Delta's Flight to Self-Service

Its new systems zip travelers onto planes -- and cut costs

Stuart Klaskin's flight on Delta Air Lines (DAL ) was leaving in just 20 minutes. But even though he raced through New York's LaGuardia Airport, the behind-schedule aviation consultant suspected he would make it. Why? He bypassed the long check-in lines, stopping instead at one of Delta's new automated kiosks, where all he did was insert his frequent-flier card to get a boarding pass. Not only did Klaskin make his flight but, he says, "I even had time to get grab a cup of coffee."

A year ago, Klaskin would probably have ended up on standby for the next flight out. But Delta recently embarked on a $200 million, three-year technology makeover that is aimed at changing the way people use airports. The third-largest U.S. carrier has already installed 670 self-service kiosks in all 81 of its major domestic terminals. There, passengers work with a check-in screen to find a seat and print out a boarding pass. Got luggage? That still has to be dropped off with an attendant, who matches it with a label generated by the kiosk. But the lines are shorter these days. And some of the same people who used to stand behind the counters now greet arriving passengers and show them how to use the technology.

Kiosks are just the start. Delta is using everything from high-definition screens providing real-time info to direct phone access to reservation agents to speed up travel. While its rivals use similar technologies, Delta is the first airline to package it all as a comprehensive, hassle-free system. "We are pioneering significant changes in the way passengers will move through airports," says Richard W. Cordell, Delta's senior vice-president for airport customer service. "In two years, 80% of our passengers will check in somewhere other than the old counter."

Delta is betting that technology can help it close a cost gap with discount carriers, which have been eating its biggest markets alive. The discounters enjoy costs as low as 6 cents per passenger mile, compared with more than 10 cents for Delta. On the fiercely competitive New York-to-Orlando route, Delta has seen its share wither to 30%, down from 42% four years ago, says consultant Michael Allen, chief operating officer of Back Aviation Solutions.

Moreover, as the industry shakes out post September 11, Delta is losing some advantages it held over other trunk carriers. United Airlines (UALAQ ) Inc. and US Airways (UAWGQ ) Inc., having renegotiated labor contracts, will have lower costs than Delta. And struggling American Airlines (AMR ) Inc. has wrested $1.8 billion in labor concessions. Delta, however, has fewer unionized workers, giving it more leeway to redeploy workers or replace them with machines. Says Jim Corridore, an airline analyst at Standard & Poor's: "Delta still has a huge advantage in that only its pilots are unionized."

Delta's long-term survival will require more than a tech upgrade, of course. After losing $1.3 billion last year on $13.3 billion in revenue, Delta is determined to pare $2.5 billion in expenses and shed as many as 8,000 jobs by 2005, much of it through a renegotiated pilots' union pact and reduced flight capacity. Observers believe the airline must gain 30% wage concessions from pilots this year. "If they win this concession, then Delta is a very viable entity," says Fred Allvine, a Georgia Tech business professor who specializes in airlines.

So far, discount carriers seem unworried about a slimmer Delta. Upstart AirTran Airways (AAI ) -- also based in Atlanta and flying some of the same routes -- has yet to lose any business to Delta, says Robert L. Fornaro, its president and chief operating officer. He boasts that AirTran will have no trouble keeping pace: "Business is up 25% year over year, and we have heavily invested in technological innovations to continually improve passenger processing," he says.

Going high tech didn't come naturally to Delta. It has traditionally been slow to understand how technology could be harnessed to save time and money. Southwest Airlines (LUV ) Co., for instance, showed the advantages of online ticket processing when it launched the industry's first Web site back in 1995. Delta took another year to follow suit. Today, industrywide online tickets sales save carriers an estimated $200 million a year. By eliminating steps such as printing and mailing, an airline can process an online ticket for less than $1, vs. $6 to $8 for a paper one, according to travel consultant PhoCusWright Inc.

But Delta was always a leader among big carriers in other types of cost containment. So when losses began mounting two years ago, the pressure increased to find new savings. With one of the industry's strongest balance sheets -- holding $2.5 billion in cash as of March -- Delta could afford to invest in new equipment. The tech initiative was accelerated after a survey conducted last fall showed that passengers, facing stiff security procedures, were placing a higher premium on moving quickly through an airport. "It was a 'eureka' moment," says Robert Maruster, Delta's director of airport strategies and services. "We could use technology to speed up the process and get a competitive advantage."

Now, it's Delta's turn to rack up a string of technological firsts. It was the first airline to let travelers use the Web to check on waiting times at ticket counters, security checkpoints, and other bottlenecks. On May 1, Delta became the first major carrier to say it would issue only electronic tickets for sales on the Web. "Delta is far ahead of everybody, and now the industry will follow its lead," says Christopher J. McGinnis, author of The Unofficial Business Traveler's Pocket Guide. Indeed, United and American have since both announced that they would follow Delta's lead in eliminating paper tickets online.

The company isn't worried that its automation kick, with a dearth of human contact, will leave passengers wondering why they should pay more than discount ticket prices. One way to boost customers' loyalty, Delta figures, is to redesign its major terminals around the technology -- giving the self-serve kiosks plenty of space, for instance, so that passengers aren't crammed in. This year alone, Delta plans to spend $30 million to make 29 lobbies user-friendly. The plan calls for increasing the number of automated check-in kiosks, to 850, and adding 440 more Delta Direct phones by yearend.

Indications are that customers are starting to warm to it all. Delta's online sales hit $1 billion last year, making it a close second to industry leader Southwest, which had $1.2 billion. And Delta's online sales are growing much faster -- 35% annually, vs. Southwest's 17%. Some 14 million Delta passengers have used kiosks in the past 18 months. Says author McGinnis: "People are starting to prefer Delta's kiosks to humans -- that's how user-friendly they've become."

That's good news for the passenger who's running behind schedule. In time, it may even boost customer loyalty for Delta. After years as an innovation laggard, the airline has seen the light. Now shareholders just have to hope that it can get profits aloft.

By Charles Haddad in Atlanta

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