From the inside out, ASA helps build Delta's future

 - November 30, 2007, 10:41 AM

As Atlantic Southeast Airlines president Skip Barnette maintains, few established companies emerge from a five-year, 25-percent annual growth plan untouched by organizational turmoil and swollen debt-to-capital ratios. So how has ASA, four years into just such a plan, maintained its reputation for fiscal discipline and operational performance while doubling its capacity since Barnette assumed control of the company in 1999? In his modest way, the former Delta Air Lines executive attributes the company’s achievements to its management team and employees. But even Barnette can’t deny his own contribution to one of the most competent and thorough airline overhauls in recent memory.

One might rightly credit ASA’s twofold growth over the past four years to parent company Delta Air Lines, which in 1999 took control of the Atlanta-based regional from its former owners, installed Barnette and embarked on an aggressive network development plan centered on all its Delta Connection partners. Of course, force majeure exemptions from an already lenient scope clause helped that effort, giving ASA access to seemingly unlimited growth potential with regional jets. But few realize that, despite its wholly owned status, ASA finances all its airplanes, carries full responsibility for balancing its own books and manages virtually all its own internal affairs. So while Delta performs most of its regional subsidiary’s marketing, ticketing and route-planning functions, the credit for ASA’s cultural, fiscal and operational renaissance rests solely with Barnette and company.

“Most well established companies try not to take on this kind of growth,” said Barnette. “If they do they struggle. We sort of balanced the ball a little bit, but now we’re seeing all the effort we put into infrastructure, providing resources for our people, getting good training programs, getting people focused on the right things such as completion factor and on-time performance…they’re all starting to catch up with each other. We’re still growing, but we’re far more capable of growing while delivering the level of performance our customers expect. And that’s really a tribute to the kids out there.”

The reinforced foundation on which ASA now rests will face its sternest test to date when, on April 6, Delta “downsizes” its hub in Dallas-Fort Worth from 87 flights a day to 63, resulting in the complete retirement of its Boeing 727 fleet. Delta, which in January reported a $363 million net loss for last year’s fourth quarter, plans to replace much of the resulting lost capacity with another 43 regional jet flights operated by ASA and 14 more by fellow Delta subsidiary Comair. Although the move will result in a net decline in capacity, total departures will increase by 13 percent. By the time the transition takes place, ASA will account for 66 percent of all Delta Connection flights at DFW.

Big Task Ahead
As Delta Connection’s sole ground handler at the airport, ASA must manage not only its own growth, but contend with the extra Comair flights as well. The task of managing ground operations ranks among the most daunting aspects of the Delta plan, a fact not lost on airport ops vice president Lisa Walker, a 20-year veteran of ASA and an architect of last year’s operations overhaul in Atlanta.

Ground-handling activities, the focus of Barnette’s initiative to improve the airline’s sagging on-time performance, underwent what Walker termed the “redesign of the footprint” in Atlanta to create nine separate parcels, or zones, each equipped with enough staff and equipment to attend to four aircraft at one time. Launched last April, the plan demanded a $1 million investment in new equipment and 100 more employees for customer, ramp and cabin service. Although constantly evolving, the new scheme went into full effect in August, after which time the company saw enormous improvements in on-time rates.

“We saw during the first 90 days nearly 20-percent increases in some of our departure performances,” said Walker. “We are about to end [January] with about a 98.1-percent completion rate. That’s historic for ASA.” According to Walker, ASA regularly logged on-time departure rates (within five minutes of schedule) “in the low 50-percent range.” This past January, she said, those figures ran at roughly 71 percent. On-time performance measured by departures within 15 minutes of schedule rose in January to the “low 80s,” while arrivals averaged between 76 and 78 percent.

Walker described the new arrangement as something similar to a “Nascar pit-crew concept,” where all the elements needed to attend to an arrival remain in a fixed position. Ground personnel work on a time line associated with a particular airplane’s scheduled arrival, ensuring all needed ramp service elements are in place before the airplane arrives.

Once the airplane taxis to the gate, team members and equipment stand ready to perform their functions without the need for service calls. To better manage departures, ASA created a new position called a departure coordinator, whose sole purpose centers on ensuring workers follow their time schedules for boarding the airplanes. It also hired two general managers, several operations managers and a tower supervisor.

Although Walker said the airline also uses a “hybrid” form of the new process at Dallas, ASA developed the plan for the much busier hub at Atlanta Hartsfield International Airport, where it occupies 20 gates and 43 parking spots. During busy times, as many as six airplanes park at one gate, in which case only air-tight logistical coordination can ensure on-time performance meets ASA standards.

Of course, on April 6 the Dallas base will suddenly need more ground coordination than anyone imagined when ASA began CRJ service from DFW in May 2000. Now flying 23 CRJs from its secondary hub, ASA plans to deploy in Dallas two new CRJs and transfer 11 more–four of which fly in part-time seasonal duty–from Atlanta. Comair, meanwhile, will contribute another six of its CRJs. All told, by the end of this year ASA plans to add seven CRJ700s to its current fleet of 10, as well as a mix of fifteen 40- and 50-seat CRJ200s. Last year it took delivery of 26 jets, raising its RJ fleet size to more than 90.

Turboprop Fleet Shrinking
Its turboprop fleet, on the other hand, continues to shrink, albeit at a slower pace than originally expected. Two years ago ASA talked of retiring all its Atlanta-based Embraer Brasilias in 2002. Then 9/11 struck, traffic slumped in some markets where ASA had planned to switch to jets and the residual values of the aging 30-seat turboprops fell below their already meager levels. The latest schedule places retirement of the last of the Atlanta-based Brasilias this May. In all, ASA owns 37 Brasilias, 23 of which regularly flew in scheduled service at the end of January. However, the airline planned to ground seven more Brasilias in Atlanta by the 15th of last month, leaving it with four flying from Hartsfield. According to v-p of planning and development Sam Watts, ASA will start removing its 12 remaining Dallas-based Brasilias soon after the April 6 expansion until the last of the Brazilian turboprops leaves the fleet this fall.

Meanwhile, three of ASA’s 19 ATR 72s, deployed last fall at Delta’s Cincinnati stronghold, returned to their original home in Atlanta on February 15. There they’ll fill capacity left by the departing Brasilias and replenish previously cut frequencies to recovering short-haul markets such as Panama City, Fort Walton Beach, Fla., and Chattanooga, Tenn. ASA’s departure from Cincinnati will prove short-lived, however, as it returns to Comair’s primary base on April 6 with a single daily CRJ flight–to cover a frequency left by the other regional subsidiary’s own CRJ rotations.

ASA’s DFW expansion will for the first time result in the Atlanta-based regional’s presence at all of Delta’s big U.S. hubs, as one of its new CRJ700 flights–from Dallas to Ontario, Calif.–continues each day to Salt Lake City, the established base of Delta Connection affiliate SkyWest Airlines. From Salt Lake, the 70-seat jet will return each day to Ontario and proceed to its overnight base in Dallas.

Watts said he doesn’t think the move is meant to send a signal to SkyWest, with whom Delta remains embroiled in service-fee negotiations, but that it represents just another in a series of maneuvers by Delta to ensure a presence of multiple code-share partners in all its hubs. “I think you’ll continue to see heavy concentrations in the various hubs of a given carrier,” said Watts. “In the fall we’ll see one other [ASA] market into Salt Lake. But most of our resources will be dedicated to DFW.”

Watts said ASA will revisit Atlanta expansion in the fall, once it settles in at DFW. “This past year we gained five more gates on Concourse D through a sublease with US Airways; that gave us eight more parking spaces in June,” he said. “In December we signed another deal with Delta to lease five more gates. Those are not being fully used, so we still have opportunity to add to Atlanta.”

By that time, ASA will have taken delivery of its 100th regional jet, as Delta continues its exercise in “rightsizing” the mainline fleet in favor of more regional jets throughout its increasingly complex and interwoven network. After the Comair strike during the summer of 2001, Delta adopted a strategy of spreading the resources of all its regional partners throughout the country, resulting in Comair flying CRJs from Atlanta, for example, Atlantic Coast flying Fairchild Dornier 328JETs from Cincinnati and SkyWest building its presence in Dallas. The arrangement removes the risk of crippling an entire hub in the event of another strike, for instance. It also breeds competition for pricing and performance between the various regional partners.

At this point, the two wholly owned carriers own a distinct advantage in winning mainline replacement flying, thanks at least in part to their high-capacity RJs. But with their rewards have come some headaches as well. ASA, like all CRJ700 operators, for the second time in 10 months felt the sting of an emergency AD that effectively limits the range and payload capacity of the 70-seat jets.

The latest directive, issued January 16, cites incidences of cracked fuel feed lines and damaged transfer couplings due to vibration and fuel-line misalignment in the center tank. The problem could result in an imbalance in the fuel distribution system, and cause the center tank to overfill and leak.

The AD limits center-tank fuel quantity to 1,500 pounds at takeoff and flight paths to within 30 minutes of an alternate airport. Incidences of uncommanded fuel transfer between the center tank and wing tanks prompted a March 12, 2002 emergency AD that increased the CRJ700’s normal mission fuel requirements by 3,000 pounds, and limited flying to within 60 minutes of an alternate airport.

Although Watts said ASA mechanics have found no problems with the system so far, the AD has resulted in a two- to four-passenger capacity penalty systemwide. While, according to Watts, some of ASA’s routes felt no effect at all, short-range destinations such as Augusta, Ga., have suffered because the airplanes must burn enough fuel en route to get below their maximum landing weights. Meanwhile, ASA’s recently inaugurated service between Atlanta and Key West, Fla., where a 4,800-ft runway demands short-field capability not available with the CRJ200, saw a 16-passenger capacity penalty, effectively turning the 70-seat CRJ700 into a 54-seater.

Watts said the remaining CRJ700s due for delivery will come equipped with retrofits already installed. In simple terms, he said, the repairs involve little more than replacing some rigid tubing with flexible hoses, thereby reducing the stress on certain attach points.

Despite the slow availability of retrofit kits that delayed compliance with the March 2002 AD until late last year, Watts marshaled the diplomacy to praise the airplanes. “It’s really a great airplane,” he said. “Everybody here will tell you we’re thrilled.”

High-tech Network
Of course, while the love affair with a new aircraft type can wane or grow depending on its long-term performance, Barnette expects the less visable, but undoubtedly more profound changes to the company’s internal constitution to last as long as he runs the operation. Asked what he sees as the biggest change to the company since he took control almost four years ago, the 32-year Delta veteran pointed to the vast improvement in the level of technology available to the company’s 5,000 employees. “When we walked in here four years ago, we jokingly said the most sophisticated piece of equipment we had in this office was a fax machine,” said Barnette. “Today, we have a state-of-the-art network able to communicate with our people all across the system, which now is going to be as far west as California, as far north as Canada and as far south as Mexico.”

At the center of this new network stands Delta’s Cornerstone gate and boarding system, a version of which ASA installed in Atlanta and Dallas in October. The Windows-based system features electronic gate readers and two computer terminals at each gate, where agents can access automatically generated in-bound passenger lists, flight plans, weather, on-time statistics, arrival status for the entire network and frequent-flier information. The benefits, according to one gate agent supervisor at Atlanta, became immediately apparent when boardings that used to take seven to 10 minutes began taking only half the time.

“One of the challenges we have faced since the acquisition is the increased expectation of a Delta customer relative to what a regional airline agent could or could not do,” said Barnette. “The general assumption was, ‘Well, Delta owns you; it sort of looks like you have the same computers; therefore you should be able to provide me with the same level of information about my frequent-flier account, about your airplanes and about Delta’s airplanes.’ That wasn’t true at one time. So it created conflict. We try to remove everything that can create conflict with customers. And that means completing the flights, completing them on time and making sure you have up-to-date, total information about what’s going on.”

Other advances include a completely automated manual for standard practices within the company, a decision that has drastically reduced the need for employees dedicated to processing and managing the reams of paperwork typically involved in a manual system. ASA also trains its pilots–from initial classroom instruction through cockpit training and on to the flight line–all on computer-based applications, still a relative rarity in the regional business.

Another rarity among all the world’s airlines has been an ability to turn a profit over the past two years, a fact that has delayed plans for even more investment in technology improvements. ASA does not publicize its own profit and loss statements, but it stands to reason that Delta can at least partially attribute its ability to avoid bankruptcy to its strong regional network, which now accounts for 11 percent of company ASMs, compared with just 5 percent less than four years ago. But growth does not necessarily translate into yields, and today’s environment demands fiscal discipline like never before, a mantra espoused by Delta CEO Leo Mullin and echoed by Barnette.

“As you know, right now the name of the game is cash,” said Barnette. “We have done a complete analysis on return of investment for ACARS, for HUDs and dual FMS. In a normal business we would do those. The analysis said that by even the more sophisticated measure of return, ACARS is a good investment, HUD is a good investment and dual FMS is a good investment–individually or collectively. But we had to step back and say, ‘Is that something in which we can comfortably invest more than $40 million in cash?’ We could not in good conscience go forward when that investment represents roughly two airplanes.”

Security Approach ‘Flawed’
Voted this year’s chairman of the Regional Airline Association, Barnette perhaps as well as anyone knows the financial tightrope one must walk when trying to balance the need for investment and the pressures of an increasingly burdensome regulatory environment. Of course, as new regulations and legislation force costs upward, airlines become even more sensitive to the risk associated with major capital outlays. Barnette said he shares a desire for an optimum level of safety in security, but he strongly differs with the methods chosen to achieve that goal.

“We absolutely have to do everything we can to ensure that we prevent weapons and explosives from getting on the airplanes,” stressed Barnette. “I guess where I get concerned is in the rush to conclusions as to what’s the appropriate way to do that. I’ve been out a lot and have seen a vast number of TSA people standing around. I know there are people out there doing training, but I’ve been to the same airports months and months later, and I tend to see excess. If you have excess resources, you shift those resources to other roles and responsibilities that you need covered.

“It’s still early, but I also think there’s been a rush to reach a conclusion that if we search everybody and everything, that we’ll convince ourselves we’re going to be safer. I disagree.”

Barnette characterized the current approach, including the plan to allow guns in the cockpit, as fundamentally wasteful and born of flawed reasoning. Although few airline executives would disagree with Barnette on the gun issue, the ASA president seemed resigned to the idea that his pilots will eventually win the right to carry a firearm aboard their aircraft. “If you ask me if I think we’ll be seeing weapons in the cockpits of airplanes, my answer would be yes,” he said. “It would disappoint me, but I think it will happen. My hope is that the people who ultimately make the decision will have listened to the issues we’re now raising.

“For example, will the individual pilot own the weapon? What kind of weapon is it? What kind of bullets? Where is it stored? How do you use it? What if you have to leave the cockpit to go the restroom? Is the weapon loaded while it’s in the airplane? Is it a minimum equipment item? Can the pilot carry the weapon in a foreign country because the laws are different? Are we going to see an increase in the number of stolen flight bags? Are we going to see an increase in muggings of pilots? Those things haven’t been resolved yet. Until they are, I won’t feel comfortable. In fact, I doubt I’ll ever feel comfortable with it.”

FSDO ‘Frustration’
On an issue that strikes closer to home, Barnette continues to press the FAA on what he called inconsistent enforcement at the FSDO level. During last fall’s RAA meeting in Washington, he raised his concerns to FAA Administrator Marion Blakey during a luncheon address to a gathering of airline executives. Since then, the two have met in a more formal setting to discuss the issue.

“We recently had a meeting with Marion, and I’m very confident that she recognizes the need for consistency in the development and application of compliance related regulations,” said Barnette. “I think she also recognizes that our spending a lot of money in the coming years on compliance-related activities is going to severely strain us. Clearly every CEO with whom I’ve talked has validated my concern.”

Barnette wouldn’t offer specifics, but said he “sensed a level of frustration sometimes” in his talks with officers and directors of the company. “Where we find the problem is during the NPRM process. [Blakey] acknowledged that it wasn’t outside the realm of possibility that [FSDO personnel] sometimes assume certain elements of a particular rulemaking effort are going to be validated even before the rule is finalized, and that they begin to enforce them at the local level when, in fact, they may be right 90 percent of the time but 10 percent of the time they’re not, which means that we’ve been asked to do something that ultimately proved to be a waste.”

Barnette was careful to praise the Atlanta FSDO for its commitment to safety and stressed the “really good” relationship his airline maintains with the office. But he need not apologize for any lack of patience for needlessly expended time and money, particularly during the industry’s worst downturn since deregulation.

“Whatever stability might exist underneath us, we’re not planning for [a recovery] this year,” said Barnette. “We pretty much expect revenues to be flat and yields to be diminished to the degree they were last year, and we’ve built our plan around that. I hope to see some recovery toward the latter part of the year, and I’d say that’s tied to what happens in Iraq and its effect on the economy.”

“But as you can see in Dallas, Delta is willing to make the really hard decisions to ensure that they get through this time and that the Delta that comes out on the other side, of which we will be a part, is far stronger than it is today.”