The Interview: Delta’s Frank Jahangir

ABTN speaks to Delta’s Frank Jahangir about UK expansion, why the EU Emissions Trading Scheme is not the answer, and a responsible approach to the worrying price of oil…

Jahangir is VP of Sales for Europe, the Middle East and Africa.

So, Delta has just launched its new flights from Heathrow…

Yes, we began on march 27. We’re flying direct services into two new markets – London Boston twice-daily and one flight daily to Miami. The good news is that it’s all part of our lie-flat configuration. Similarly for London-Miami.

These are very exciting times for us. Since 2007 we’ve basically grown into 10 daily flights at Heathrow. Obviously Boston and Miami are the latest additions, but we are now a very serious player in the London- New York JFK market, with three daily services. We also fly from Heathrow twice a day to Atlanta and Detroit once a day to Minneapolis. It’s a pretty extensive compliment of flights going out of Heathrow. This is the culmination of a lot of hard work by everyone at Delta to make sure that we are well positioned in the London Heathrow market. That’s been growing rapidly since 2007.

In addition to that we also have flights going from Manchester to New York daily and Manchester to Atlanta daily. And let’s not forget we continue to serve Gatwick with a daily Atlanta service.

It’s vote of confidence in Heathrow…

What we’re showing is a huge commitment to Heathrow. We believe it is a market we can be succesful in, and we believe we can be very strong challengers in winning corporate business from the UK, to challenge the existing carriers. We believe we’re going to be very strong competitors and our increased expansion out of the Heathrow market is a clear signal that that’s our intention.

At the end of the day, we’re confident we can pull through on that. Delta, Air France and KLM are the main competition to BA, AA and Iberia. Increasingly, we have the network, the schedule and the product to win. And I think that these are key combinations that need to be there for it to be succesful. Our strength in that market is growing. Over time we believe we will win more business to our schedules.

The next six months will be interesting. Competition is always good. I think it’s important for the customer and for improving products and services as well. With competition, everybody has to be vigilant and refining their product, which is great for the traveller. The last thing the traveller wants is no choice. We have good, strong choices. We can line up product by product with the competition on that route and confidently challenge them.

Why Boston and Miami?

American Airlines and British Airways had to divest themselves of slots as part of their being granted anti-trust immunity. As a consequence of that an opportunity arose, and we decided that these are routes that we can well serve. From Miami we’re well connected throughout Florida and similarly out of Boston we’ve got great onward connections.

And these new routes are part of Delta’s transatlantic joint venture (JV) with Air France. How is Delta feeling about the BA-AA-Iberia JV and the launch of their shuttle service?

We believe that we are well-equipped to compete. We belive that competition is good for the customers and that our positioning and growth at Heathrow, with our joint venture partners, puts us in a very strong position to be the effective competitor. We’re pretty confident that as we establish ourselves, customer choice will begin to play a part in that. Our new lie-flat product is definitely gaining traction. We are convinced that the service we provide is effective competition to AA and BA.

Do you think that having a similar standard of service across all carriers is important?

I think that’s something that all alliances and all partnerships are constantly looking to do. To try and align us best from a customer perspective. At Delta, Air France and KLM we’re constantly looking at that. Certainly it’s high on our radar.

It’s always going to be a difficult thing. We come into the equation with different products, but we look constantly at that customer experience and try and narrow those gaps down as much as we can. In the summer Delta is going to be introducing the (premium economy) Economy Comfort product, which is a but like KLM’s. We’re listening to the customers and we’re beginning to provide, across the three carriers, a more aligned service. Customers are travelling out on Delta, for example, and back on Air France or KLM, and we’re not receiving any negative comments on the product.

How is the the UK market performing at the moment?

The UK market is performing well. We’ve seen a real return of the business traveller, since April last year. That is continuing. From that side of things, business is progressing well. Very clearly, the volatile nature of oil prices around the world is definitely having an impact on running these services. The revenue still remains strong, however.

Have business travellers returned to the premium classes?

That’s been one of the key shifts, that the premium traveller has come back. Very clearly there are all sorts of company policies in terms of length of travel, which stop people travelling on the short routes, but certainly on the long routes premium travel has been the success story of 2010. We’re not really seeing a dip in that as of yet.

How has Delta been managing the rising cost of oil?

We’ve been doing that in a number of different ways. Through fare increases, we’ve been trying to maximise our revenues to offset some of the increase in cost and we’ve raised international fuel surcharges. We’ve also been looking at reducing capacity after the peak summer travel season, by 4%, and looking to resize some of the market that is not profitable at higher fuel prices, by putting in different planes.

This is something that we have the benefit of being able to do, as part of a transatlantic joint venture. We can put the right plane in. It makes us more able to continue to run our services in an environment where fuel prices have been escalating. Obviously our hope is that it doesn’t continue, but in the absence of that we believe we’ve introduced a number of counter measures to ensure the effect of fuel prices isn’t as devastating as it has been in the past. Being part of the joint venture gives us more flexibility than any of us would have had as stand-along carriers. That 4% capacity reduction will be in conjunction with Air France, KLM and Alitalia.

Has it been decided which routes will be affected?

No. There have been no announcements yet.  

Are the super long-haul routes likely to get cut sooner? Where having to burn fuel to carry fuel is not economical…

I think you’ve hit the nail on the head with that. I think there is an area of concern. But I would rather we do the analysis and see where we can right-size some of the markets and then reduce capacity where we feel that it make sense. We’re not oging out of the long-haul business. That isn’t a strategy. We’re going to look at the market very carefully and put the right aircraft in. It’s not being governed by just a pure long-haul focus, but if there are routes which are long-haul which in this environment are not as cost-effective one would look at it. But I don’t want to put anything out that jumps ahead of the analysis.

We have been militant about reducing costs since the last fuel crisis. We’re flying a more fuel efficient fleet. Delta is going to retire 120 aircraft within the next 18 months including the DC-9, some of our Saab fleets, as well as 60 regional jets. We’re going to replace these with MD-90s, which are narrow body jets and much more cost and fuel-efficient. We’re trying to respond to what is undoubtedly a difficult moment for the airline industry.

It’s not great timing, as the airline business was on the way to recovery after the reccession…

I know. In the airline industry we’re used to turbulence.

As you mention, Business travellers are travelling again, but how long can they keep flying at increased prices?

This is a good question. I think at this point in time we’re certainly not seeing any decrease. Obviously businesses are going to be looking at the cost of oil, but I don’t think this is a situation that is comparable to the 2008-9 financial crisis. I think this is a fuel cost-driven issue, but everything else in terms of the business world seems to be pretty robust.

Obviously catastropic events have an impact on the industry, but the basic fundamentals of the economy are more robust than they were during the previous crisis. We’re seeing this as an interim episode that can go away as quickly as it comes. But none of us has a crystal ball, and it doesn’t mean to say we don’t need to be extra vigilant. I think the cost protection measures that we are introducing and looking at mean that we can come through this, albeit we will make some capacity reductions. I think that it is a wise thing to do in this situation.

So you feel Delta is behaving responsibly?

Yes. I think that what we’re doing is being pro-active. We know events can shift and turn, but it’s better for us to signal an early reduction. The summer is looking quite strong so we’re not overly concerned about that, but we are about autumn and we want to make sure we’re not flying unnecessarily and unprofitably during that period.

What do you think about the UK government’s decision to freeze APD?

The UK tax burden on all airlines is too high. And we believe that this discourages airlines from adding services and people from coming to the UK. That deprives the UK of some great indirect economic benefits, tied to the airline’s service. We’re going to follow very closely the consultation around UK aviation policy, and will offer comments as appropriate. We’re watching. We believe that the taxation is too high, and that is a deterrent, but we’re glad it has been frozen.

Should APD be scrapped when the aviation industry enters the EU Emissions Trading Scheme?

Our position is that we don’t believe the EU has a legal right to propose that scheme on US airlines. We believe that is a violation of the Chicago convention. However, I must emphasise that Delta is a very environmentally conscious carrier. We support the IATA carbon policy and Delta is committed to reducing emissions throughout our worldwide operations.

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