Richard Anderson, CEO of Delta Airlines, has pointedly and consistently talked about managing an airline for a profit and while that seems like a no brainer, I’m not sure everyone does that. 

Delta has recently announced cuts in capacity and while that, too, seems like a no brainer, I think people miss Delta’s point.  If a route isn’t earning a profit it needs to go.  Few airlines use this as their criteria.   The larger point from Delta is that it isn’t about market share and I agree. 

In addition to capacity cuts, Delta has also announced a program targeted towards early retirements to trim their labor force as well.   This is to match capacity cuts and rightfully so.  Oh, mind you, I think this is also about getting the work force to average a younger age in seniority as well but that is something airlines have to do on a regular basis as their work force tend to stay with not nearly as much “churn” as other large companies experience.

Southwest has always managed for a profit and it has proven it can be done.  It’s kept its workforce levels consistent with its business and, more importantly, it doesn’t fly routes that cannot regularly produce profit.  Not for nothing, this is one reason why several cities are worried that SWA will cut Airtran routes currently serving them with subsidies.  SWA doesn’t see subsidies as a sustainable profit model.

There is something that I often remember my father telling me about the airline business (he’s a former EVP from an airline no longer in business and from 30 years ago.  You have to look at ever route between two cities as a small, entreprenurial business.  You have to invest in the business and you have to get a return on that investment in a timely manner.  Failing that, you have to drop it and move on to other opportunities.

This is what Delta is doing.  Instead of managing for surival, they’re managing for profit.  Instead of managing for sheer size, they’re managing for profit.   Instead of managing on the basis of what another guy is doing, they’re managing for profit.   In Delta’s most recent earnings call, Richard Anderson made the comment:  “This isn’t a hobby.” and I think that underscores the proper attitude about being results oriented.

This is not what we seeing American Airlines doing.  It wasn’t my sense that United Airlines was doing this pre-merger with Continental and it isn’t necessarily my sense that even some LCC carriers such as JetBlue are making this their goal.  Notably, I do think that US Airways is doing this and the results show.

So when does someone ask when AA’s management team plans to manage for profit?  I haven’t seen AA manage their route system for profitability.  I haven’t seen them manage their labor force for profits.  I haven’t seen them manage their fleet for profitability.  I’ve seen them managing for the status quo in the hopes that other airlines will return to AA’s fate when it comes to costs. 

The question is, why should you expect that when there has been a fundamental change in your competitors attitudes towards managing their business for profit?

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