Flying Through a Pandemic – Core values shape Delta’s recovery strategy.
Delta Air Lines was soaring in the first weeks of 2020, already flying ahead of its financial plan and handing out $1.6 billion in profit sharing to its employees after a record-setting year in 2019. Then the COVID pandemic hit, bringing air traffic to a virtual halt and causing a staggering 95 percent drop in demand for Delta flights.
For Paul Jacobson, a 1994 Auburn graduate in aviation management who was Delta’s chief financial officer at the time, the challenges were as great as they were sudden. Jacobson and his team had to maintain the company’s liquidity in the short term while also maintaining Delta’s longer-term value to customers when demand recovers.
Jacobson, who was recently named CFO of General Motors, spoke about those challenges and the airline’s reliance on its core principles in dealing with them in an interview with Harbert Magazine conducted while he was still at Delta.
Harbert Magazine: Please tell us what a typical day was like for you as CFO before the COVID pandemic and what your days have been like in the months since.
Jacobson: I don’t think you could position two more opposite perspectives in your question. Before COVID, even in the first two months of 2020, we were on a record pace. We had just come off the most profitable year in the company’s history, and we were ahead of our plan through February.
Once COVID hit, with speed we’ve never seen before in terms of a crisis, we had to shift immediately into crisis mode. We’ve been focused on really controlling expenses, controlling what we can control and raising a lot of liquidity. Our demand fell by more than 95 percent in the immediate aftermath of COVID, and we don’t have that demand back yet and don’t see it coming back for quite some time.
HM: Top management at Delta and every other major business is dealing with various aspects of the pandemic’s impact. How does the CFO fit into the overall management structure confronting these challenges?
Jacobson:Our finance department is really tasked with two things. First and foremost is provide enough liquidity for the company to get through this. We’re burning cash at about a billion dollars a month right now, and we need to continue to have liquidity to survive and to get through this. So that buys us time to make the adjustments to the business that we need to, and then ultimately to help rebuild the business when demand does come back.
Then the second piece of it is to try to shine light on opportunities to do things more efficiently, work and partner with businesses to make sure we can be successful, that we can reduce costs now in the short run without giving up the long-term value proposition for our customers. We do know that demand will come back one day, and we want to be there to serve our customers the best way we know how without handicapping our ability to deliver what we need to for the customer.
HM: Along those lines, what do you see as the most significant long-term impacts on the airline business once the risk from COVID is contained? In particular, what do you think the long-term impact on corporate financial practices will be?
Jacobson: I think that’s an excellent question, and one that I don’t know that we have all the answers to today. We do know that the business traffic is probably going to take longer to come back than leisure. And it’s going to certainly take longer for international traffic to come back rather than domestic. But we’re still trying to figure out what the customer is going to be looking for and how they’re going to approach flying in the future.
We do know today that we cannot cut corners and we cannot sacrifice on health and safety and cleanliness on behalf of our customers and our people. Probably the one area of the company where we’re spending more money year over year is on cleanliness, fogging the airplanes, setting up new procedures, and really instituting personal accountability with the flight crews for the cleanliness of the airplanes.
And as a result of that, our customer satisfaction metrics are up by about 20 points from where they were pre-COVID, which is really an outstanding accomplishment by the Delta team, and is really consistent with the brand that we have established before COVID and we hope to continue to establish, where customers trust us to deliver even in the post-COVID world. The other thing we’ve done is really encourage social distancing onboard the airplanes.
Delta has led the way by capping load factors—the number of people on the airplane—at 60 percent of capacity. We committed to do that through September and even committed to keep middle seats blocked through at least the end of the year. That really is a measure to help with our customers and make sure that we’re doing the right things by our customers. We want to ensure that we establish ourselves as, at the end of the day, putting people over profits, because this is an important issue that we all have to get comfortable with, and we want to make sure customers trust us to fly. And we don’t take that lightly.
HM: Disruptions are part of business, but the COVID pandemic has hit harder and lasted longer than any disruption in decades. What are the lessons executives should learn from this experience?
Jacobson: I think this has been a very big lesson for corporations worldwide around risk management and risk evaluation. We in our business had seen epidemics in the past. They had generally been regional and had varying degrees of impact. But obviously we’ve never seen anything like this. Fortunately for us in our industry, we’ve been prepared through the credit crisis, through 9/11, through our own bankruptcy, about how to respond financially in a crisis.
We know the playbook and we know the things that need to be done. But for a lot of companies who like us had enjoyed a long track record of success, this is a big shock to the system. You’ve got to be nimble and you’ve got to be able to adjust. So I think everybody will look at their crisis response, disaster preparedness, concepts like that. I think they’re going to look at it through a very, very different lens because what this has demonstrated, I think more than any other crisis that business has ever seen, is how fast businesses—and how fast the consumer—can respond to the environment changing around him or her.
When you think about the music industry, you think about sports, you think about convention businesses, etc., these are all businesses much like the airlines whose profitability dried up immediately as a result of the loss of demand. It’s going to be a long road to recovery. It’s going to be a long process to rebuild and to prepare, I think, for any executive in a business that might be impacted.
HM: Along those lines, major corporations have strategic plans and contingency plans, but it would have been very difficult to prepare for an event of this magnitude. How do you think corporate planning will change as a result of the pandemic?
Jacobson:I think it goes back to risk management. Risks are inherent in business, but also as business leaders, while we need to be cognizant of the risks, we can’t solve for every eventuality that might be out there. One of the things that I’ve seen in leadership at Delta is, in the face of the unknown, you go back and you embrace your values.
From the very beginning, as we started this business, it was all about safety and health first—above all else, the safety of our customers and the safety of our people. Everything else kind of grew from there. We can right-size the business around that. We can right-size around the principles of liquidity management, and going in and trying to preserve and protect as many jobs as we can in the face of this, and being flexible in how we’re thinking about it. That really matters. Values matter in a crisis.
That’s ultimately what I think people are going to remember on the other side of this. How did companies handle themselves? One great example for us is, while we have taken some time to process it, we’ve given refunds to any customers who have asked. Not all of the airlines have done that. But it’s our customers’ money, and even though we’re burning cash at the rate of a billion dollars a month, we’re giving those refunds to customers because that’s our responsibility, to make sure that if we can’t deliver the service and the product they paid for, we offer that refund to them.
HM: As the pandemic continues, businesses also are dealing with the impact of the social debates stemming from the Black Lives Matter movement. Could you discuss the value of diversity in a corporate environment and how businesses can help address the issues raised in the current debate?
Jacobson: I always think about diversity as absolutely critical for businesses, and probably even more so for a global business. When I think about diversity, I think about the experiences and the cultural perspective that people bring to solving problems. If I as a leader surround myself with people who think like me, look like me, were raised like me, we’re going to approach the problem from a single perspective versus that diverse background and experience set that everybody brings to the table.
The reality is I don’t know how to serve customers all over the world, and we need a management team that reflects the demographics and the diversity of our customer base, as well as our employee base, making sure that we bring all of those perspectives to the table when we think about that. Any business operating today has to be conscious of the social influence that we have.
I think too often corporations have been made out to be bad actors. And many corporations do behave badly sometimes. But the reality is corporations can also be leaders within communities. I think when we see that, we see Delta. Our mission is to connect people. We want to be the best people in the world at connecting. No one better connects the world than Delta. That’s true both globally and locally.
When we can put our values to work in the communities around us, we think that that’s more than just good for business. We think it’s a moral and cultural imperative, and I think you’ve seen that across our leadership team to raise awareness to many of these conversations that we see. It goes back to what we talked about. You’ve got to retreat back to your values and ultimately what’s important to the organization.
HM: As CFO, you deal with issues involving huge sums of money, but there’s a human side to business as well. How have those human considerations affected you in these current difficult circumstances?
Jacobson:Well, unfortunately the sums of money aren’t as big as they used to be, but it is very real. And sometimes in the finance organization, I think we can be accused of, and sometimes guilty of, just being too quantitatively oriented. It’s all about the money. But the reality is we view our organization here, and I know many CFOs who think about the world the same way, as: How do we get the right tools in the hands of people to deliver superior customer service?
Sometimes that means that we can’t spend as much, and we have to think about that. But for every solution that involves saving money or generating more, there’s a very human aspect to that. We can’t tell customers what they want. We have to respond to what customers desire, and we have to make it easier on our people.
One of the things that I probably am most proud of the Delta culture is the way we handle profit-sharing. At the end of the day, no corporation in America, or even worldwide, distributes as much in profit-sharing as we do to Delta men and women everywhere. In 2019 we paid $1.6 billion in profit-sharing, just to share in what we did. Because a finance person looks at people as a cost center. Every one of us is a revenue ambassador for the company and a brand ambassador.
Every single employee at Delta has a hand in delivering the type of success that we have financially, and we’re meant to share that. So 20 percent of our profit stream generally goes to be shared among our employee base. It’s been a huge cultural element for us and just one of the ways in which we humanize this business of finance.
HM: How would you advise companies trying to build effective, representative management teams? Are there particular initiatives that you’ve been a part of at Delta that you would recommend to other companies?
Jacobson: I think first and foremost is you’ve got to be very engaged with your team globally, and that’s probably never more important than in a crisis. You can never over-communicate to people in the midst of this. It’s better to be transparent than to try to hide or obfuscate. And the most important thing is it’s OK as a leader to say you don’t know. So when we’re asked “How big is Delta going to be next year?” the answer is “We don’t really know.” Customers are going to determine the size of Delta. Customers are going to determine how we serve them. We have to figure that out, and we have to be able to think on our feet. But as a leader, when you say you don’t know, there’s a certain level of vulnerability that you’ve demonstrated, and a humanness to that.
I’ve seen the way people have responded, to Ed [Ed Bastian, Delta’s CEO] and to the leadership team here at Delta, has all been around that transparency, making sure that people understand that we’re faced with some of the same uncertainties. We operate every day with a spirit of optimism that this will pass and we will get through this. But the acknowledgement is that it’s going to be really hard and it may last longer than we think. When you marry those two things together, I think it’s very genuine because as my father always used to say, “It has the added benefit of being the truth,” and that always works with people.
HM: The workplace and the job market are vastly different than they were less than a year ago. What would you say to Harbert students who will soon be trying to find a place in this challenging work environment?
Jacobson: I think Harbert students today, whether it’s a senior looking to graduate and enter the workforce, or a freshman who’s just coming in, have probably been through more than any of us ever imagined, and certainly more than they ever imagined. But I think with that comes a strong sense of resilience. And perseverance is probably the number one skill that I’ve seen play out in leaders. As graduates from the Harbert program, they’re learning that. You bring that with the cultural fit of Auburn across the business, the ability to work together in teams, and I think the future is bright.
It is a hard time right now, but I think leaning on the skill set, leaning on alumni in your network, is a great way to bring Auburn together for the benefit of the university for the long term and for its students.
And it serves my purpose of letting the world know just how many Auburn people are at Delta.
The COVID-19 pandemic hit airlines particularly hard. With travel restrictions imposed across the globe and few passengers boarding their planes, revenue plummeted. These Delta executives were key figures in the crucial pivots the airline made to deal with the shorter-term consequences and the longer-term impact of the pandemic.
Flexibility made efficient response possible
Rick Salanitri, a 1985 graduate of Auburn’s industrial engineering program, leads the Delta Air Lines subsidiary responsible for designing and delivering comfort and world-class entertainment for the Delta customer experience. But that changed dramatically after the COVID-19 pandemic began. Salanitri’s team began working to save lives, transitioning its efforts and resources to manufacture medical-grade face shields.
He recently spoke about this shift:
HM: What went into the decision to pivot flight products to manufacture personal protective equipment?
RS: When the COVID-19 pandemic hit back in mid-March, most of our order book for aircraft interior products and in-flight entertainment systems was postponed, leaving us with significant design and manufacturing capacity. At that time, medical providers nationwide were unable to obtain adequate supplies of PPE as COVID-19 infection rates spiked.
In response, we established a relationship with an Atlanta-based applied medical research nonprofit and set up production of face shields within a few days. Using Delta’s extensive domestic route network, we shipped the face shields directly to hospitals, medical clinics, schools, and other locations across the U.S.
As part of this project, we also supplied face shields to 15 Veterans Administration sites in Alabama, Georgia and South Carolina. Because of our ability to quickly mobilize, Delta Flight Products was recognized by the New York Stock Exchange during their opening bell ceremony on April 29.
HM: The COVID pandemic has hit harder and lasted longer than any disruption in decades. What are some of the major lessons you have learned?
RS: All situations provide valuable lessons to be learned—good and bad. The COVID-19 pandemic has certainly provided some significant lessons to be carried forward:
1. Build flexibility into your business model. While circumstances and situations will not always be the same, reserving some portion of your business to address variability allows you to respond efficiently to a crisis.
2. Be quick, but don’t rush. Rapid response to a difficult situation requires both speed and accuracy, especially in matters related to public health.
3. Don’t forget the people. In times of crisis or uncertainty, maintaining strong communication channels with employees is key, even if erring on the side of overcommunication. Delta’s culture is built on effective communication and continues to help guide us through the most difficult of times.
Delta Flight Products
Make diversity a measured goal
Creating a diverse, inclusive workforce during a pandemic and a time of social unrest requires intention.
“The current environment has caused us to uniquely focus on maintaining a strong talent base while creating a smaller airline,” said Delta’s Stephanie Asbury, parent of a Harbert senior. “At Delta, we often say that what gets measured gets done. In the same way we set goals for other areas of our business, like operational performance, we have put similar benchmarks in place to track our progress toward improving workforce diversity, especially among leadership ranks.”
Among other steps, the airline requires all hiring and interview slates to reflect diversity.
Vice President for Global Talent,
Diversity and Employee Engagement
Disruption Always Contains Opportunity
Jon Corbi’s role at Delta shifted swiftly in early 2020, when he became general manager of Cargo Charters.
“During times of tremendous disruption, there is always opportunity,” he said. “Delta did not previously have a cargo charter division. We utilized planes that Delta would normally fly full of passengers and maximized the belly of the aircraft for cargo transport. We successfully operated charters on five continents carrying products including mail, pharmaceuticals, PPE, electronics and perishable foods.”
Corbi, a 2007 Harbert accountancy graduate, is now with Crane Worldwide Logistics.
Regional Sales Director-East
Crane Worldwide Logistics
Pandemic accelerated planning
Kurt Ford, a 2005 Harbert MBA graduate, was at the forefront of Delta’s decision-making in the early days of the COVID pandemic.
“Out of an abundance of caution, Delta was the first U.S. airline to announce suspension of service to China,” Ford said. “Protecting our people and our customers remained our primary focus. We didn’t have a lot of information and we had to act quickly.”
Delta typically adjusts international schedules six months to a year in advance, he said, but an emphasis on effective communication and proactive planning helped Delta become the first U.S. carrier to resume passenger service to China.
Director of Pacific Network Planning
Core attributes light path to recovery
Bob Somers’ team had to adapt quickly in its role of generating revenue and market share for the company.
“Our revenue went down 95 percent overnight,” said Somers, whose daughter Riley is a 2020 Auburn graduate.
Delta continues to focus on the corporate attributes that guided the airline to the top of the industry before the pandemic, Somers said. “We have a saying at Delta. It’s Listen, Act, Listen. We apply it internally and externally where we listen to our customers and our employees, we act on that, then we ask what else we can do.”
Senior Vice President for Global Sales