September 26 - BTC Letter To Delta Air Lines Chairman



Mr. Francis S. Blake

Chairman

Delta Air Lines, Inc.

1030 Delta Boulevard

Atlanta, GA  30320

VIA ELECTRONIC MAIL

              

Re: Political campaign against Open Skies policy and Gulf Carrier competition

Dear Mr. Blake:

As the Delta-led political campaign against the United States’ longstanding Open Skies policy and Gulf Carrier competition nears its third anniversary, the Business Travel Coalition (BTC) continues to hope that your Board will bring some level-headedness to this matter. In addition to reportedly costing a substantial amount of shareholder money, I hope you realize that the reputational damage and loss of credibility this campaign has exacted on Delta continues to mount.

BTC’s hope is that the nearing anniversary will finally be an inflection point for the Board to carefully and thoughtfully evaluate whether management should continue to squander money and political capital on an effort that clearly has failed and shows no likely prospect of changing course. What’s more, the Company’s unparalleled demands for government protection from competition has unintentionally raised interest in the industry, Congress and federal agencies to look at whether antitrust immunized joint ventures –predicated upon open and robust new entry - are any longer in the public interest. This Delta-led campaign is putting this valuable competitive advantage at great risk.

This campaign began with considerable reputational damage to the well-respected Delta brand. Based on the deluge of negative media coverage Delta received, I assume that you know I am referring to the very unfortunate anti-Muslim sentiment your former Chairman and CEO, Richard Anderson, tried to stoke by injecting the 9/11 national tragedy into the debate. As a former lawyer, Mr. Anderson chooses his words carefully. Accordingly, his offensive attempt to demonize the Gulf Carriers by exploiting 9/11 was not a careless slip of the tongue. Rather, it clearly appeared to be premeditated, practiced in fact. This inescapable conclusion was contemporaneously confirmed by an anti-Muslim race-baiting video that Americans for Fair Skies, a lobbying organization widely believed to be controlled and largely funded by Delta, released but quickly withdrew due to withering criticism. Even your anti-Open Skies partners, American Airlines and United Airlines, were rumored to be offended by the Fair Skies video and distanced themselves from it.

The campaign continues to damage Delta’s credibility. Thanks to the hard work of your more than 80,000 employees and management, Delta unquestionably is running an excellent airline. But, in addition to superior operational performance, corporate credibility matters. In a video prepared for Delta employees your CEO Ed Bastian attempted to whip-up employee engagement in this political campaign by strongly suggesting Delta’s continued existence and their jobs are at mortal risk. Delta has never been in a stronger financial position. On its face, this sky-is-falling hyperbole is not credible and damages management-employee trust, not to mention unfairly creates job security anxiety. 

Despite your record-setting profits, management continues to claim Delta is suffering substantial commercial harm due to head-to-head competition with a single Gulf Carrier flight, Emirates Airline’s daily New York JFK-Milan Malpensa service. Your President, Glen Hauenstein, has publicly admitted in a July 15, 2015 earnings call that claim of current commercial harm is not true. Yet, management continues to tarnish its credibility by making this knowingly false assertion. 

Then there is the claim by Delta and the outside lobbying organizations it funds that Delta’s decision to end its Atlanta-Dubai non-stop service resulted in a loss of 1,500 US jobs. In fact, as you know, the aircraft that served the Atlanta-Dubai market were redeployed in the more profitable US-Europe market. No crew or other employees who served and supported the Atlanta-Dubai flight were terminated or furloughed. Accordingly, it is a knowingly false claim. But, even though it damages Delta’s corporate credibility to make that false claim, your management continues to do so.

In addition to what is rumored to be tens of millions of dollars of shareholder money spent thus far, the cost of this campaign has been substantial in other ways. As you know, political capital is expensive and finite. You can only ask politicians to help a limited number of times. Every anti-Open Skies letter Delta asks Members of Congress to sign is one less request you can make in the future on other priorities. Should Delta be squandering its political capital so lavishly on this issue, which after almost three years, you clearly are not winning? That’s a question I respectfully think the Board should be asking.

The Company’s obsession with this issue unquestionably has distracted from other priorities and is harming those government affairs efforts. For instance, Delta has successfully fought any increase in the cap on the Passenger Facility Charge (PFC). In a July 27, 2017 release, the Company ominously cited a General Accountability Office (GAO) study finding for every $1 PFC increase passenger demand declines by more than one (1) percent.

Nonetheless, your government affairs team, fixated on the Gulf Carrier issue and perhaps distracted gathering signatures for Congressional letters, seems to have been completely blindsided by a Senate Committee-passed bill calling for a $4 PFC increase (which, according to the GAO report the Company cited, could reduce passenger demand by over four (4) percent). Given this distraction-related legislative failure, the PFC-related Congressional debate now is focused on the final amount of the increase, not whether there will be one.

Another issue is air traffic control reform and modernization, which many observers believe would produce substantial financial and operational benefits for Delta. After Mr. Bastian announced Delta had changed its position and now has joined President Trump in supporting pending House ATC reform legislation, it was assumed Delta would be an active, visible and vocal advocate for reform to offset the damage the Company did to the proposal by vigorously lobbying against it last year. That has not materialized even though the House bill, from an airline industry perspective, is in desperate need of stepped-up political support. Again, given the Gulf Carrier distraction, Delta seems to have little time or attention for anything else.

Mr. Blake, I urge you and your fellow Directors to use the upcoming third anniversary of the anti-Open Skies/Gulf Carrier campaign to reassess whether this political campaign continues to serve your shareholders well. While it is impossible to point to any benefits they have realized from this initiative, harms are apparent. Does the likelihood of meaningful success warrant continuing to subject them to these costs and harms including a distracted legislative agenda? Respectfully, I believe that answer is clearly no. 

In an October 13, 2016 earnings call Mr. Bastian indicated that the endgame is restrictions or limitations on so-called Fifth Freedom rights permitting Gulf Carriers to operate in the US-Europe market. If that is so, this political campaign was fatally misconceived from the beginning. US all-cargo carriers, who employ multiple times more workers than Delta and its allies combined, rely on Fifth Freedom rights. They have drawn a line in the sand on any restrictions, limits or policy changes that adversely impact Fifth Freedom rights or set any dangerous precedent for US all-cargo carriers. All-cargo carriers have substantial political influence in Washington, considerably more than Delta in fact. There is absolutely no reason for you and your fellow Directors to credibly think that the Company will overcome US all-cargo airline opposition to any Fifth Freedom-related action. Accordingly, Mr. Bastian’s stated goal for success is not attainable so why continue to give short shrift to other company priorities by continuing the expensive political campaign against Open Skies and Gulf Carriers that Delta will not win?

Thank you for considering my views about the need for the Board to reassess the Company’s campaign against US Open Skies policy and Gulf Carrier competition, which clearly has become an unhealthy obsession for management.

Sincerely,

Kevin Mitchell

Chairman

Business Travel Coalition

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