Delta President Glen Hauenstein says the airline has a moat – United can’t really catch up to them – because airlines are expensive, capital-intensive businesses with large workforces and heavily regulated and they’ve been working on the building blocks of their business for 15 years. They’re years ahead of United’s journey. American, in some ways, is just getting started on theirs (and we don’t yet know how committed they are to it).

Many of Delta’s building blocks were put in place by their last CEO, Richard Anderson, who came on Airlines Confidential this week for a conversation with retired Wall Street Journal airline reporter Scott McCartney and ex-American Airlines CEO Doug Parker.

The Delta strategy began with reliability. But reliability meant more than just on-time planes – it meant getting each customer (and their bags) where they expected to go according to the itinerary they’d purchased. And it started with a basic product that delivered what they believed customers valued most. This is an interesting roadmap – because it aligns also, in a way, with how Gordon Bethune lays out what he did taking over a troubled Continental… stop the spinning, define the baseline product.

Anderson describes that Delta actually built their reliability on old planes,

[I]n 96, [CEO John] Dasburg slowly, starting in 94 kept moving me into operations and so my background was maintenance engineering and operations, not law anymore. And so I always thought that if you could have just the right amount of capital, to invest in the fleet, and I don’t mean buying airplanes. I mean, actually, in my view, I’d rather have older airplanes than newer airplanes.

My experience over time is new airplanes broke a lot more than old airplanes, because at least with old airplanes, you’d had enough time to be able to fix the system problems and the operating problems, and all your employees were completely familiar with those airplanes. And this is the only industry in the world where you buy a piece of equipment for $60 million, and it’s your fault if it breaks. And so I just knew that if we solved the scale and scope problem with consolidation, and we got our costs in line, then we could build a product, a base product. I mean a product we built at Delta was really foundational at Northwest. It’s just we never had the capital or the wherewithal to be able to do it, but we had that vision. And so once we got to Northwest and Delta together, and we had the network, and we had the cost structure, and we had enough capital, then you could go about building a business, a consumer business.

[Y]ou could go about, from a maintenance and engineering standpoint, build an incredibly reliable operation.

They started with reliability, seat back video, and wifi and that was the Delta product that they layered on top of from there.

Doug, you may remember those meetings we had back at Northwest, where Dasburg was always trying to find the base definition of the product. And he’d always say, safe, clean, on time, with bags, and courteous service. It’s a pretty fundamental equation of product, but it’s really hard to do.

We set about doing it and had a lot of really good people in the operation that, candidly, I’d grown up with over the years at Northwest, and I brought them all to Delta. There were a lot of good people at Delta and we brought in a lot of other good people and we just kind of set about one step at a time, building an operation where we didn’t cancel flights and we ran on time and all the toilets worked and the interiors were well maintained and the airplanes all painted the same color. ran a schedule for convenience of the passengers.

So it didn’t have a lot of frills. I would say the one frill we did do was Delta had a big investment in seat back video and we were thinking at Northwest that we should have individual seat back video. And so we did make that, we made that investment, we made the SkyPriority investment, and we got GoGo to put Wi-Fi on the airplanes for essentially free. And that was basically the product.

If we could deliver that product to every passenger every day on every flight, we figured we’d get a revenue premium. When I started at Delta, we had a revenue deficit per RASM, the industry RASM. We were about 15% behind because Delta had let a lot of consultants make a lot of decisions about product and pricing. and they had been flying song around. It was not a good situation. And so we were at a 15% unit revenue deficit. And when I retired, we were plus 18.

To gain reliability they decided to prioritize investing in line maintenance. (Eventually maintenance became a profit center for Delta, selling services not just servicing their own aircraft.)

I used to always say every person at Delta Airlines knows where to spend $10,000 of capital and hire two more people. Well, if we did that, we’d be bankrupt, right? We can’t triple the employment of the airline. So you’ve got to allocate your resources and using the resource allocation to technical operations and the operation was really important. And you’d be surprised how often you just understood where constraints were in the operations. And I remember the biggest constraint, the biggest discovery we had was we were too cheap on line maintenance stations.

One of the keys to running a really reliable operation is a lot of line maintenance. Line maintenance stations don’t cost a lot. But when an airplane sits overnight, if you got the capture rate on a fleet up over 40% where it went to maintenance, you caught 40 to 45% of a fleet every night in maintenance, its reliability would go up when its MELs went down. So we just did a lot of that kind of work.

And Gorman, Steve Gorman, and Gil West and Bill Lynch, Mike Moore, there was just a crew of people that understood this and knew how to how to drive the performance of the airline through maintenance and engineering.

They got rid of involuntary denied boardings, although I don’t think this story is complete without the United Airlines David Dao passenger-dragging incident, which prompted the airline to raise involuntary denied boarding compensation.

Delta still has no denied boardings, okay? And I remember the conversations about that. Our denied boarding numbers were really high. And I said, OK, let me get this straight. A person goes on our website and buys a ticket. They pay us right away. They do everything we tell them to do. They show up at the airport on time. They pay for parking. They check their bags. They get to the gate area. And then we tell them, well, the airplane’s there, but we’re not going to take you. is think about that. And I said, why are we doing that? Why don’t we just stop that? And they said, well, that’ll be too expensive.

And I said, well, it’s a lot more expensive to your brand to tell that person did everything right that they’re not going to get to go. I said, why don’t we just buy them all off? It actually ended up kind of paying for itself because the yield management system is constrained by denied boardings. Doug, you remember that, the RM systems, the demand forecaster. If the demand forecaster is relatively unconstrained, you’ll actually go out with more seats booked. And so over time, and the cost of denied boarding is contra revenue. It’s not an expense item. So anyway, I remember we had a long conversation about that, and I said, you know, who wants to go over to the gate and tell half a dozen people that did everything right that they don’t get to go today? And so that’s how we ended up with no denied boardings.

Richard Anderson has been gone from Delta for 9 years. He was rumored to have retired under pressure. He had hard edges, and gave way to much ‘softer’ Ed Bastian. He quickly went on to run Amtrak, where he ran into major opposition from unions and some members of Congress as he tried to reshape government trains to make them more efficient. He’s also free to share a lot now that he never could and that makes for some interesting lessons I think that other carriers trying to follow Delta’s playbook can learn from.

And notice that nowhere here is a discussion of Delta’s low-value loyalty program. They were able to sustain low value to consumers because of strengths elsewhere, and still generate substantial revenue from SkyMiles. Other airlines made the mistake of following the low value SkyMiles model, thinking that somehow translated into success along other dimensions. That was just weird. And you can see that wasn’t the formula.