Name: Delta CEO on US Economy and Travel: 'I'm a bull on this'
Uploaded: 2022-11-11
Duration: 12 min 55 s
Description: Ed Bastian says 'consumers are flush with cash' and 'our planes are full.'

Ed Bastian says "consumers are flush with cash" and "our planes are full."

Delta CEO on US Economy and Travel: "I'm a bull on this"

Leadership

it's so great to see you again and to hear about what's going on at Delta Airlines. The message you've been putting out to investors in the public is Delta is back. Tell us what's changed. Delta is not only back. Delta is better than than ever before. I'd say one of the most important things that we've changed. Suzy is the focus on wellness. So the cleanliness of our, of our product and our service is far better. Far better than ever before. We learned a lot about the pandemic and the vulnerabilities. We had a lot of new people. We had 20,000 people that retired during the pandemic. They decided they wanted to move on or save jobs for younger people. So we have 25,000 new people just in the last year and a half that have come into the company. So it brings a lot of new diversity. It's more, uh, it's younger. Uh, maybe a little bit more modern. We, we had a lot of new airports. Laguardia opened up this year. L. A. X. Has opened up this year. The two biggest markets in our country. The two finest airports would dare say we've got new technology. We've got new planes. So there's a lot of new that's come that we took advantage during the pandemic pandemic. We, we didn't sit still and wait for people to come back. We figured this was our moment to move. And we did you have said that you see no signs of a slowdown and that you expect these final months of this year to end. Strong is the recovery and travel steeper than what you expected. It's come back faster than we expected. We were anticipating that it may take up to next summer, 23 back two years ago. It's come back faster and I think what's happened is as soon as consumers felt confident that they wanted to go, they just wanted a good places, it doesn't matter where they were going to, matter how much they're paying. They just need to get out of their homes because they have people to see experiences to engage in in opportunities that they didn't want to lose and have taken away from them. Well, the other thing that we've noticed is that air fares have gone up. I mean, to what extent would you describe your ability to raise fares and not getting any pushback from consumers? Because thanksgiving flights now, the ticket fares are kind of high and the same for christmas lights. Well, it's not that we've been trying to raise fares. I mean, of course fares have to be as stand the level that demand is so strong. It's pushing the fares up because we, if, if we try to somehow bring our fare levels back to the 2019 levels, we'd be out of inventory for the next six months and you can't do that for consumers. So it's really a true supply and demand. It's an auction every day that happens on the, on our flights because we have limited availability. Second thing is fuel prices. Fuel prices are up 50% above where they were 2019. So part of that is normal. So our goal is by the summer of next year will be 100% back. So that means we're going to add about 15% more flights between now and the summer. That will help take some of the pressure off the fares for right now though. How do you factor in some of the financial issues that a lot of people are struggling with? You mentioned fuel prices? Well, consumers are dealing with high food prices and fuel. I mean, what are you doing that? You don't get a consumer belt tightening that would impact Delta's business. But what we've seen is consumers during the pandemic, we're not spending on airfares, they were not spending on service, the service economy, they were buying stuff, you know, everybody knows all those packages that would arrive every day in the boxes at the doorstep. They were buying things and stuff. Consumers now are not are not buying as much from the traditional retail channel or maybe amazon, but they are investing the same amount of money so they're funding their travel. They're not necessary increasing the spending, but they're moving back to a more traditional normalized level of service. And I think our consumers are just fine candidly, um, they're not seeing a kind of a pinch with respect to where they want to spend their travel, uh their money on travel, But of course we watch it like everybody does, but for the next several months we don't see any, any cracks in that business travel strong. I don't, I don't think business travels necessarily ever going to be back to what it was. I think it's gonna be different. I think that probably 70-80% will be similar and by the way, that's kind of where we're at, we're about 80% recovered in terms of overall investment on business travel. But what we've also seen is that there's a whole new ways in which people travel, people aren't in the office, you know, monday through friday 9 to 5 anymore and these new tools zoom and other video conferences are actually giving people the ability to take their office with them when they travel. So they're turning it into long weekends, working for different places. People are commuting actually from the mountains into their office where they only have to be maybe a few times a month. It's a whole new type of travel. So When we look at travel broadly, you know, it's, I'm not as focused on, is it businesses, it corporate, is it leisure? Is it hybrid? All I know is our plans at all. So you see this momentum continuing into 2023. No question. This is unique primarily because businesses, I have never, they, you know, they haven't gotten back to their 100% level of volume of travel. so they saved a lot of money on travel over the last few years. This is not something going into a potential recession where businesses could say, okay, we're gonna, because it's the easiest thing to cut this discretionary say, okay, we're not gonna, they need to be out with their customers, they need to be out with their colleagues, they need to be out looking for more sales and what I tell every ceo that I see because we're all traveling, we're all very busy right now, is that if you're not traveling, someone else's traveling to see your customers, so you better get back out and so everyone I know from that standpoint, so I think this would be a different type of recession, it was actually saving on travel is not gonna do much of anything is gonna hurt the business. I think I see people and businesses pushing people to get out to generate the sales and the activity and the initiatives, which is very different than anything we've seen in the past. I'd like to hear your take on recession that just about everybody is predicting is going to be coming right around the corner, you've been through many recessions. How do you see this one playing out? I think there will be some industries that will be challenged. I mean we also, what happened to real estate during the pandemic crazy. I think you're going to see with mortgage rates rising and other things, I think you're going to see real estate coming down. I think you're going to see consumer pulling back when they start realizing how much they're mortgage bills. You know a lot of a lot of business individuals by the way are fixed rates So they're not gonna see necessarily the full effect of it and they're going to be insulated a bit from that. But I think you also see some businesses gaining strength. I mean for us candidly our biggest cost that we've incurred during the pandemic is what's happening to fuel. Fuel prices are up 50% since 2019. If there is a recession it's likely that fuel prices are going to come down because they will be that will be a benefit to the to the travel economy. So I think this is gonna be a little different susie. I don't know by the way, I don't know anybody that's forecasting a long prolonged difficult recession. Most people are saying okay we may have won it may last a year, maybe 18 months. But fundamentally the economy in the U. S. Is pretty strong and the need to keep moving. The travel sector is pretty high. Let me follow up on this short versus long recession because we're getting predictions all over the map from economic experts and from ceo like yourself something it'll be short and quick and gone and other things that go on for years. I see nothing that indicates it's going to be long drawn out. I think consumers are flush with cash. I think businesses, depending on your sector, you may have, you know, a prolonged effect our business. I don't see it happening. I see people wanting to continue to travel. One thing about travel is once you start traveling again, like, wow, I really missed it. You know, we, we took it for granted pre pandemic, people aren't taking it for granted the same way. And so there's, and by the way, there's still a whole group of customers that haven't even yet been out to start traveling because they did see that the crazy summer that the airlines had, as we're trying to get everything back up and they said, well, we're just gonna sit this summer out. But they're going now this fall, they're going next spring and they're already booking their plan. So I'm, I'm a bull on this. A more immediate issue for Delta right now is contract negotiations with the airlines pilots are asking for more pay and they voted to authorize a potential strike. If the union can't reach a deal where do things stand? We'll get a deal with them. There's no risk of the strike. There were in mediated negotiations. Currently with our pilots are pilots already are the best paid in the industry and they should be because they're the best pilots in the industry. And we pride ourselves on that. We're talking about how high is high. And so the next contract they will continue to be the best paid pilots in the industry. Um, there are many, many phases to go before a mediator or a presidential emergency board could ever even release them legally to strike. So there's, there's no risk of that happening. So you're not preparing in anyway, just in case there's no, just in case we're going to get a deal done if they want to get a deal done, we want to get a deal done. There's a lot of rhetoric out there. But usually when there's, when there's smoke, there's fire, when there's rhetoric, that means something's happening. You sound very upbeat looking at next year at this time. What will you be saying about 20, and how the year played out, we're doing well. We're having record revenues even though we're only flying 85% of our capability. So as we continue to grow into next year and I think the demand is still going to be pretty strong. I think next year is going to shape up to be a very good year for the airline. It's gonna help us with respect to overall cost and productivity. But also given that the customers that we have a lot of customers, a lot of loyal customers that can't get on our flights are either full, they find it too pricey, they want to be with us. And they're saying, what can you do? The thing we can do is grow and that's what we're gonna do by summer the last time you and I talk it was about a year ago and we still didn't have vaccines. I mean people were just beginning to get them. You were dealing with a lot of health and safety issues are still a lot of disruptions. It wasn't as good as how you're talking about things today as you look back on that time, what would you say is the biggest, most important leadership lesson that you learned through all that to stay optimistic. Um, you know, I never lost doubt. We were going to get through this. It's easy to doubt what it's gonna look like, but I never doubted that we'd come out the other side and we would take the learnings as we went to improve the business. I think there's humility. You know, it's not just bullish optimism. We all learned that, you know, there's, there's something about the world in the environment and world order that, you know, is bigger than you that's always going around about you and our industry. We, we, uh, you know, we've been through challenges before, whether it's 9 11 or recessions or other issues. None of us had ever seen anything like this where you went from best year ever. We had in 2019, 30 days later, 5% of revenues and what do you do. And by the way, no idea when they were going to return. So it's humbling and we got to retain that humility and that appreciation for what we've been through with each other to build an even better airline on the other side of it. You know, in a crisis, people always look to the Ceo to have all the answers and to say how things are going to be in the future and you know, the covid pandemic, There were so many unknowns and many of the C. E. O. S I've talked to so that you just had to learn to get comfortable to say, I don't know, I don't have the answer. How was it for you as Ceos were paid to have answers were paid and people, you tell people you don't know. And by the way, there's a way to say, I don't know right. I mean, there's a way to say, I don't know and just spark more anxiety or tell people where you're at and let them know how you're thinking about this and pull followership along And that's what I tried to do. So you've been through a lot these last couple of years. What leadership insight did you get from this whole pandemic experience and how is it shaping the way you're leading Delta now? It's changed, it's changed our entire team has changed our business model. Folk focus on wellness focus on how focused on taking care of each other is never more important than ever were people business with an airline. But we're fundamentally, our people and our people are our best assets and they're doing a better job. Taking care of them, thinking about their emotional needs and their financial needs, as well as their their physical needs through this period of time is going to allow our business to come through this better than ever.