July 19 - What Do Alice In Wonderland And Delta Air Lines Have In Common?


INDUSTRY ANALYSIS

By Kevin Mitchell 

What Do Alice In Wonderland And Delta Air Lines Have In Common?

If you are seeking a summer read to escape from reality, there is no need to follow Alice down the rabbit hole into Wonderland. Instead, just read Ed Bastian’s column in the July 2018 issue of Delta Sky Magazine. Lewis Carroll has nothing on Mr. Bastian when it comes to concocting a complete alternate reality bearing no resemblance to the real world.

As you might remember, in Alice’s alternate reality she had to learn to walk away from her destination in order to reach it. Everything was backward and counterintuitive.

The alternate reality that Mr. Bastian attempts to foist on readers is that an embarrassing and outrageously expensive loss for Delta shareholders was instead a resounding victory. It is consistent with the ridiculous and reality-defying protectionist arguments Delta has incessantly made for over three years in its multi-million dollar political campaign against competitive choice offered by Emirates Airline, Etihad Airways and Qatar Airways (Gulf Carriers). Fewer rather than more US-arriving international visitors is better for US tourism-related jobs; fewer rather than more Boeing aircraft required by Gulf Carriers for their future flying needs is better for US aerospace-related manufacturing jobs; and fewer competitive choices is better for consumers.

In other words, abandon reality and suspend your common sense. When that common sense and reality clashes with Mr. Bastian’s parallel universe, Delta encourages you to trust Ed. Does this reflect Delta’s hubris or just the low regard it has for our intelligence?

Let’s take a look at how Mr. Bastian’s alternate universe withstands the stubborn spotlight of reality.

In his Delta Sky Magazine piece, Mr. Bastian got two things correct. First, the title – A Big Win For US Jobs And Travelers. The recent understandings reaffirming the US-UAE and US-Qatar Open Skies agreements are a big win for US jobs and travelers. Second, the Trump Administration deserves praise for reaching the right conclusion. US jobs and travelers won big precisely because the Trump Administration resoundingly rejected Delta’s protectionist demands, not because it capitulated to them as Mr. Bastian’s fantasy piece claims.

To be clear, the pro-US jobs and pro-consumer outcome Mr. Bastian touts in fact was diametrically opposite to the one Delta sought. Mr. Bastian’s anti-Open Skies campaign was designed to solely serve Delta’s anti-competitive ends, and Delta had no concern whatsoever about the substantial collateral harm it would exact on US jobs and the best interests of consumers had the US abandoned Open Skies.

Victory or defeat for Delta?

What exactly did Delta seek? At first it demanded the US Government freeze all new US flying rights of Gulf Carriers. Along with its duopoly partners American Airlines and United Airlines, the Big Three “magnanimously” amended their demand to seek “just” a freeze on US-Europe Fifth Freedom flights. As Mr. Bastian put it when asked during Delta’s Q3 2016 earnings call, “freezing and/or eliminating fifths would be a great start.” In other words, for Delta, anything short of a freeze on future Fifth Freedom flying would be a failure. According to the State Department, and the Associated Press, that is precisely what happened. The unlimited fu ture Fifth Freedom rights of UAE carriers were fully preserved. Other than in Wonderland or Deltaland, the failure to achieve victory as defined by Mr. Bastian would unquestionably and deservedly be regarded as a defeat.

Victory or defeat for US stakeholders generally?

Fortunately, the Trump Administration saw through Delta’s transparently self-serving fantasy. Fewer international visitors and reduced Boeing orders would have been outcomes 180 degrees opposite the President’s pro-jobs agenda and the best interest of the country. Accordingly, the Administration rejected Delta’s protectionist whining and reaffirmed both Open Skies agreements, thereby resoundingly rejecting Delta’s demand that both be torn-up and replaced with restrictive air service agreements. As a result, walking forward not backward, like Alice and Mr. Bastian, tourism-related jobs fueled by Gulf Carrier flights will continue to grow, as will airline jobs at all US carriers including Gulf Carrier code-share partners such as JetBlue Airways and Alaska Airlines.

At the same time, Delta that turns its back on US workers who assemble Boeing widebody aircraft by buying the Airbus A-350, which Mr. Bastian has anointed as Delta’s flagship aircraft, Gulf Carriers will be able to continue to boost Boeing’s workforce, and that of its supply chain vendors, by loyally purchasing Boeing widebodies to support future US growth. As to travelers, they are the biggest winners of all given greater competitive choice is needed now more than ever precisely because Delta is working overtime to stifle it.

What about Delta employees?

Mr. Bastian shamefully misled Delta employees into believing its anti-Open Skies political campaign was a matter of life or death for their Delta careers. At the same time Grim Reaper Ed was fear mongering to convince current employees to intensify their anti-Gulf Carrier lobbying pointedly telling them that their livelihoods depended on it. In November 2017 Mr. Bastian honestly boasted to the Detroit Economic Club that Delta is on a hiring spree seeking to add 25,000 more jobs in the next five years. It is reprehensible to foster such unwarranted economic fear among his workforce solely to prey on it.

To their credit, Delta’s hard working and professional employees trusted management. They loyally responded working tirelessly mimicking the fictitious sound bites and false arguments management prepared for them. However, what employees failed to realize is that the greatest threat to their jobs resides in the executive suite at Delta headquarters. Specifically, that threat is Delta management’s demonstrated commitment to offshore as many international flying opportunities to foreign airline alliance and joint venture partners as possible.

Delta is a serial outsourcer of crew jobs. International flying produces less than 30 percent of Delta’s total revenue. Mr. Bastian has chosen to relegate Delta to the role of an outsourcing feeder airline for its foreign alliance and joint venture partners. In its Q2 2018 earnings call, Glen Hauenstein, its President, boasted 60 percent of Delta’s transatlantic capacity is deployed to its European partner hubs. Specifically, hubs such as Paris and Amsterdam where Delta passengers are outsourced to Air France/KLM and Jet Airways for the final legs of their journeys to destinations like India and Africa.

How many international Delta crew opportunities are given to foreign partner workers instead? In its anti-Open Skies campaign, Delta claimed each flight operated by a foreign airline rather than a US crewed aircraft costs more than 1,500 US jobs. That bears repeating with an exclamation point. Delta claims each international flight it outsources to foreign partners results in more than 1,500 US jobs lost.

The Gulf Carriers were just a distraction in Mr. Bastian’s alternate reality; a convenient bogeyman. The clear and present danger to Delta employee jobs is the accelerating threat presented by this outsourcing of US jobs to foreign airline partners.

If Mr. Bastian truly cares as much about his employees as he claims, he should commit to stop offshoring future international flying crew jobs. How bad is the problem? One would think as international flying opportunities grow, Delta would add a roughly comparable number of international seats to meet that growing demand. Not so. For instance, between 2012 and 2017, international passenger traffic grew twice as fast as Delta’s international seats. Delta depended on outsourcing passengers and crew jobs for the remainder.

This trend of Delta outsourcing international passengers is accelerating. Between 2016 and 2017, international traffic grew 8.4 percent. How about Delta’s international seats, did they grow at a corresponding 8 percent? No, not even close. Delta’s international seats grew an anemic 1 percent. Think of all those Delta crew jobs that were offshored to Delta foreign airline partners. According to Delta’s anti-Open Skies advocacy, more than 1,500 US jobs per flight.

Mr. Bastian’s Delta Sky Magazine piece, and others like it, shred Delta’s credibility. They cause informed readers to snicker. Other than in Delta’s executive suite where they drink Mr. Bastian’s “we won” Kool-Aid and pat each other on the back, it is widely believed that Delta’s protectionist anti-Open Skies campaign was a colossal failure and a huge waste of shareholder money. It is time Mr. Bastian stop trying to drag us down his alternate reality rabbit hole.

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Mitchell is the founder of the Business Travel Coalition and OpenSkies.travel.

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