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Delta Airlines is the world's largest commercial airline. From its beginnings as a crop dusting company to emerging as one of the top airlines in the world, Delta Airlines has had a full history of a few down turns and many success stories. They maintained themselves in the ever changing airline industry but make bold and creative decisions, whether merging with other airlines or deciding it was in its best interest to file for bankruptcy. Delta's merger with Northwest Airlines had its challenges like having to merge two different pilot groups into one
Delta Airline "A great way to fly"
Back in the 1890's, a small pest known as the boll weevil spread from Mexico to the cotton fields in the in the southern United States. As a result of this infestation, Delta Airlines came into being. Delta Airlines history has come a long way since the days of spraying for a pesky insect to becoming the world's largest commercial airline. I will be discussing the history of Delta Airlines and will be discussing one of Delta's many mergers. The merger with Northwest Airlines created some challenges that Delta had to overcome to continue being the success story that it has become. Delta Airlines can thank the boll weevil for what it is today
Delta Airlines has its beginnings in 1924, when Collet Woolman and an associate had discussions with some farmers in Louisiana concerning the increasing threat the boll weevil made to their cotton crop. Woolman knew that the insect could be killed by using calcium arsenate, but there was a problem to effectively distribute the chemical to bring the threat under control. Having flown aircraft during World War I, Woolman devised a system using a hopper and a distribution system attached to an aircraft to apply the chemical by a new method known as "crop dusting". As a result of this, the first crop dusting service named Huff Daland Dusters, was launched and headquartered in Macon, Georgia. In 1925, due to an unsuccessful first season from a low number of cotton crops in the area, the headquarters moved to Monroe, Louisiana. In the same year, Woolman left the agricultural branch to lead the Duster's entomological work. The crop dusting business broke away from the main company, in 1928 and became Delta Air Service, named after the Mississippi Delta region. D.Y. Smith, a Monroe businessman, became the first president while Woolman retained his stake as vice president. The company began to broaden its securities by getting airmail contracts and in 1929; the first passenger service began between Dallas, Texas and Jackson, Mississippi.
The 1930's bought additional growth with more U.S. government airmail contracts. In 1941, the company was renamed Delta Air Corporation and was awarded three additional airmail contracts. The company headquarters moved from Monroe, Louisiana to Atlanta, Georgia also this same year. During World War II, Delta Air Corporation, while working for the War Department, support the war effort by transporting supplies and personnel. After the war in 1945, Delta went back to passenger service and began and era of significant growth. In 1953, Delta and Chicago and Southern Airlines merged and became a major air carrier. They continued to grow and prosper through the 1950's and 1960's. In 1967, Delta and Delaware Airlines merged and officially became Delta Airlines and Woolman became Chief Executive Officer. With the added routes and continued growth, it wasn't long before they became the dominate carrier in the region and was able to buy out Northeastern Airlines, in 1972. During the later part of 1973, Woolman had suffered a heart attack and his health started to deteriorate. During this time the company board members gradually took more control of the day to day operations from Woolman until his death in 1976. Woolman's absence was deeply felt at Delta, business continued, and the airline was able to make a smooth transition to a more modern style of collective management. Under the new consensus-style management, Delta quickly became known for having one of the best planning and management teams in the airline industry. The company also earned a reputation for being on very good terms with its employees, treating them like family. By maintaining pay and benefits above their union counterparts, Delta was able to keep the majority of its workers non-unionized. During the remainder of the 1970's Delta's management style remained conservative, such as only buying planes after another company had used them long enough to prove their worth.
The 1980's on the other hand was the start of a more aggressive corporate personality. In 1986, Delta merged with Western Airlines which gave it a share of the West Coast market. This merger was also Delta's first experience dealing with merging unionized workers into the Delta's corporate culture. In 1987, Ronald W. Allen was named Chief Executive Officer. Allen was known to be aggressive and outgoing with his business practices. He made larger more risky transactions then past company heads. One of the first deals he made when he took office was a $15 million deal to make Delta the official airlines of Walt Disney World(Banks, 1988). By the end of the 1980's and beginning part of the 1990's, world events took its toll on the airline industry. The rising cost of fuel, economic recession, war in the Middle East made way for a decline in the number of passengers flying. Delta was able to fair through the hardship well due to its sound financial practices and they were even able to take over a failed Eastern Airlines, in 1991. This was also the year Delta became a major player in the transatlantic market by acquiring assets from Pan Am Airlines. The deal netted Delta dozens of European routes, a hub in Frankfurt, Germany, as well a few routes from the United States to Europe and also 21 aircraft (Maxon, 1992). Many economists at the time thought the purchase was a little too aggressive for Delta and by 1992 proved too much for the company. Taking on Pan Am's debt coupled with world economic struggles resulted in a net loss of $506 million dollars for 1991. This forced Delta to take unwanted actions to bring Delta back on track financially. They reduced their work force by five percent, froze wages, and cut salaries. Delta also in an effort to combat the reduction of air travelers reduced transatlantic fares by 45 percent in the summer of 1992. They also launched new routes from Las Angeles to Hong Kong. As a result of the shifted focus to overseas routes paid dividends when the company posted a profit of $60 million in the first quarter of 1993 compared to a loss of $125 million in the same quarter the year prior. In 1994, Delta saw additional losses and as a result they launch the Leadership 7.5 program. This was an initiative to help make operations more efficient. As with the name of the program suggest, Delta made a goal of reducing the cost to fly to 7.5 cents per mile per seat. They were able to see results almost immediately following the implementation of the program. By the end of the fourth quarter of 1995 they had seen a profit of $251 million.
By the end of the 1990's Delta had made big reductions in many customer focused positions that their image as being the "Family Airline" suffered. They fell from being in the top 5 airline companies to ranking last as the result of a substantial increase in customer complaints. The beginning of the new century also brought a number labor disputes which included the one with the pilot contract in May 2000. The contract negotiations drag on for months and throughout that time many flights had to be cancelled due to no pilots to fly them. In the early 2000's Delta retired their three engine jets and replaced them with twinjet planes in an effort to simply their fleet and take advantage of the cross utilization with pilots and mechanics. In early 2004, efforts were made to prevent the company from filing for bankruptcy (Brelis, 2001). They restructured the company with job cuts and an aggressive expansion of some 100 new flights. In mid-2004, Delta closed its forth busiest hub in Dallas and the pilots voluntarily agreed to a 32 percent wage cut all in an effort to help prevent bankruptcy. In 2005, fares were cut acrossed the board and in an attempt to improve profitability Delta applied for routes from Atlanta to China but routes were awarded to other airlines. In mid-2005, Delta sold their Delta connection to Sky West Airlines for $425 million, well below market value. They also cut 26 percent of its flights from Cincinnati, eliminating up to 1,000 jobs. On September 14, 2005 Delta filed for Chapter 11 protection for the first time in its 76 year history. They explained that high labor costs, and skyrocketing fuel prices as the main reasons for filing. At the time of filing Delta was $20 billion in dept.
Immediately following filing for bankruptcy, Delta began to speed up its restructuring plan. They planned for an additional $3 billion a year cost reductions by 2007. They reduced non-union workers pay by 9 percent, 15 percent for mid-level leadership, and 25 percent for the Chief Executive Officer. In the end of the 2005, the pilots agreed to an additional 14 percent pay cut. In addition to the pay cuts, they planned for a reduction in force by 9,000 workers. During the restructuring, United Airlines saw an opportunity for the acquisition of Delta Airlines. After several takeover bids United Airlines withdrew their offer because the failed to gain support from Delta's major investors and Delta management. On April 30, 2007, Delta Airlines emerged from bankruptcy as an independent carrier with a new logo and paint scheme. On October 29, 2008 Delta became the world's largest airline with 786 aircraft when they merged with Northwest Airlines. This raised the company's value from $10 billion to $17.7 billion. This merger was a win/win for both companies but it did come with some challenges.
Changes in the airline industry and rising fuel costs created a need for closer cooperation among former competitors. The merger between Delta and Northwest allowed the combined carrier to gain large economies of scale and scope, increase their operating efficiency and improve supply chain management. According to MIT's Global Airline Industry program, few industries are under more scrutiny than the world's major airline carriers. Since the deregulation of U.S. airlines in 1978, "questions of cost efficiency, operating profitability and competitive behavior have become the dominant issues facing airline management." The airline industry has been struggling to adhere to "deteriorating labor/management relations, which led to dissatisfied customers due to perceptions of poor service in general". Since labor costs are one of the largest issues threatening the survival of the airline industry, the new Delta must create a labor environment of "cross-utilization and a long-standing culture of cooperation among labor groups" to survive as a company (MIT University, 2010).
Immediately after the merger was announced, the Northwest unions opposed it. In an attempt to bring the Northwest pilots union under the identity of the new Delta, "the airlines tried something new, they attempted to get pilots to agree on a joint contract and seniority before the merge. That effort failed over seniority disputes" (Weber & Freed, 2008). Despite that failure and Northwest's initial opposition, Delta immediately tried to merge old identities by reaching out and incorporating both cultures into one. Since no relationship can be established without the sharing of information and dialogue, a key issue facing Delta was its attempts to establish a new organizational identity is a Northwest union's opposition to Delta's direct contact with Northwest employees. In August 2008, Delta distributed a survey seeking employee input regarding the new corporate culture. Two Northwest unions asked employees not to respond and informed Delta that the company needed to work through the unions in order to communicate with the employees. However, for Delta to be able to build a relationship, and an organizational identity for their employees, open communication must occur without the interference of unions. To Delta's benefit, it was stated that "in spite of union protests, around 1,000 Northwest employees responded to the survey within the first 24 hours it was available online" (Smith, 2008). Another issue stemming from organizational identity is the need for Delta to further encourage cooperation among the pilots by addressing existing divisive issues. The only way for Delta to service new routes, according to the Northwest pilots, is for the new airline to change their contract. Northwest CEO Doug Steenland believes that the only way for these disruptive issues to be solved is to have a joint contract between the two pilots' unions. "It's not black and white, but to get the full benefit of it, you would like to have a combined contract and a merged seniority list" (Weber & Freed). Delta must break the organizational identification of the Northwest pilots and replace it with positive feelings of attachment for the new Delta. This will allow the company to reap the full benefits of cooperation, effort, participation, intrinsic motivation, task performance, and information sharing.
As stated by MIT, due to high labor costs, cross-utilization of employees is vital to the success of an airline. This requires employees to go beyond their job description to assist the company run as smoothly as possible. This can be achieved through Organizational Citizenship Behavior which can be affected by the level of perceived organizational justice. The first of two major obstacles that Delta management has faced is the pilots' labor contract, covering distributive and procedural factors such as pay, benefits, and work rules. The second obstacle is the seniority list, ultimately determining interactional and procedural job aspects such as types of aircraft, flight schedules, and layoff protection afforded to each pilot. "'To have a successful merger, all pilots and all employees have to be treated the same,' said Dave Stevens, chairman of the Northwest pilots union" (Fedor, 2008). While the employees face the challenge of exhibiting Organizational Citizenship Behavior, Delta's challenge is to enforce rules and regulations that maintain the justice to which employees of each carrier have been accustomed without showing favoritism. Another issue Delta faced concerning justice was the divided loyalties between organizations. In this respect the union serves as a divisive factor allowing the Organizational Citizenship Behaviors of employees to be misdirected. Terry Miller, a Delta pilot and employee for 28 years, was asked about the pilots' union determining seniority. In his response, he placed his faith in the union, saying "I believe they'll, the union leaders would be fair" (Grantham, Tharpe 2008). This belief by Miller shows the loyalty that many pilots demonstrate towards the union ahead of Delta, and suggests that any Organizational Citizenship Behavior performed by employees will benefit the union before the company.
I feel in order for Delta to win the battle for the Organizational Citizenship Behavior of the pilots, they must establish themselves as an interactional justice champion with whom the pilots can clearly identify. To reach this goal, management must take a two level approach that should first focused on creating the organizational identity of the new Delta, and second, communicate justice initiatives. The longer-term focus on identity creation ensures that many of these issues will present a constant challenge to the newly formed management team. The following methods I feel would be critical in determining the creation of a new identity:
1. Team-building -Group building activities should not be ignored. Team-building events are an effective means of building trust.
2. New mission statement - Part of the creation of a new corporate culture will be a merging of the best practices from the former Northwest and Delta. Soliciting input from the employees of both groups will give the combined workforce a sense of ownership in the new company.
3. An equal stake - Part of distributive justice is ensuring that equity and compensation is evenly distributed among peers in similar positions. The equity stake that Delta gave to its pilots in exchange for entering into binding arbitration should be extended to former Northwest pilots as well. A unified pilot force that has a personal interest in the success of the new airline will align their interests with management's more often than not.
4. Award Ceremonies - Among various awards that could be recognized include specific Delta milestones and other community-based milestones such as athletic achievements and community outreach achievements. Distributing awards is an effective way of praising the employee, and of exhibiting recognition at the individual level.
Delta's communication focus should likewise include company-wide efforts designed to establish a healthy dialogue between management and the employees. Given the differences in employee age, education, and learning styles, Delta must provide consistent information across multiple channels that are made available to each employee. Some examples of potential methods I feel would be effective are:
1. Employee Web-portal - As like the Air Force has its portal, this would provide information on internal issues within the company to improve the working environment for all employees. It would allow for the ability to contact management to voice concerns and would be as easy as an email or filling out a form, and could be done without the knowledge of peers.
2. Monthly Newsletter - A Delta Newsletter would provide highlights about current events and additional information about issues facing employees.
3. All call meetings - Regularly occurring group gatherings between management and employees would provide and avenue for issues to be brought to light and addressed before they lead to larger problems. Meetings could occur between management and individual flight crews, groups of peers, or both to ensure that pressure from colleagues does not negatively affect communication.
4. Creating opportunities to bond between co-workers - To break down the artificial barriers that are certain to arise between the pilots of the two formerly separate airlines, management could assign a Delta captain and a Northwest captain together when possible on flights. Incorporating a degree of flexibility where a former Delta 737 captain may serve as co-captain to a Northwest 747 captain will allow the pilots to cross-train while encouraging a spirit of accommodation. These methods I feel would prove effective in overcoming the challenges Delta was faced with in the merge of two separate pilot groups with two separate Organizational Citizenship Behaviors, as well as two separate views and loyalties to there employer.
Delta Airlines has come a long way from combating a pesky insect to becoming a power house in the airline industry. They have made creative bold moves that either benefited the company or negativity affected the company. Either case, Delta has emerged from many challenges a better company and has stood out among all the airlines as premium airline to work for. They know it is their employees that make the company successful and it has shown through years.