry previously behaved like a commodity business — in which airlines followed each other on fares, fleet plans and frequent flyer programs — Delta has elected to chart its own course.
Its contrarian behavior has surfaced when purchasing an oil refinery, dropping out of the Airlines for America trade group and retrofitting old airplanes.
Veteran Northwest Airlines employees took pride in running a reliable airline. When it comes to achieving operational excellence, the blended Northwest and Delta work force is hitting Delta’s goals.
In a November message to Delta employees, Anderson reported that Delta had completed nearly all of its October flights. “For the entire month we had just 32 cancellations out of 85,998 mainline flights,” Anderson said. “American and United can only dream about that.”
Liz Fedor is a Twin Cities-based journalist who covered the airline industry for seven years for the Star Tribune.
The dark side not covered
Why didn’t you mention in depth how the Minnesota tax Payers got royally screwed by Delta with them incurring no penalties whatsoever.
Actually happy passenger
I had my doubts about the merger but I’ve been a pretty faithful customer of Delta because they operate a non-stop flight to London Heathrow from Minneapolis, a route I often need to fly. As long as they keep that option I’ll be a happy and loyal customer. As well, I can’t say enough about how much I absolutely appreciate the efforts to make sure each flight arrives on time. I especially realized this after flying Air Canada/United this fall, a trip full of delays and ineptitude I couldn’t have imagined.
One of many unhappy passangers
I frequently travel from both coasts to the Twin Cities, for both business and pleasure. Delta flights to the Twin Cities are much more expensive than other alternatives. I use other airlines, often times not having a convenient direct flight available. I am glad your enthusiasm about the merger; I am not. It may say Delta on the ticket but it is still North Worst,
Title accurately reflects content but article is incomplete
The article does a nice job of explaining how the merger has benefited current Delta employees, the company’s shareholders, and aspects of the Twin Cities economy. However, it misstates in saying, “If you examine the Delta-Northwest merger through a Minnesota lens, it’s apparent that key fears of merger critics haven’t been realized.” One need look no further than CEO Anderson’s statement about margins in the Twin Cities. Those margins have not come from reduced costs alone but rather from Delta’s ability to sustain higher prices on key routes. These prices affect consumers and the local economy. Price sensitive frequent travelers like me (once Platinum, now Gold, next year no status), have shifted our travel to alternate carriers but there is little question that Delta would be our carrier of choice if not for the dramatic rise in fares for business travelers. I really like Delta but have switched my travel to the new American Airlines out of necessity. I don’t begrudge Delta, but I do think critics’ concerns about reduced competition have been realized despite the rise of Southwest, Spirit and Sun Country. The article should not have been so Pollyanish.
Second Go ’round
Since the mods apparently did not like my first comment (nothing nasty, no personal attacks), I’ll take a second swing, though lengthier.
This reads like an ad placed by Delta, and reminds me of the book about the relationship between Reagan and the press: On Bended Knee.
Apparently criticism of MinnPost must be done with extreme caution.
Super Fortress
The old NWA and now Delta have a super fortress hub at MSP with high ticket prices and high margins as the the Delta CEO glowed about. What was not mentioned is that MSP was the largest maintenance base for NWA and that was once of the crown jewels of the NWA acquisition. With a large hanger capacity and skilled aviation mechanics the Delta maintenance base will grow if more skilled mechanics can be found.
Meh
True the nonstop to London is nice but we found (since the merger) prices are significantly higher with Delta to our other destinations. Mpls being a major hub seems to reflect no savings to the Minnesota traveler. The only exceptions we found were Delta vacations (excellent packages to LV if you find the right dates) and redeye flights.
Delta-Northwest – the reality
Delta is not a Minnesota company – it has Minnesota operations. A big difference..
That Minnesotans are working in Atlanta is really totally irrelevant, as their leadership of the former Northwest was a primary reason for the merger. That is like being happy for the wealthy Minnesotans who flee for 6 months and 1 day in Florida to avoid passing state income taxes.
This remains a hub because Delta is making great profits here, because it has such a stranglehold on this market and can charge Minnesota travelers premium prices. That is the reason why low price carriers want to do business here, given that with Delta’s high prices and profits makes competition easier than in more competitive markets. The true test of what percentage of passengers that fly out of the Twin Cities go on Delta – a statistic not addressed in the article.
Don’t get me wrong. The convenience of being a hub is great, but realistically, as Atlanta has the busiest airport in the world, Delta needed to have secondary hubs and by buying Northwest,,it bought a preeminent place in this market. If we were able to see the profit per passenger generated by Delta by city, I have no doubt we would be at the top of the list.
In other words, we pay Delta very liberally for being a hub and are stuck with the prices and service they provide, with other carriers not having a large enough presence to handle the business if people decided to switch from Delta. Please don’t oversell Delta’s munificence.
Who benefits? Why?
1. Delta. While there is some airline competition at MSP, it is not greater than before the merger.
Spirit and Southwest replaced ATA, Midwest, AirTran etc. Compared to 2004, MSP has fewer departing seats and higher fares for originating and destination (local) passengers. Delta enjoys monopoly control of many direct from MSP destinations and returns.
2. Connecting at MSP Passengers. Did you notice that no one mentions the “hubbing factor” anymore? The airline consolidations made city-hub-city air travel longer, as fewer hubs mean busier hub airports, more often further off a direct city-city route. Since Delta recoups most airport costs (leases and landing fees, fueling and deicing, etc.) as overhead assigned to the originating-passenger revenue, Delta O&D fares at MSP are 20% to 40% higher on a mileage basis. In fact, Delta fares from to Europe and Asia from MSP are almost always higher than from another US city via MSP to a common destination. [Note: I frequently fly to Asian cities from Minneapolis by way of Chicago or Denver. Total travel time is close, sometimes shorter (Denver) and the United fares are at least 40% cheaper.]
3. Can’t think of any.
.
Is this a PR article for Delta shareholders?
MN subsidized the construction of a maintenance facility in Duluth for NWA. NWA never used it. I don’t think NWA or Delta ever repaid the State. Cirrus now uses the building.
Delta has vacated close to 1 million sq ft of space in the Twin Cities. How is that a winner for MN?
When Delta controls 85% of the gates in the TC there is no competition in the TC. Companies that have a monopoly always charge above market prices. Which is why the TC is so profitable for Delta
Its was failure of gigantic proportions that the anti-trust justice dept let NWA buy up its competitors so it controled 85% of the gates at MSP. It was another gigantic failure of the justice dept. to let Delta merge with NWA
Agreed with most of the posters
The locals got screwed and Delta did the screwing! International flights to the Orient up ~ 20% + not including fees for this and fees for that! The article does really look like a a Delta promotion!
Want a flight to San Jose? Probably close to 2x vs routing through Phoenix on AA, business to Asia in a little squeeze looking at what $9K! Nice try with the lipstick, but, suppose we’ll lose those in-frequent flyer miles now.
Incomplete disclosure
MinnPost’s little blurb on the author (Liz Fedor) reads “Liz Fedor is a Twin Cities-based journalist who covered the airline industry for seven years for the Star Tribune.”
This strikes me as incomplete as she is also currently the “Trending Editor” for Twin Cities Business (http://tcbmag.com/About-Us/Editorial-Staff) which may have also had some bearing on the business-friendly slant of the article. Her TCB bio reads:
“Liz Fedor joined TCB in September 2013. She assigns, edits, and writes the magazine’s Trending sections, which provide business leaders with the latest information on specific industries. She’s an 11-year veteran of the Star Tribune, where she reported on the airline industry and manufacturing, and supervised coverage of agriculture, consumer issues, and the housing market. Before that, she was editorial page editor, Minnesota political reporter, and a columnist at the Grand Forks Herald.”
Par for the Course
Most “reporting” in local business media is pretty much fawning over local businesspeople, except when it descends into outright adoration.
The last good local business reporter (in any market) I can remember was Dick Youngblood for the Strib. He was very good for years, but his writing changed into the same stuff that we see from every other reporter on the business beat.
What about the workers?
Liz Fedor’s “analysis” demonstrates the typical weakness of “business” journalists — no attention to the workers at all. NWA/Delta management used its new structure (including an expansion of sub-contracting and out-sourcing) to rid the company of every union but the pilots. Workers’ compensation, on-the-job protections, scheduling, and economic security have been ravaged. True, this has happened to many, many unionized and formerly-unionized in the era of neo-liberalism, but Ms. Fedor might have presented NWA/Delta as a microcosm of how the US and global economy have changed (greater inequality, diminished rights for workers, etc.) the life chances for the 99%, on the one hand, and the owners and managers, on the other. Through articles like this, MinnPost demonstrates which part of “liberal” it really is… sadly.