There are now only three U.S. legacy airline carriers remaining since airline deregulation happened in the 1980s. Succumbing to operational and financial difficulties, the rest of the players have either merged into the existing legacy airlines or have gone bankrupt. As consumers we are left with Delta, United, and American as our only three choices of domestic airlines with worldwide route networks. Among these airlines it is clear that Delta is the leader and has managed to be effective in aligning its operational model with its business model.
All of the metrics point to Delta being the best run airline. Airfarewatchdog.com, a group which monitors and analyzes airline performance, has Delta ahead of United and American in all of its ranking categories. In overall performance, Delta is ranked 3rd, while United is ranked 9th, and American 8th (the list includes smaller and discount airlines such as Southwest and Alaska). In terms of canceled flights, Delta comes in at 1.89% of flights canceled compared with 2.64% and 4.06% of flights canceled at United and American respectively. Perhaps most impressive is Delta’s on-time performance for 82.18% of flights, compared with 75.37% and 74.56% of flights at American and United respectively. Delta also wins when looking at mishandled bags and overall customer satisfaction. (Source for numbers: http://www.airfarewatchdog.com/blog/23248943/best-airlines-2015-edition/)
In terms of financial metrics, Delta also comes out ahead. Last year Delta posted $40.85B in revenue with a 14.97% operating margin. United posted $38.14B in revenue with a 13.33% operating margin, and American posted $41.52B in revenue with a 17.12% operating margin. Also, in the last 52 weeks, Delta’s stock has increased over 11% while United has lost ~3% and American has lost ~5%. (Source for financial numbers: Yahoo Finance). Investors a clearly rewarding Delta’s performance.
All of these metrics lead me to classify Delta as being effective in its operating model. Delta’s business model is to always put safety first, commit to being a great place to work, and to create value through: great customer service, excellent operations, a great brand, the best employee relations, and being innovative in all aspects of the business. (Source: http://www.delta.com/content/dam/delta-www/pdfs/policy/delta-rules-of-the-road.pdf). Delta’s operating model includes everything from operating flights to reservations to loyalty programs to partnerships with banks and other airlines. The complexity of the operating model, which is meant to achieve the simple goal of transporting people between cities, is what I find interesting about the company. Delta has managed to beat the competition through better execution of the basics and coming up with new ideas.
One of Delta’s core cultural messaging devices to employees is the ‘Rules of the Road’ booklet that gets handed out to all employees. This document works to get all employees focused and on the same page in terms of goals, and align the airline’s operating model with the business model. The five rules of the road are: Apply our basic business principles, Know our business and continually improve it, Demonstrate honesty integrity and respect, Drive for results, and Build great teams. These rules explain why Delta has been innovative in improving its operations. Over the last few years Delta has switched its loyalty program mileage awards to depend on price of the tickets instead of distance flown (which United and American have since copied), has managed to have the fewest flight cancelations and best on-time rating, and has dramatically improved customer service (Source: https://hbr.org/2014/12/deltas-ceo-on-using-innovative-thinking-to-revive-a-bankrupt-airline) . Having a workforce of dedicated and motivated employees now gives Delta a major competitive advantage, and the implications for performance in the future are fantastic.
The U.S. consumer has been the big winner as a result of Delta’s improvements. We now have an airline option that is more than tolerable, and has employees that actually strive to solve customer service problems. United and American are both trying to catch up and the result is better service across the board. On a recent trip on Delta I was amazed to watch the employees rush to get my flight out on time. The incoming aircraft was late and arrived 15 minutes before my scheduled departure. The Delta employees worked to make a quick turnaround and we ended up leaving only 5 minutes past the original departure time. This dedication was amazing to see, and I have never seen it on American or United, who both have much worse on-time ratings. May Delta continue to soar.