Delta CEO On Recovering From A “Billion Dollar Mistake”

Delta CEO Richard Anderson at the UT McCombs School of Business Richard Anderson’s road to becoming CEO of Delta Air Lines was unconventional. He doesn’t have an MBA; in fact, he’s never taken a business class, and his first job was as a busboy at an Amarillo steak house. But under his leadership Delta Air Lines topped Fortune Magazine’s Most Admired Airlines list in 2011 and 2013, and won the Gold Stevie International Business Award for Transportation Company of the Year.

Anderson joined Dean Tom Gilligan for a Q&A on March 28 as part of the Undergraduate Business Council’s VIP Distinguished Speaker Series. He addressed more than 350 students and faculty about his experience as CEO, including a “billion-dollar mistake” and what it takes to turn a struggling company around.

Anderson was named the CEO of Delta in 2007, two years after the company filed for reorganization under Chapter 11 of U.S. Bankruptcy codes. In 2012, the company posted a second-quarter loss of $155 million due to rising fuel prices and an unsuccessful hedge that left the company paying almost twice the price per barrel even after the market began to fall. According to Anderson, that mistake, combined with the struggling banking industry, led to a revenue loss of $5 billion. Anderson said that leading the company through these “body blows” required a calm and steady hand.

“There will be times when you’re in a storm, and you have to stay cool,” Anderson said. “You can’t pull the fire alarms; you have to stay calm and collected and methodological to stem the problem and get to the root cause. There is only one form of sustainable leadership in that circumstance, and that is a steady leadership.”

Despite that hedge loss, Anderson said that Delta has been the most profitable airline cumulatively in the last four years, and has paid down $7 billion of debt.  After coming out of bankruptcy in 2008, Delta merged with Northwest Airlines and established major operations on every continent. Delta purchased a Pennsylvania oil-refinery last September in hopes of trimming fuel costs by an estimated $300 million annually.  In December, Delta announced that it will purchase 49 percent of Virgin Atlantic Airlines to create a strategic alliance and provide more intercontinental flights for its more than 160 million annual customers. According to Delta’s SEC filing, March saw a 3 percent increase in seat-per-mile revenue, and Anderson said that the company hopes for a $9 billion profit in 2013.

Anderson attributes Delta’s financial turnaround to innovation and persistence.

“We have a saying here: ‘Speed wins,’” Anderson said. “We’ve just got to keep going fast and continue to innovate faster than our competitors. The only real sustainable advantage in business is creativity. Anything else, over time, can be replicated.”

Values Outlast Crisis

Anderson also credited the hard work of Delta’s more than 80,000 employees, and the company’s values-based operating approach, which includes establishing Delta as a “force of global good” and encourages “high employee engagement and gracious customer service.”

For example, last July, four passengers found sewing needles in their turkey sandwiches aboard four U.S.-bound flights originating in Amsterdam. In response, Delta launched an investigation of its catering company and began an effort to ensure higher quality food on all flights. Anderson said that such situations would be impossible to manage if not for the strength of the Delta team.

“It’s pretty impossible to write a manual. There can’t be a chapter when you’re at 32,000 feet that says ‘Flip to back—needles in sandwiches,’” Anderson said. “Everyone has to be trained and have a values-based approach. Companies that aren’t values-based are not going to be sustainable over the long term, because it all comes down to people and how they behave. That’s the key to what we’ve done.”

The role of CEO, Anderson said, is to set this values-based tone, establish a meritocracy and constantly upgrade the talent and quality of the employees through recruiting.  He advised students to communicate their potential beyond their resume.

“We look for someone that is energetic and looks you in the eye, and has some conviction about what they’re talking about,” Anderson said. “I always like to find out about the person.  Everyone here has beautiful resumes, but it’s about how you convey yourself as a human being, with energy and conviction and vitality, and a good handle on the spoken and written word. If you do those things, and you comport yourself that way … you’re welcome here.”

Anderson admits that while his career path was “odd,” he still advises students to seek experience in a variety of areas of business.

“Keep up that intellectual curiosity,” Anderson said. “Be a generalist about knowledge, and make sure that your interests stay broad. Don’t confine yourself to finance and accounting—take every opportunity to move, because staying curious is the most fun.”

Reposted from McCombs Today