The new vice president cargo of Delta Airlines, Neel Shah, who joined Delta in the beginning of January this year from United Airlines Cargo, is not enamoured of alliances.
“Cargo alliances have been difficult to pull off ,”he points out, citing cultural differences and operational incompatibility. He says that the cargo sales joint venture based in Atlanta, which includes Air France Cargo, Delta Cargo and Korean Air Cargo, is currently under review.
“I wouldn’t stake my reputation on anything that we have done in the past, will remain as it is. If you ask me if the cargo sales joint venture is necessary, the answer is no.”
But he stresses that the SkyTeam Alliance “is critically important for Delta because of the corporate relationships. It’s important for Delta, it’s important for all the other SkyTeam members.”
He describes the North America Joint Venture agreement between Delta and Air France as “robust”. The agreement is passenger-driven and cargo is part of that, he adds. “But when it comes to this US Joint Venture strictly for cargo, I am not convinced it makes the most sense for Delta and I am not convinced that it optimises our bottom line.”
Shah adds that at the end of the day, “I have a very clear goal and mandate from my boss and that is to optimise the bottom line contribution to overall revenue. There are no sacred cows and we’ll make the decisions that are right for this company and fit with this company’soverall strategy.”
Cargo ‘neglect’ at Delta
After just two months in his new position, Shah says the first weeks have been an eye opener, because Delta over the past several years has “neglected” its cargo business.
“They have not invested in cargo and during the bankruptcy, they actually stripped resources and money from the cargo division – which is a pretty natural thing to do because all airlines in chapter 11 found some ways to cut more than they should, but the result has been that customers have suffered.”
Shah says that when Richard Anderson, Delta’s chief executive officer joined the company in September 2007 and started looking at the business as a going concern, he concluded that the company could do a lot better and one of his moves was to elevate cargo to a senior officer position.
Cargo currently contributes around 5 per cent to Delta’s overall revenue, but Shah notes that cargo is a “strong contributor to the bottom line of the carrier, so neglecting cargo is really shooting yourself in the foot.”
Shah, who joined the airline in January, reports directly to Delta president Ed Bastian, which compared to previous years, puts cargo on the same playing field as everything else that is going onin the company. Shah has been asked to revisit every decision that has beenmade in the past “to make sure thatwe’re doing what is right for Delta’sbottom line and we’re doing right whatis right for our customers.”
He points out that in his previous position at United Airlines Cargo, he was very much aware of what was going on at Delta, so finding that “the airline wasn’t engaged with its customers the way they needed to be”, didn’t come as a big surprise when he joined the Atlanta-based carrier.
“They had almost taken a very back-seat approach towards building relationships with their customers, which at the end of the day leads to an apathy of the business.”
Re-investing in people
The second thing which Shah found was that Delta “hadn’t really invested in leadership, in people.”So the first priority was to rebuild the cargo team and more specifically build up a sales force.
To accomplish that, Shah brought veteran Ray Curtis with him from United, who is now the new director of sales for the Americas and strategic accounts for Delta Cargo.
“The next priority was to look at Operations where Delta also lacked strong leadership capabilities. We had people running the Operations, who had never been in cargo before. You simply can’t run a global cargo operation and not have an experienced team to handle that,”Shah observes.
To solve the problem, Shah last month brought in Ken Strauss, a veteran with 23 year of experience and a former vice president for Northwest Airlines Cargo, who has been named managing director of cargo operations. Shah says that several additional director positions will be created who will report to Strauss for process controland planning.
Upgrading IT systems
As for IT, Shah’s predecessor, Ben Darnell, started a reorganisation plan that included upgrading Delta Cargo’s capacity and revenue management IT systems.
Shah notes that the airline has just spent US$4.5 million on installing the next stage of the Unisys-based revenue management system and by August, all the IT modules will be fully implemented.
“Until now, we have been doing this on a wing and a prayer and the new system will allow us to do serious revenue management, drive some pennies to the bottom line and manage the business much tighter on a day-to-day basis.”
Part of the problem is lack of data, Shah admits. “Our data is poor, so we are working on investing heavily so that our data warehouse has all the information.”All information is there, but it exists in different places within the organisation.
“We actually have good data mining capability, but we are pulling data from all the wrong places which gives yougarbage results.”
Back in business
With Delta’s expanding international network which, apart from points in Europe, currently covers service to several destinations in Africa, India and the Middle East, cargo customers are literally spread all over the world.
To get the message out that Delta Cargo is back in business, Shah has set himself a number of priorities, which started with engaging the airline’s global strategic partners because “they control the majority of the freight that moves around this globe.”
The carrier is represented in Europe by Air France Cargo, while a number of GSA’s cover countries as far away as India, Russia, Jordan, Ukraine and down in Africa. With the planned expansion of services to other countries, the expansion of the GSA network is under review, although Shah says that “in those markets where you have the critical mass of flights, I am a big believer in having your own people on the ground. Besides, our customers want to see Delta people.”
In Asia, Delta already flies to Seoul and Narita and last month it added Shanghai to its Asian network. While the aircraft is weight-restricted on the outbound flight from Atlanta, the inbound flights will have ten tonnes of capacity which, according to Shah, isbeing filled up with high yield cargo.
New 777 belly capacity
With the introduction of the 777- 200LR, of which Delta has eight on order with 12 more options which are expected to be firmed up this summer, the airline is rapidly expanding its international network.
Shah says that the addition of the 777s to the Delta fleet will allow the cargo division to drastically expand its activities “from carrying no cargo on the 757 to around 20 tonnes of cargo on each flight of the 777.”
However, like other carriers, Delta’s expansion plans could be thwarted by record-high fuel costs and a weakening US economy. The third-largest US carrier last month announced that it will park twice as many planes as it planned and offer buyouts to 30,000 employees.
Delta, which emerged from bankruptcy in April is struggling with an 87 per cent surge in fuel prices in the past year. This year’s jet-fuel bill will be US$2 billion higher than last year’s.
Delta plans to reduce its domestic passenger capacity 10 percent by August, double the five percent reduction the carrier previously targeted. The cuts include reducing the frequency of flights and cutting unprofitable routes. That will affect as many as 20 mainline jets and 25 regional aircraft, accordingto Delta’s president Ed Bastian.
International capacity growth
At the same time, Delta’s goal of expanding international capacity by 15 percent this year will continue. Bastian insists that international passenger growth is “the core, the foundation, the cornerstone'”of Delta’s future. Bastian also notes that the Delta-Northwest merger talks stalled because pilot union leaders haven’t agreed on how to combine their seniority lists.
Meanwhile, Shah is adamant that he is not being distracted by the merger plans, and he sees rebuilding Delta Cargo as his main task. “Whether or not there’s a merger, we have a lot of work to do.
“I have very near-term plans and revenue targets that need to be met. The main thing we have to do is to optimise our belly network and squeeze every drop of revenue from that network. The problem is that we’re not even coming close in doing that.”