Skift Take

It can't happen soon enough.

“We’re going to make it free,” said Delta Air Lines CEO Ed Bastian, when speaking about his long-term vision for in-flight Wi-Fi during Skift Global Forum in New York City on Friday.

Bastian said free and faster Wi-Fi are things that his customers want. “I don’t know of anywhere else besides in an airplane that you can’t get free Wi-Fi.” He did not, however, specify when that might happen at Delta.

Bastian believes free Wi-Fi would also produce a large step-change function in the connection “between our customers and the airline” for purposes of marketing and branding.

In the past year, United has been making technical upgrades to boost Wi-Fi speeds on selected aircraft.

On Friday, Bastian talked about his high hopes for a new wireless in-flight entertainment (IFE) system that Delta is testing on its new Airbus A220 narrow-body aircraft. “A wireless IFE is great because it means we don’t have to wire the planes anymore,” Bastian said. “We just put the tablet on the back of the seat headrest as a display panel.” If there’s a problem with one screen, it can be more easily isolated and solved in a wireless set-up than in the traditional hard-wired arrangement where a repair may require shutting down Wi-Fi for all passengers.

Bastian said one of the opportunities with next-generation Wi-Fi is savings. He estimated it could cost more than $1 million per plane to install wired IFE, while wireless IFE will cut that cost down “by two-thirds.”

Among U.S.-based airlines, JetBlue is the only large airline currently offering free in-flight Wi-Fi, though the offer is expensive for the carrier.

Robert Isom, who took over as American Airlines’ president in 2016 after serving as its chief operating officer, made comments Thursday at Skift Global Forum that could be interpreted as American being hesitant about going to a free Wi-Fi approach for various commercial and logistical considerations.

The leading U.S. provider of in-flight connectivity is Gogo, but that company has been struggling financially. Delta is the largest early customer for Gogo’s new product, 2Ku satellite broadband service, a boost from the slower ground-based internet delivery system. But installations have been slow, apparently due to a mix of mechanical, technical, and commercial issues.

Delta’s Bastian said that Gogo had been a good partner in the past year and that while Delta had suffered “negative” customer satisfaction scores for its Wi-Fi last year it has been in the positive territory this year, as measured by so-called net promoter score surveys.

Here’s the full edited transcript of Brian Sumers’ interview with Ed Bastian. 

Skift: Just this week, you had a technology outage. I believe it was on Tuesday.

Bastian: Yup. Flights were down for about an hour.

Skift: What happened and more broadly, why does this happen more often than passengers would like?

Bastian: Well, technology, as everyone in this room can appreciate, is our lifeblood. The bigger we get, the stronger we get, and the more global and scale we have, the more vulnerabilities that we create. While everyone here in this conference wants to hear about the innovation and the apps and the cutting edge new opportunities that industry is going to find, I’d say the single biggest investment need we still have is in the infrastructure and the durability, the reliability and resiliency of the backbone.

We’ve done a fabulous job of that at Delta. We were down technically for 26 minutes. That was the length of the ground stop. We recovered quickly. I think we only had a couple of cancellations as a result of that. Interestingly, the stats on the day, on Tuesday, is that we outperformed all our major competitors. We had fewer cancels, fewer delays, better on time reliability than anyone else, even with that outage occurring. I was pretty proud of the team. It was what I call it a hiccup, as compared to an outage. Certainly we apologize for any customers that were inconvenienced by it, but I was really proud of the team, how quickly they recovered.

There was a network device that went down. It was showing no signs of distress. It actually wasn’t a technology application issue as much as a physical device issue. We found it quickly and rebooted the system and we got everybody on their way.

Skift: Is this part of life at an airline, even if you make the investments ? The systems will go down at sometimes? You are a 24/7 operation worldwide.

Bastian: Yeah, I think there’s always going to be some vulnerability, but I can tell you, I don’t even call it significant. It was a relatively small, minor glitch we had in over six months. They’re getting smaller. They’re getting fewer in number. If you went back a few years ago and had that outage, I think it probably would have taken us several hours to recover, my sense. Today, it was 26 minutes. Next year hopefully, there won’t be any.

Skift: Let’s talk fun technology. You made a big announcement recently. You will have the first biometrics terminal. It’s going to be in Atlanta. Why are you doing this and then how is it going to work?

Bastian: We’re very excited by it. We thank our partners at the CBP, Customs and Border [Protection], as well as TSA, which also part of this pilot, to bring a biometrics and facial scanning technology to our international customers. If you haven’t heard, by the end of this year, the Atlanta International Terminal, Concourse F, will go all facial recognition, for anyone.

It’s an opt in program, so people that don’t want to opt in for whatever reason don’t need to. But it will effectively be paperless. Your credentials, your recognition, whether you go through the screening process, when you board, when you return back to the country, there will be no need to show any documents. We see it’s not just more efficient in terms of time-saving for our customers, because the line waits coming through international are still a real pinch point in our travel rhythm. In tThe initial trials, we’ve had a 98 percent hit rate with the facial recognition. So 2 percent that kick out will be handled manually, as they’re done today, but I’m excited that at a very early stage, this technology’s very promising. I have no doubt, over the next several years, that it will be our standard.

Skift: JetBlue is working on something similar. Their president, Joanna Geraghty, told me the system has trouble with older people. Have you heard that as well?

Bastian: Well as an old person, I hope they’re wrong.

Skift: Do you expect customers to opt in? I’ve gotten used to using my mobile phone. It doesn’t really slow me down to get into the club or get on the airplane.

Bastian: I think most customers will opt in.

Skift: This is not a 100 percent airline audience. Yesterday we introduced this group to a fun term when I interviewed Robert Isom. It was D-0. Those are flights that leave exactly on time. D-0is very important to Delta. So is A-0, arrival on time. But  have another metric that you love to talk about. It’s completion factor. They probably don’t know what completion factor is. What is it and why are you so obsessed with it?

Bastian: Well, completion factor is a measure for how you operated that day. When all our flights complete, our completion factor is 100 percent.

Sometimes there are cancellations. Our goal at Delta is to eliminate cancellations, and we’re doing a pretty darn good job of it. Last year, we had 242 days of the year without a cancellation, systemwide, worldwide.

Skift: How many did your competitors have?

Bastian: If you were to add all of our main competitors combined in terms of their cancel free days, we had more than all of them combined. So 242 days last year, cancel free. This year we’re on an even better trajectory in terms of what the math will be by the end of the year, but one of the key underlying reasons for that is the improvement that we continue to make in our maintenance, because your maintenance operations are the backbone and that foundation for the reliability of the airline. Last year, we had 330 days without a maintenance cancellation.

We’ve had 99 percent reduction in maintenance cancels over a five-year period. It’s hard to eliminate entirely maintenance cancels, but we’re getting pretty darn close. The team’s doing a great job and I’m very proud of them. That’s despite, Brian, the critique around Delta sometimes is that we operate some of the more complex, older fleets in the industry. It shows when you have the best people, what you can do.

Skift: Last year you promised this group that your WiFi was going to get a lot better. Has that happened? You have some well-publicized issues with Gogo in the past year. They didn’t deliver you the product that you wanted.

Bastian: Yeah. They’re getting much better. I still don’t call them Gogo. I still call them Slowgo.

Skift: SlowGo. I think last year it was Nogo wasn’t it?

Bastian: Last year was Nogo. The Nogo to Slowgo and by next year it will be back to Gogo. That’s just a joke. They’re a good partner. We’ve gotten their full collaboration and cooperation. As people may or may not know, the revenue model that Gogo operates is Gogo operated. It’s not Delta. They are a service provider to Delta. The wireless technology that they enable is going to have far more reaching effects than simple WiFi connectivity.

One of the things that we are going to be launching on our aircraft, early part of next year, is a product that we’ve developed internally called wireless IFE. [We’ll lauch it on] the Cseries, or the A220, as it’s now referred to, our newest product that we’re going to be introducing to the market early part of next year. I think will be an excellent product. Delta Flight Products developed a wireless IP solution so that we don’t have to actually wire the planes any longer. We just put the tablet in the seat back, and now we pull the satellite technology to give you all the IFE, live TV, that you choose.

The savings are enormous. It costs over $1 million airplane to equip the IP systems onboard those planes. This will cut that down by two-thirds of the costs. Also the reliability. When you have an outage on board, you can isolate it to an individual seat [and] change the panel out. [It] will take a matter of a couple of minutes. The team’s done a very nice job.

Hats off to the Gogo people. They’ve really stepped up to the plate for us. Our customer satisfaction scores last year actually was negative, when we measure Net Promoter Score. [It’s hard to ] understand how that could get negative, but it was a negative attribute. This year, it’s a significant positive, The thing we’re going to get to — haven’t figured out how yet —  is we’re going to make it free.

Skift: You will make it free? Because Robert Isom ducked that question a little yesterday.

Bastian: You’ll have to ask him about it, but I know our customers want it, and I don’t know anyplace in the world that you pay for WiFi other than an airplane. The [question] is why? Then when we can make it free, I think you’re going to see another step change function in terms of the connectivity between our customers and our airline.

Skift: The basic answer that executives give me, with the exception of Jet Blue, which is free, is it costs a fortune to outfit an airplane with WiFi, much more than your hotel room or even this room. But you still think you can offer it for free?

Bastian: That’s our goal.

Skift: I’m an airline guy. I don’t love talking about politics, but in the last year, airlines and politics have mixed, probably more than people expected. At some point in the last year, you took away the NRA’s discount. I understand very few members were using it, but it was still nonetheless a  big deal. You said, in a note, ‘our values are not for sale.’ Why’d you do that?

Bastian: There come times that, on social issues, companies need to be heard. Your customers expect you to speak. Employees [and] colleagues expect to know our views. It’s a fairly uncomfortable place. I don’t think many corporate CEOs have grown up anticipating becoming politicians.

We’re not good politicians, and I really do try to stay out of the social activism role and stay out of politics because I’m just trying to be the best airline CEO I can be. When we saw the rhetoric that was going on around the NRA, particularly attached to the Parkland shooting, and we saw that we had a discount program for NRA members, we just tried to remove ourselves from the debate. We wanted to get offstage, not get on stage. Of course, by getting offstage, it put us on stage.

Then there were some tax matters in the state of Georgia that came into play, got us into the national headlines. But we’re just trying to stay out of the political realm, stay off the social media websites, and run a great airline for our customers.

Skift: As I recall, Georgia briefly added a fuel tax for you and then pulled it back. Is that right?

Bastian: The lobbyists put a lot of pressure on the Georgia state representatives to eliminate a $40 million tax break that they had already approved for us, to get us. It wasn’t just for Delta. It was for the state of Georgia because the state of Georgia has one of the highest jet fuel tax rates in the country. The governor was doing the right thing by trying to eliminate that by making it even more competitive with other states. We got caught in the crossfire. Hats off to the governor of Georgia. He came back around last month and took the tax down himself. I’m very pleased to see that.

Skift: As a brand, when you take a stand do you see either a book away, which is slightly fewer people booking, or maybe even a jump in bookings? Do you see any change?

Bastian: Well, that wasn’t part of the consideration set, in terms of trying to gain customers. It wasn’t a factor. I can tell you that the overall response was significantly favorable to the stance we took. I think people respected our views, and even those that didn’t agree with our views, had an appreciation that we had to be heard on the topic. We weren’t the only company that was in the dialogue. There were many others as well, but we had an actual, a financial cost to our decision, that others didn’t have to bear.

I will also tell you that the revenues at Delta this year will be the highest in our history and our growth rate is one of the highest in the industry. I’m not saying that has any cause and effect, but I don’t think it’s hurt us.

Skift: Let me ask you what I like to call the Doug Parker question, because he says it all the time. Doug Parker is of course the CEO of American. He says American and the industry in general may never lose money again. You’ll have good years and bad years, but no horrible years. Do you agree?

Bastian: Well, you have to ask Doug. I’m not going to comment on American or Doug. He’s got his own views on that, but I do think we’re in a very different structural condition than ever before. Our debt levels are at their lowest in our history. We’ve got our investment grade rating back. We have the strength and the durability because we’ve used this period of time to invest in product and service and reliability in our people, to create a durability with our customer base that we’ve never seen. Our net promoter scores are the highest we’ve ever held. We’ll carry 200 million customers this year, so the demand is quite strong. We’re an industry that’s vulnerable to volatility, but I do believe we will get through any type of significant issue thrown our way. You’re never going to hear me say that we’ve solved all the industry’s woes, but I feel very, very good about our financial condition.

Skift: Do you think anyone is going to come in and disrupt this industry, particularly in North American? Could it be David Neeleman with his new proposed airline, or maybe Amazon or Facebook? What makes you worry?

Bastian: To be an airline executive, you have to be born paranoid because we’re used to being beaten around the head or the ears by different things that are outside of our control. One of the things at Delta we’ve been very keen on over the last 10 years of our journey to get to where we are at the top of our industry is trying to control those things that typically were not in our control, whether it’s oil prices and now we own a refinery that helps manage that. Or the taking our debt loads down to be more fiscally responsible or investing in international partners the way we have, to build a true global product and opportunity to be the best airline, not just in the U.S.

As a result of that, when you think about the opportunities that we have and you think about where we’re going towards the future, there’s a confidence and there’s a strength and there’s an investment that we continue to pour back into product. I think that has underlined that resiliency.

We’re no longer competing as an industry on market share just for the sake of market share. We’re competing for smart market share. We’re competing from positions of strength rather than vulnerability. We’re now competing for the long term rather than figuring out how we’re going to pay our bills for the current quarter. It’s a very, very different industry.

Skift: I know your fuel bill is up considerably. In the last three weeks, there’s been some news in the airline industry. Everyone, Delta included, raised the fee for the first checked bag to $30. Why’d you do it? You know that a lot of people think that the industry is nickel and diming them and folks get really upset over the bag fee.

Bastian: Well bag fees are one form of pricing. I won’t speak to pricing, as you can appreciate. If you look at overall pricing, including fees in our industry, not just at Delta but in our industry, over the last 10 years, in real dollars, they’re flat. Yet you think about the massive improvements we’ve made in the industry and there’s the reliability, the quality of service, over the last 10 years, has been phenomenal. If you go back even further, you go back to 1990, overall fees and pricing is down 40%, 4-0 in real dollars.

I think air travel continues to be one of the greatest bargains in the world today. Certainly, it’s carrying 200 million people this year, we’ve democratized travel and we’ve created opportunity.

I call Delta more and more a lifestyle brand. We’re helping consumers and helping business travelers and helping people make life work. Whether it’s bag fees or whether it’s a pricing change, you got to figure out how to get your costs paid. At Delta this year, we’re going to generate a profit of $5 billion, which by the way is where we ought to be, in terms of earning a proper return for our owners. Despite the $2 billion headwind in higher fuel prices, we’re still going to generate a $5 billion profit, which is kind of flat year-on-year, so I’m pretty comfortable with that.

Skift: I know that this is not a Wall Street conference, but those are huge profits. You guys complain all the time that Wall Street doesn’t respect you in the same way that they respect other high quality industrial companies. Are they coming around at all or they’re still skeptical?

Bastian: I think the airline industry continues to get more and more credit for the work we’re doing. At Delta our market cap today is $40 billion. That’s how much we’re worth. If you look at over, say the last eight or nine years, we’re up 6, 7x. So I think it depends on your horizon. We’ve had significant improvement in overall growth and investment in our industry. Our largest owner today is a fellow named Mr. Buffett. We’re one of his top ten holdings for himself. I think we’re continuing to get the credit we deserve, but there’s more to go. There’s no question about that.

Skift: Let’s go to audience questions. JetBlue’s Geraghty said that her airline was having some difficulty getting good gates in Atlanta. The question is why are you actively blocking Jet Blue from Atlanta? Why not compete with service and product?

Bastian: I didn’t realize we’re that powerful. We can’t actively block anybody within any airport. That’s certainly not true, and you know that’s not true. JetBlue as well as any of us have to work with the local airport authorities to get our gates and our boarding times and our slot times. It’s part of the overall coming into a market. You have to build your presence and create opportunities. It’s really up to them to work with the Atlanta airport authorities, not with Delta.

Skift: Here’s another. Why do your priority bag tags never come out first at baggage claim?

Bastian: Well they’re supposed to, right? I travel on us all the time, and I traveled up here. Mostly I’m actually traveling in coach, and I’m down there at the luggage carousel. In fact, last night when I flew into LaGuardia, I was flying with the woman in my life. Her bag was actually thrown over on the side. It was kind of in the baggage area. I got to climb up there and pull it out myself, even though it had priority tags on it. We do a great job at Delta. Our baggage team is the best. I think our mishandled rate, we never lose bags, we just misplace them from time to time.

Skift: Sometimes for a long time.

Bastian: We always locate them. Our mishandled rate is one in a thousand, which is phenomenal, with RFID technology and the ability to track it on the Delta app is incredible. We’re always trying to get those priority tags out first, but we want to get all bags out as quickly as possible, and occasionally the other bags get out there. One of the other things is our bag carousels obviously carry a number of flights, so some of the other bags you see may be from a different flight.

Skift: Let’s see what else they have for us. What other airlines do you look for, for inspiration on the passenger experience?

Bastian:  I wouldn’t say inspiration. I take most of my inspiration from my own team. We watch everyone in the customer experience. Technology, opportunities to innovate and learn. I certainly have enormous respect for Southwest in terms of what they do. Very, very different business model, but it’s very effective in its own right, in terms of efficiency. I think there’s things that we look to learn from them. Some of the international airlines have enormous customer appeal. Certain of their products, not the subsidized ones, but the ones that have to pay for it themselves, and figure out how to make it work, and we learn from them. We learn from our partners that we work with.  Virgin Atlantic, I’d say is one of the airlines and companies and brands that I do draw real inspiration from. You see our Sky Clubs, you see the influence of Virgin on the Delta products in our lounges and we are working together on technology and the importance of brand, investing in a high quality brand and experience. There’s a lot to be said for them.

Skift:. Do you have an update, because we’re in New York on what’s happening at LaGuardia?

Bastian: Well, we’re making good progress at LaGuardia. I know it’s a long term project. It will take several years before we’re completely done, but the Delta terminal will start to come online within the next 18 months. Spring of 2020 is when that first concourse will open. It’s called Concourse G. It’s now being built.

You can see it coming out of the ground, right next, to where the old parking lot was on the east side of the airport. Over the next several years, you’ll have a complete new experience, which is incredible because the real estate is so valuable to us. The customer opportunities are great.

I’m very excited for what I see going on, not just here at LaGuardia but also when you see what’s going on in LA. We’re also building a brand new airport experience or in Salt Lake City. Or in Atlanta or Seattle.

Airport infrastructure is key to our ability to create experiences for customers and the innovation for customers in the future. I think we’ve all done a very, very good job with improving the flying experience. More to go, but I think we’ve made great headway.

The airport experience, not so much. At Delta we’re in the midst of a $12 billion investment — on Delta’s balance sheet by the way — in the customer experience from an airport perspective. It will take years to roll out but I think you’ll all see, as we look to the next decade of air travel, the airport experiences are going to be the focus and the priority in terms of improving the experience for everybody.

Skift: Great. Thank you very much.

Bastian: Brian, thank you. Thank you all for flying Delta.


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Tags: delta, delta air lines, sgf2018

Photo credit: Delta CEO Ed Bastian (right) speaks on stage at Skift Global Forum in New York City on Friday, September 28, 2018. Erika Adams / Skift

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