tv The David Rubenstein Show Peer to Peer Conversations Bloomberg December 8, 2019 2:30pm-3:01pm EST
>> why is it that wall street as much alue airlines as you think they should? >> our largest investor is warren buffet. he said you guys are the cubs of the business world. not only did you have a bad decade, a bad century. 've always considered to this day my training at pitchescy, my years there as my postgraduate work. >> what percentage of people lose their luggage? it, it's callede mishandled. > people wouldn't recognize me was straight.
> i don't consider myself a journalist. i began to take on the life of being an interviewer even though a day company and was running a private equity firm. do you define leadership? that makes somebody tick? people say running an airline not an easy thing to do. you have weather to deal with, of employees and so forth. but you grew up in a family of children, so which is easier, growing up in a family f nine children or running an airline? >> running an airline certainly. [laughter] was great.ly i'm the oldest of nine. i was sharing with david earlier 5 years old, we already had six kids in the threeso nine kids sharing
bedrooms, 1 1/2 baths, my dad was a dentist. inside the ractice house. my mom worked for him. >> was it a busy practice at times? you must have had some gaps, but he interesting thing about it was that growing up, i didn't ravel -- i didn't board an airplane until i was 25 years old. >> really? >> we couldn't afford it. us and it too many of just isn't who we were and i always recall one of my most childhood is of my we went on one family tripper year. us in the d put station wagon. regulators, but there were no car seats. there were nine of us. dad, and my grandmother in a station wagon. all piled in. whatever lowed to put we could get in our pillowcase and brought it for two weeks, family trip.our i must have figured somewhere in my young consciousness there has to travel.ter way
[laughter] >> so i still remember that to day. >> your mother must be proud the her first child is c.e.o. of delta airlines which is the largest u.s. air carrier. largest in the world. >> does she have call you with complaints? >> at time. she gives me her ideas. when she's l her traveling not to tell anybody who she is. lasts.ever cute.kind of >> you travel delta yourself from time to time. >> most of the time. > so you're coach, is that right? >> i often fly coach, yeah. i find it more interesting. back t about the leg room there, though? room is fine. [laughter] >> what you find when you're it's more h is entertaining so you don't worry about your leg room. you see swhaels going on. where the real people
are, the party is. running an k about airline generally. to be honest, there are a lot of people that say if you want to run a big ine or business go to a big business up and r work your way be a management expert. you were trained as an accountant but some people would say the best managers in the world are not cpa's. accountants, bout they hey get a bad rap is are all about numbers and analyses, what you learn as an are ntant is the numbers the language and vocabulary of business. >> for some reason wall street airline companies as much as you would say they should. why is it that wall street value airlines as much as you think they should? >> we're moving in that direction. there.till not our largest investor is warren buffet. of delta and % warren after years having sworn has a industry he
language i love. he says you guys are the chicago cubs of the business world. only had a bad decade. you had a bad century. [laughter] your bad century out of the way and we're now in fixed the re we've business. the used to say -- seeing wright brothers taking off he would have shot them down because there were no profits made in the airline industry for a hundred years, when you compare the profits versus the losses but that's changed. it's changed and he wouldn't say that if you asked him. fifth yearill be the in a row our profits have been in excess of $5 billion. your revenues are what percentage of the united states and outside? our revenues are 2/3 national, 1/3 international. >> international is that more profitable? it's just the opposite. international is a lot more difficult to get to. fuel anes are bigger, the costs more. the service level is
substantially higher and the prices because there is a lot of competition internationally are more. 80% of our make profits in the u.s. closer to home. >> you make a lot of profits, your eople say, by owning own refinery. why do you need your own refinery, you don't trust people to get gasoline to you? we do and we certainly use a lot of refineries, but about six as even years ago, refineries up and down the east closed, when -- we saw that our costs of jet escalating rapidly. a were paying another $25 barrel on top of the crude price just to get jet fuel because we're the most price sensitive of that product. we don't decide each day whether planes. our so any of the costs that the refineries have are being pushed needed e airlines so we to break that curve and get more supply into the market. we've got a great refinery philadelphia. a trainer that we acquired. a year.losed for about
we put it back to work and it this great story and to day, it's been very profitable. we've earned our returns on that fold. >> now, in 1970, it was a big airline deregulation. prices had been set by the icc. >> that's right. then had probably 10 or 12 major domestic airlines. more or less three or four. so, as if deregulation really worked for the american people has it not worked? >> it's absolutely worked. one of the changes, david, that's happened in the industry caused problems for years is that it was just a commodity. price was almost the sole determinant of what airline you took. e've changed that paradigm where we're now competing on quality and service and people. a cheap e i say i want price but i want some good food. is food a big deal to people these days? >> food is important, and we've back t a lot of food
the industry 15 years ago wound up getting rid of food. getting rid of basically and wound up charging fees galore. that.come full circle on we've reintroduced main cabin food services on a significant of our aircraft, and international improving the overall quality. a cheap f i say i want fare, i don't care about food, can you bring your own food on? >> you can bring your open food on. >> but i just want to make sure my luggage isn't lost. people centage of actually lose their luggage? >> we never lose. mishandled.m [laughter] >> mishandled. >> we always know where it is. it just takes us a little longer to get to it sometimes. now, when you're an airline executive you basically have two companies you can bi-planes from more or less. right? >> two. not more or less. >> more or less. trying to be polite. more or less. you have boeing and airbus.
you fly a lot of boeings and your longest flight is from tlanta to johannesburg, 17 hours. >> that's right. >> that's a boeing 777. seven, that's e right. >> but you chose not to buy the unrelated toeasons what later became to be a problem. is that an advantage to you now 321 use you have the airbus and that's giving you more capacity than some of your competitors and do you take or wasfor that decision, that luck? solely in the lucky than smart category. e're a big fans of boeing and we're hoping to see the max flying quickly into the skies. part of fety was never the consideration set in making that decision. >> while you're in bankruptcy we want to take you over. was that considered friendly op at the time? assumed that would be a foregone conclusion and the people of the company stood and it's not going to happen. ♪
frito-lay? >> i was fortunate, i moved quickly through the ranks. probably, at too early an age, 32 or 33. at that point in that profession of the pinnacle of success and i said if i'm at a ompany where the pinnacle of success is 32 i need to go someplace to learn more and continue to develop. got a call from a friend that said pipcy was hiring and he down uced me to a person in texas. i moved down to dallas at rito-lay, and i don't have a graduate degree. bonaventure.to st. i've always considered to this at pepsico myears postgraduate work. somebody called you and said how about delta airlines? active business traveler. i was traveling 80% of my time, a lot of internationally. thought i knew how they worked and all the things that needed to be fixed, to be made better.
of course, i get there and you take a peek behind did curtains it is, i complex never understood what went into it but it was an industry that was fascinating to me because i of it.ig consumer >> so you became a senior vice president for finance eventually became, i guess, chief financial officer. >> chief finish officer. >> and then you became the president. >> yes. >> and then you became the c.e.o. in may 2016. >> that's correct. had some problems before you became the c.e.o. and ultimately delta filed for bankruptcy in 2005. for y did you have to file bankruptcy? >> well, the aftermath really of series of events which 9/11 triggered. we lost our international business almost overnight in the u.s. was so competitive, with so many irlines trying to take each other's share. kept pushing prices lower and lower. of the airlines wound up filing. >> while in bankruptcy u.s. air said you wanted to take over.
friendly onsidered a offer? -- oug parker will never pretty hostile. interesting story. we were bankrupt, not worth anything at the time and u.s. and offered $10 billion to buy delta. and, for a company that's not anything, so everyone assumed, well, that's going to 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. the creditors through the restructuring process to stay with delta. what happenedthat is you said to the employees and your colleagues, we'll give you 10% of the profits to the that more or less right? >> well, when we went through ae restructuring, people took lot of pay cuts. a lot of change. and we made a commitment to the employees then that, at that oint, once we became profitable, 15% of the profits would go back to the people day. we honor to this
>> so how much of that produced, let's say, last year for the employees? paid $1.3 r we billion to our people in profit sharing. > does that mean your stock price would be higher if you didn't pay it or you have happier employees? >> i think our stock price would pay it. if we didn't >> is internet available on all of your planes? on almost all.le our smallest regional jets do not have them but wifi -- >> do you charge for it? for it. charge not for a good reason. we need to eliever make wifi free across our services and we're working towards that. [applause] c.e.o. so you presumably have some influence. >> i do have influence and they heard me a hundred times including go-negotiation which is our service provider which i them no-go, and they have made a lot of progress on they will eventually get to go-got. notof the respects why it's a good reason -- is that the not have the technical
capacity and capability yet, that if we made it for free the would crash so once it rateabove about a 10% take on-board performance starts to erode and if you -- we tested it times, it's still not at the level that it needs to be so e're investing heavily in the technical capacity in terms of the satellite spectrum as well as. >> we can fly to the moon and and we can't have everybody using internet on the plane at the same time. -- you sound tly like me, david. one of the things i tell people to the satellites in the sky. but, as they remind me we're not raveling 500 miles per hour as we're sending it home with our wifi. proposal a while ago for airlines to let people talk on their cell phones on the that was voted down by the fcc because a lot of people don't like it. by me. was voted down i'll never allow that on delta. whether they allow it or not,
allowing it. [applause] >> we haven't built a new this country of any 20 or 23 years, denver. laguardia has been redone and so forth. but why aren't the airline industry, are they responsible for helping to build the or not? >> we were actually building the airports ourselves. waiting for the government partnerships that are that are trying to pry that goad. the massively improved flight experience, on-board experience. next is the airports themselves. 1960s.re built for the >> you're building airports where? >> everywhere, we're building airport, aguardia building that. it will take a few years. airport construction is the most difficult construction that's you've got to build it and live and operate it all at the same time. uilding a new airport in lax, we're building a new airport in salt lake city. we're building a new airport in international
facility. we modernized atlanta. >> speaking of government an advocate e been for not allowing airlines that have government disto compete against you. that a big problem? >> it is a big problem and i have to give the trump great credit for recognizing that, in reaching uae last s with the year to draw attention to it and stop it. happening?'s >> it's freezing where it's at. >> are they doing anything about it or what's going to happen? think they absolutely are eing responsive, in the administration, in the persian gulf there are 30 airplanes per day that fly between the persian gulf and the united states. by a u.s. those airline. they are all by middle eastern airlines. f there was a fair playing field which is what the open sky agreements require, there is no question that the u.s. airlines be operating. but we can't because those fares -- subsidized and the costs paid for by the government. >> the air traffic control systems, some people would say
invented in the 1950s and 60s and we haven't modernized it much. is it out of date? >> that's true. >> what can you do? unforeign safe but it's radar-based. any cars have better gps in your car than what we're able to access in our planes and the opportunities to improve the air traffic control system are not only speed for customers but it's the efficiency, sustainability of the the opportunities to make a difference. government function has been one the air asons why traffic control system, because we've got the faa on a five-year -- you can't change out the air traffic control systems with our current funding model and that's why we've been models ng for different to go after long term technology project. most countries around the world ave better air traffic control systems than in the united states. >> we have a pattern of meeting ith employees fairly regularly called the velvet program. >> when we went through our hard times we didn't have a lot of only waywe decided the
t's a reminder to stay on my feet and remember the importance of human interaction. marathon the new york last year. >> that was the first few miles. finished? >> i finished. i'm here. when you .e.o. logo were running? >> i wore my delta colors. raised $2 million for cancer research for children. [applause] >> i can't -- i don't know if one of doing another those. >> i would fly a marathon. a pattern of have meeting with employees fairly regularly called the velvet program. what that is?n >> so when we went through our hard times back in the bankruptcy era. didn't have a lot of cash. we didn't have anything. people were actually taking pay we decided the only way we were ever going to be uccessful again, delta has a proud history is that we were
going to have to reconnect with ur people and get something to catch their attention. our people were downtrodden in cuts and all the difficult things we remember from almost 20 years ago. so in downtown atlanta there was abandoned macy's building in downtown atlanta and we decided a couple of floors in this abandoned building. even paid e we ever for it. we just squatted, i don't know if they knew we were in there. brought all of our employees, 700 at a time, for a day to talk about the airline. we had no power points. had no slides. we deliberately kept from it being as uncorporate as possible. had couches. we had chairs. we had curtains. as people lights, were walking in, people would come in and see some of our around and try to lighten things up. no wonder we're bankrupt, they probably thought. crisis on our hands
and these people are dancing in macy's building. but it got them to focus on what was really important. it people wanted to know wasn't their fault that we went through the hard times. so often when companies go hrough difficult times, employees are made to feel like they are the reason, that they are too expensive. they are not productive enough. that there are costs when they best asset and, now, we can afford to actually niceor our space and we do hotel lobbies in other venues ut we have a dozen of them a year all around the u.s. we bring people from different disciplines together and we talk about the future and i still one of these as i did 15 years ago because that engagement is so critical in we do. >> how do you grow the value of your airline? more profitable by flying more miles or can you make more acquisitions? to buy innything left this
this business? >> the airlines is considered a industry. we're building bigger airports but not new destinations. expansion is something that's important to us at delta and we're doing that through our partnerships in many parts of the world. first of all people are more aware of the world. want to travel and experience. again, it's interesting because as e living in probably divisive a time as we can recall. think would hurt airline travel but technology and social media and instagram want to go , people and explore and see for they lves something that may have read about. now they feel like it's affordle. opportunities for the jungle millennials but also baby people.and all >> i would focus more on the baby boomers because they will sooner than the millennials bucket list, right? >> we're investing in both. of the united t
states said i watched this interview and you're an impressive person. job.ve done a great why don't you come on to the government and help us. what would you say? i'm happy to advise -- i got my work cut out for me here. college e i'm a graduate or a young business school graduate. why should i want at an airline delta? what's the advantage. >> the free travel. free travel? for not only themselves but their partner? if you love people it's a great because you're out in the public eye every single day. we do not have desk jobs. our desk jobs are in the sky and environmentour work is different and you've got different people coming through and you have to adapt. people k about why travel. people travel for all reasons on an airplane. sad appy reasons, for reasons. for business. for pleasure. to go explore. for meet their grandchild the first time. and there is all this emotion tube of roughly 200 people, all sitting within