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00:00Why is it that Wall Street doesn't value airlines as much as you think they should. Our largest investor is Warren Buffett . They've said you guys are the Chicago Cubs of the business world . Not only had a bad decade you had a bad century. Initially you went to Frito-Lay. Is that right. I've always considered to this day my training at PepsiCo. My seven year spent there as my is my postgraduate work. What percentage of people actually lose their luggage. We never we never lose. We call mishandled. Mishandled . Would you fix your tie please. People wouldn't recognize me if my tie was fixed but it just seems this way . All right . I don't consider myself a journalist and nobody else would consider myself a journalist. I began to take on the life of being an interviewer even though I have a day job running a private equity firm . How do you define leadership . What is it that makes somebody tick . People say that running an airline is not an easy thing to do . You have weather to deal with energy prices to deal with lots of employees and so forth. But you grew up in a family of nine children. So what is easier growing up. Family of nine children or running an airline . Running an airline certainly . These are our family was great. I'm the oldest of nine. And I was sharing with David earlier that when I was five years old my mom we already had six kids in the house. And so nine kids sharing three bedrooms one and a half baths. My dad was a dentist. He had his practice inside our house and my mom worked for him. And so it was it wasn't that busy a practice at times like yes he must have had some gaps in there. But the but the interesting thing about it was that growing up I didn't I didn't travel. I didn't I didn't board an airplane to us. Twenty five years old really. We couldn't afford it. You know too many of us. And it just wasn't who we were. And I always recall one of my my most stark visuals of my childhood is we went on one one family trip a year. My dad would get us all in the station wagon. And so his apologies to our safety friends and regulators in the audience. But there are no seatbelts or no car seats. There were nine of us. My mom my dad my grandmother in a station wagon all piled in with with. We were allowed to put whatever we could fit in our pillowcase and brought it for two weeks. And that was that was our family trip. So I must have figured somewhere in my unconscious is there has to be a better way to travel. And so I. So I'm still on that pursuit in that mission to this day. Now your mother must be proud that her son our first child oldest child is the CEO of Delta Airlines which is the largest U.S. air carrier largest care in the world. Does she ever call you with ideas or complaints or. Not that much . All the time. All the time. She she gives me her ideas. I always ask her please. She's traveling not to tell anybody who she is. Nevertheless I gave quarter of people told me that she she applauds at the end of the little safety announcement that I do on the front end of the plane. So this guy is kind of cute . Now you travel on Delta yourself. Yes I do. I'm mostly done . So you fly coach. Is that right. I often fly coach ship. I find it more interesting. OK. What about the leg room back there and. Well the leg room is the leg of the spine. We got the . What you find when you flying coach is it's more entertaining so don't worry about your legroom you'll see what else is going on . That's that's where the real people are and that's where the right. So we don't feel that's where the party is. OK so let's talk about running an airline generally . To be honest there are a lot of people that say if you want to run an airline or run a big business go to a good business school or work your way up and be a management expert and so forth. But you were trained as an accountant which is a great profession. But some people would say the best managers the world are not CPA. Right. Well one of the things about accountants that I think they get a bad rap is that they're all about the numbers. The very introverted. And you go into their analysis is that what you what you learn as an accountant is is the numbers are actually the language in the vocabulary business . For some reason Wall Street does not value airline companies as much as you would say they should. Why is it that Wall Street doesn't value airlines as much as you think they should . Well we're moving in that direction. We're still not there . Our largest investor is Warren Buffett. He now owns the 11 percent of Delta. And Warren after years of having sworn off the industry had a lot of saying which I loved. You said you you guys are the Chicago Cubs of the business world. Not only had a bad decade. You had a bad century. And so we got our bad century out of the way. And we're now in a place where we've we've really fixed the business. He changed his mind because he used to say if a capitalist had been a Kitty Hawk seeing the Wright brothers take off he would have shot them down because there was no profits made in the airline industry for 100 years. When you compare the profits versus the losses but that's changed a bit now. It's changed. And he wouldn't say that today. But if you if you were to ask and we. This year will be the fifth year in a row our profits have been in excess of five billion dollars. And your revenues are what percentage in United States and what percentage outside our revenues. About two thirds U.S. one third international and international. Is that more profitable than us generally because long flights. No it's actually just the opposite . International is a lot more difficult to get to. It's a lot more of the planes are bigger. The fuel costs more. The the service levels obviously are substantially higher. And ticket prices because there's a lot of competition internationally are more suppressed. We actually make about 80 percent of our profits in the US closer to home. And you make a lot of profits . Some people say by owning your own refinery why do you need your own refinery. You don't trust other people to get gasoline to you. Well we do. And we certainly use a lot of refineries . But about six seven years ago as refineries up and down the East Coast were being closed when oil prices crude prices were well north of 100 hours we saw that our cost of jet fuel which was escalating at random. We're in fact paying another twenty five dollars a barrel on top of the crude price just to get jet fuel because we are the most price insensitive consumers of that product. We don't decide each day whether we have fewer planes up or not. We tell them six months out we're coming. So any of the costs that the refiners have kind of being pushed on to the airlines. And so we needed to break that curve and get more supply into the market. We we've got a great refinery and it's outside of Philadelphia trainer that we acquired. We opened it was close for it for about a year. We put we've put a whole community back to work. And it was a great story. And to this day it's been very profitable. We've we've earned our returns on that many fold. Now in 1970s there was a big push for airline deregulation. Prices had been set by the international court the ICC. That's right. We then had probably 10 or 12 major domestic airlines. Now we have more or less three or four . So has that deregulation really work for the American people or has it not worked. Oh it's absolutely work. One of the changes David that's happened in the industry that caused problems for years was that we're seeing nothing. Just a commodity price was almost the sole determinant of what airline you took. We've changed that paradigm where we're now competing on quality and service. And people are I suppose I say I want a cheap price but I want some good food into his food. A big deal or to people that fly these days. Food. Food is important and we've brought a lot of food back. You know the industry 15 years ago wound up getting rid of food getting rid of oil basically anything and wound up charging fees fees galore. You know we've come full circle on that. We've reintroduced main cabin food services on a significant number of our of our aircraft in international really improving the overall quality of experience. As I say I want a cheap fare. I don't care about food. I'll bring my own food. Can you bring your own food on. You can bring your own food. You bring your own food on. And but I just want to make sure my luggage isn't lost. So what percentage of people actually lose their luggage or. We never we never lose. We call mishandled sandals because this is a . We are not for sale. We always know where it is. It just takes us a little longer to get through sometimes but not now. When you're an airline executive you basically have two companies you can buy planes from more or less. Right. It's not more or less . More or less. Well they should be more or less. I was trying to be polite but more or less. So you have Boeing and you have Airbus. Now you fly a lot of Boeing's. And in fact your longest flight is from Atlanta to Johannesburg 17 hours. That's right. That's a Belt Road Boeing 777. Boeing triple 7. That's right. But you chose not to buy the 737 max for reasons unrelated to what later became a big problem. And is that an advantage for you now because you have the Airbus 320 one and that's giving you more capacity than some of your competitors and you take credit for that decision. Or was that locker when I put that solely in you rather be lucky than smart category . Oui oui oui. We're big fans of Boeing and we're we're hoping to see the max flying quickly into this game. But we never. That wasn't safe. It was never part of the consideration set in making that decision. While you're in bankruptcy U.S. Air said we want to take you over. Was that considered a friendly offer at the time. Everyone assumed well that's that's going to be a foregone conclusion. And the people of the company stood and they said that's not going to happen . You grew up in Poughkeepsie Poughkeepsie New York and you went to college at St. Bonaventure University. And you got your accounting degree. All right. So you're Minding Your Business here in accounting at Pricewaterhouse. So why Frito-Lay. I was I was fortunate that Pricewaterhouse moved pretty quickly through the ranks there and made partner and I made partner too early an age. I was 32 or 33 years old. And you know at that point in that profession that was kind of the pinnacle of success. And I said well finding a company where Pinnacle success is 32 I need to go someplace to learn more. I need to continue to develop. I got a call from a friend that said Pepsi was was hiring and introduced me to a a person afraid to lie down and down in Texas. I moved down to Dallas and Frito-Lay lay. And I don't have a graduate degree. I just went to undergrad at St. Bonaventure. I've always considered to this day my training at PepsiCo. My seven years spent there as my as my postgraduate work because it's a fascinating company. So right here it here at Frito-Lay and then a headhunter somebody called you and said how about Delta Airlines. Yeah. Yeah I was I was an active business traveler. I was traveling probably 80 percent of my time a lot internationally. So I already thought I knew how the airlines worked and I knew all the things that needed to be fixed about the airlines to actually make it better . So of course I get there and you know you actually take a peek behind the curtain to see how complex it is. You said well I've never understood what actually went into it but it was it was an industry that was fascinating to me because I was a big consumer of it. So you knew what became a senior vice president for finance eventually and then you became I guess the chief financial officer chief financial officer and then you became the president and then you became the CEO in May of 2016 . That's right. But you had some problems before you became the CEO. And ultimately Delta filed for bankruptcy in 2005. That's right. Why did you have to file for bankruptcy. Well it was the aftermath really of a series of events which 9/11 triggered . You know we lost our international business almost overnight . The competition in the U.S. was so competitive with so many airlines trying to take each other share. It could just kept pushing prices lower and lower lower almost all the airlines . Well finally. But while you're in bankruptcy U.S. share said we want to take you over. Was that considered a friendly offer at the time. Doug Parker will never live that down though. We are pretty pretty hostile takeover battle. Interesting story . We're we're bankrupt. We weren't worth anything at the time . And U.S. Air came in and offer 10 billion dollars to buy Delta for a company that's not worth anything. And so everyone assumed well that's that's going to be a foregone conclusion . And the people of the company stood and they said it's not going to happen. We have a better idea. We have a better business plan. We have to convince the creditors through the restructuring process to stay with Delta. And as a result of that you see what we've been able to ISE part of that. What happened is you said to the employees and your colleagues we'll give you 10 percent of the profits to the employees. Is that more or less right. Well when we when we went through the restructuring a lot of our people took a lot of pay cuts to see benefit losses a lot of a lot of a lot of change. And we made a commitment to the employees then that at that point once we became profitable 15 percent of the profits would go back to the people which we honor to this day. And we still show how much the debt produced. Let's say last year for the employees. Well last year we paid one point three billion dollars to our people . OK. Profits. So now does that mean your stock price would be higher if you didn't pay into them or your. You have happier employees. I think our stock price would be lower if we didn't pay it. Is Internet available on all your planes. It's available on almost all airplanes. Our smallest regional jets do not have them but Wi-Fi is. And you charge for it or not . We do charge for it not for a good reason. I'm a firm believer . We need to make Wi-Fi free across all of our our servers and we're working towards that. They are while you're there the CEO . So you presumably have some influence. Well I do have influence. And they've they've heard me one hundred times to this including Gogo which is our which is our service provider which I always always tease. And I call them no go in there . They made a lot of progress. Now slow go and they'll eventually get the go go. But but one of one of the reasons why I say is is not a good reason why we charge you pay for Internet practically anywhere else is that they the planes do not have the technical capacity and capability yet that if we made it for free the system would crash. So once it gets above about a 10 percent take rate on board performance starts to starts to erode . And if you if you turned it on for free which we've tested many times it's still not at the level that it needs to be. So we're investing heavily in the technical capacity in terms of the satellite spectrum as well as I mean we can fly to the moon and back and we can't have everybody using Internet on the plane . As I said that's exactly. You sound you sound like me David . You wanted one of the things I tell people is that you know we're closer to the satellites in the sky. Why should it move faster. But as they remind me we're not traveling 500 miles an hour as we're. As we're sitting at home with our Wi-Fi broadband access now there was a proposal a while ago for airlines to let people talk on their cell phones on the airplanes. But that was voted down I think by the FCC because a lot of people don't like it. And now that was voted down by me . I say never. Oh never allow that. And whether they allow it or not we're not allowing it to CAC. OK . Right now we haven't built a new airport in this country of any size since I think 20 22 or 23 years and Denver now LaGuardia is being redone and so forth. But why is it the air. Why does the airline industry you're responsible for helping to build airports or not. Well we are actually building here. They'll airports ourselves. We got we got tired of waiting for the for the government partnerships that are that are out there . They're trying to trying to trying to crack that code. So we've we've massively employed improved the flight experience the onboard experience. The next thing is the airports themselves the airports in our country were built for the 1960s. And you're building airports where we're building airports everywhere. Building the new LaGuardia Airport Delta on its own balance sheet you know building that it's going to take a few years. Airport construction is the most difficult construction that's done because you've got to build it and live and operate it all at the same time. Building a new airport in L.A. X we're building a new airport in Salt Lake City. We're building a new airport in Seattle new international facility. We've modernized Atlanta. Well speaking of government support you've been an advocate for not allowing airlines that have government subsidies to compete against you. And is that a big problem . It is a big problem. And I have to give the Trump administration great credit for recognizing that in reaching agreements with the UAE and Cutter last year to try to draw attention to it and stop and stop it in terms of what's happening at least freezing where it where it's at. How are they doing anything about it or what's going to happen. Yeah I think they absolutely are being responsive to the administration today in the in the Persian Gulf. There's 30 airplanes a day that fly between the Persian Gulf and the United States not one of those by a U.S. airline. They're all by the by the Middle Eastern airlines. There's if there if there was a fair playing field which is what the open sky agreements require. There's no question that the US airlines would be operating that mindset . We can't because those fares are subsidized and the costs are all about the air paid for by the government the air traffic control system. Some people would say it was kind of invented the 1950s or 60s and we haven't really modernized it that much . Is it really out of date. That's true. Absolutely. So what can what are you doing about that or what can you do. It is absolutely safe but unfortunately it's right based. You know many many cars have better G.P.S. in your car than we do in terms of what we're able to access in our planes. And the opportunities to to improve the air traffic control system are not only speed for customers but it's the efficiency the sustainability of the environment the opportunities to make a difference. Government dysfunction has been one of the reasons why the air traffic control system is because you've got we've got the FAA on a on a five year lease. You can't you can't change out the air traffic control systems with our current funding model. And that's why we've been advocating for some different models to actually go after a long term technology project and deal. Well most countries around the world have better air traffic control systems that needless to say you have a pattern of meeting with employees fairly regularly called the velvet program. So when we went through our hard times we didn't have a lot of cash and we decided the only way we were ever going to be successful again. Delta has a proud history was that we're going to have to reconnect with our people . So today what do you do for outside activities here. Fishing is a full time job obviously but you have any time for anything else. I love to love the golf. I don't get much time and I'm not very good at it. But that I do. I do enjoy that. You know what we do is we do serious work. We do all right work. And I think it's important for myself to remind myself why I might do serious things not to take myself too seriously. And it's kind of a reminder to stay light on my feet too to remember the importance of human human interaction. How did I get. I did also I did also run the New York Marathon last year. So that actually helped my feelings while I'm getting two hours. And that that was the first few miles. I was quite finished. I finished. I'm here to have a Delta thing. Delta CEO Bob I want you when I'm running I wore I wore my Delta colors loud and I would raise the two million dollars for cancer research for children and die. And I wanted . I can't. I don't I don't think I'll be doing another one of those I'm still feeling the effects. I haven't done a marathon . I would fly a marathon I would fly six miles. But so you have a pattern of meeting with employees fairly regularly called the Velvet Program. Can you explain what that is. Yeah. So when we went through our hard times back in the bankruptcy era we didn't have we didn't have a lot of cash. We didn't have anything. People were actually taking pay cuts and we decided the only way we were ever going to be successful again. Delta has a proud history was that we're going to have to reconnect with our people and get something to catch their attention. So our people were downtrodden years of pay cuts and job losses and all the difficult things we remember from almost 20 years ago . And so in downtown Atlanta there was an abandoned Macy's building in downtown Atlanta. And we decided to take out a couple of floors in this abandoned building. I'm not sure we ever even paid for. I think which is squatted in there I don't know if they even knew we were in there and we would bring our employees and we brought all of our employees you know six seven hundred at a time for a day a day and a half of opportunity to talk about the airline. We had no power points. We had no slides. We had. We deliberately kept it from being as uncooperative as possible. We had couches we had chairs we had curtains. We had low lights as people were walking in. People would come into the room. They'd see some of our people dancing around and trying to lighten up them. No wonder we were bankrupt. They probably thought you know this is where we got a crisis on our hands. These people are dancing and it's abandoned Macy's building. But what it did is it got their attention to focus on what was really important. And our people wanted to know it wasn't their fault that we went through the hard times. I think so often when companies go through difficult times employees are made to feel like they're the reason that they're they're too expensive. They're not productive enough that there are costs when they really are the very best asset you have. And we do these meetings to this day now and now we can afford to actually pay for our own space . And we do nice hotel lobbies and other other venues. But we have we have a dozen of them a year all around the US where we bring people from different disciplines together and we talk about the future. And I still lead every one of those as I did 15 years ago because that engagement is so critical. What we do . So how do you grow the value of your airline. You just make it more profitable by flying more miles or can you make more acquisitions or anything left to buy in this business. You know the airlines are typically thought to be a mature industry. You know with ethanol there's not new places in the US left to fly to you know building bigger airports bigger airplanes but not new destinations. So global expansion is certainly something that's very important to us at Delta and where we're doing that through our partnerships and Delta flying. You know many parts of the world first of all I think people are more aware of the world than ever before. People want to travel. They want to experience as again. Interesting because we are living in probably as divisive a time as art is art. As we can recall for many years you would think which would hurt airline travel. But technology and social media and Instagram and pictures if people want to go and explore and see for themselves something that they may have read about back and now they feel it's affordable opportunities not only for the millennials and the young generation that want experience but also baby boomers and old people. I would focus more on the baby boomers bucket list because they're going to have to do those sooner than the millennials bucket list right. Well we're investing in both . Now suppose President ISE Saints said why I watch this interview and you are an impressive person who's done a great job. Why don't you come in the government and help us in some way. What would you say . I'd say I'm happy to advise but I'm not sure. I got my I got my work cut out for me here. Suppose I'm a college graduate and we're a young business school graduate. Why should I want to work on an airline or Delta. What's the advantage of it from a free travel . Anybody like free travel for not only themselves but their partner. All right. If you love people it's a great business because you are you are out in the public eye every single day . We do not have desk jobs. You aren't our desk jobs in the sky and you're in every day. Your work environment is different and you've got different people coming through and you have to adapt to all reason. You think about why people travel. People travel for all reasons on an airplane for happy reasons for sad reasons for for business for it for pleasure to go explore to go meet their grandchild for the first time. And there's all this emotion that's in this two of roughly 200 people all sitting within 40 yards of one another that happened. So it's it's a social experience as well. And people that want to actually make the world better get into travel .

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The David Rubenstein Show: Delta CEO Ed Bastian

Delta Air Lines, Inc. Chief Executive Officer Ed Bastian talks about bringing the airline out of bankruptcy, his effort to get free Wi-Fi on all flights, why the company has its own oil refinery and what it was like growing up with eight siblings. Bastian appears on "The David Rubenstein Show: Peer-to-Peer Conversations." The interview was recorded on Sept. 19 in Washington. (Source: Bloomberg)

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