Delta deals with PR nightmare

Within a day of the news that Delta Air Lines boosted executive compensation in 2002 -- a year of huge losses and job cuts at the airline -- upper management was taking a public thrashing.

Sen. John McCain (R-Ariz.) called such raises "insulting" at a time airlines were seeking more federal aid. Letter writers teed off in newspapers. Internet bulletin boards sizzled.

Company documents show higher-ups were warned that at least parts of the compensation changes could irk many people. They made them anyway.

Now Delta is stuck with a public relations migraine, following recent disclosures that the ailing airline spent more than $42 million last year on bonuses and pension trust payments for top leaders.

"It will end up being among the textbook examples that people like me use to teach what not to do," said Margaret Duffy, who teaches advertising and public relations at the University of Missouri. She said the problem lies not in bad public relations, however, but in the actions themselves.

Delta's situation is more than academic. The controversy complicates the debate over federal aid for the industry. It also has angered workers, including unionized pilots who are being asked to consider pay cuts.

"This makes absolutely no sense," said Atlanta PR consultant Al Ries. His advice to Delta is to apologize. "It's never too late to say, 'I was wrong,' " he said.

Delta Chief Executive Leo Mullin sought to quell the controversy last week by announcing he will forgo millions in compensation. That includes any 2003 bonus he would have gotten under a new formula adopted last year. It produced 2002 bonuses for 60 executives, despite the company's $1.3 billion loss.

The bonus plan apparently remains in place for other executives, and Mullin keeps his $1.4 million bonus for 2002. Delta has made no move to reconsider a controversial pension trust plan, in which 33 top executives' retirement benefits are being prepaid into special bankruptcy-proof accounts at an initial cost of $25.5 million.

Some image experts see Mullin's gesture as halfhearted. Duffy said Mullin is "really not apologizing."

Tom Slocum, Delta's chief of corporate communications, said the executive pay revisions were developed after the Sept. 11, 2001, terrorist attacks to hold together a good management team.

"We knew we would have to have conversations with our people to explain why these decisions were essential," he said. He said executives and managers now are doing that in employee meetings, "place by place and person by person."

Slocum said public attention was intensified by the timing of the annual regulatory filing in which the bonuses came to light. Its March 25 release, amid a new round of airline cutbacks and debate over federal aid, "heightened the commentary," he said.

Some say Mullin's move last week was a good one. Bob Dilenschneider, founder of a New York PR shop, said the head of a big, troubled company deserves a competitive pay package, but Mullin is smart enough to understand public sentiment. "Should Leo have explained it more fully? That might have been a good thing," he said.

In a January letter to Delta protesting the pension trusts for top executives, some retired executives warned spending millions on such trusts would backfire badly "in a post-Enron environment." The retirees' concerns were dismissed; after the story broke they went public with their letter.

Internal documents also show the company considered perception risks to be "manageable."

Duffy said the decision-making, which included approval of a board of directors committee, was an example of executive "group-think."

"People get very caught up in their own kind of tunnel vision," she said. "It seems entirely sensible to them at the time."

At TheStreet.com, columnist George Mannes last week bestowed Delta with two of his "five dumbest things on Wall Street." The first was the pay bonuses. The second was for Mullin's pay cut, which Mannes found lacking in sincerity or substance.

"We are in a time right now when I don't think any CEO can underestimate the frustration and fear of average Americans."

SamAdams76,

Yes, I'm sure Southwest will probably stick with the 737. Flying just one fleet type is the most economical way to go, and has worked well for them.

There have actually been 3 or 4 "generations" of 737's (see "737 Info" below, after the end of my message). I am not sure which generation of 737 Southwest flies. As far as I know, they may already fly 737's from multiple generations. Maybe there is a "Southwest fan" out there who could tell us. Either way, if I were a guessing man, I'd guess that you were correct about Southwest's plans to keep buying increasingly newer "generations" of 737's. They come in all sizes nowadays (737's, that is!!).

I agree with you about Southwest's "cattlecar" approach. I flew Southwest from Las Vegas to LAX last October. I got there early enough (about 30 minutes in advance) to get into the back of the "A" group, so I was basicly happy. However, just before boarding commenced, they announced that anyone who had a "checkerboard" pattern on the bottom of their boarding pass would have to step out of line for a "random" bag search. Yes, you guessed it, I had the dreaded checkerboard on the bottom of my boarding pass. I raced over to the security search area, and asked them to search me quickly, so I could get back my spot in line. They informed me that they could not search me until boarding actually commenced, and told me to sit down and wait. I was NOT amused!!! The other people who were also selected for the random molestation also showed up, expressing sentiments similar to mine (what a surprise!!). I made sure I was the first one searched, and then I just worked my way directly onto the boarding ramp the moment they were done with me. Although unhappy, I still managed to get a decent seat. That was probably my worst experience with Southwest. Other than that, I have no complaints about them (I have only flown them twice). Now the FAA has done away with the random searches at the gate, so that shouldn't be a problem anymore.

I agree with you about giving out numbers when you check in. That would be a better approach than having the "A, "B", and "C" boarding lines, and forcing people to stand in line for an hour just to get a good seat. When I flew ValuJet back in 1995 (before the fateful crash into the everglades over by Miami, which forced them to change their name to AirTran), they did exactly what you suggested. They gave out cards with numbers. Whoever checked in first got card number 1, and got to board first. It worked out quite well. That would be a good improvement for Southwest to make. Instead of handing out cards with numbers, they could simplify the process even more by simply printing the numbers right on one's boarding pass. That way, no one from SW would have to keep track of the numbered cards. Someone drop that into their suggestion box!!

Interesting to read the other posts about why Southwest makes a profit while others don't. Hopefully, the upper management types at the various airlines are reading this thread, and taking notes!!

737 "generation" info for those who are interested:

The first generation 737 came out back in the 1960's: the 737-100, and the 737-200. If I recall correctly, someone told me a few years ago that the last of the original 737-100's was recently disassembled and scrapped at an airport outside of Miami. Some 737-200's are still flying today, although many of the "mainline" airlines are retiring them, and they are being bought by smaller airlines, or charter and cargo operations.

The second generation 737 was the 737-300, 737-400, and the 737-500. They are essentially identical, the main difference is their length. I think of them as the "middle-aged" 737's. United Airlines flies a lot of these.

The third generation is the 737-600, 737-700, and 737-800. These represent the youngest generation. The -600 is the smallest, and each higher model number gets progressively longer. Continental and Delta, among others, fly a lot of these.

The absolute latest model 737 is the brand new 737-900. I am not 100% sure, but it might be an extension of the -600, -700, -800 family. In any event, it is the largest 737 to date. Someone told me that these largest 737's are starting to get to be almost as big as the 757.

Thanks for the info. I usually loath 737s because I am 6'3" with a heavy frame. I usually feel like a sardine in one of those things. But the later models are definitely more comfortable. The Southwest 737 I flew to Orlando a couple of weeks ago had more legroom and it seemed the seats were about an inch or so wider. As well, I flew an USAir Shuttle to Washington about a year ago and that was also one of the newer 737 jets so I was rather comfortable in it.

BTW, on Southwest, I got to pick my favorite seat both times. That is the window seat three or four rows from the very back. Reason being is that if the plane is not fully booked, the chances that somebody else will pick that row is very slim. Everybody wants to sit up front and those with weak bladders like to sit way in the back where they can more easily reach the lavratory. Three or four rows from the back is usually the sweet spot. Thus I had the entire row to myself on the way down and the way back!

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