Schafer: Sharing some of its profits helps Delta thrive

American Airlines CEO Doug Parker explained to the Reuters news service in December that the airline industry should "move back to what normal industrial companies do," and ditch these outdated profit-sharing plans.

That remark sure got noticed in the Atlanta offices of Delta Air Lines. A couple of posts to an employee-only Delta website quoted Parker and then explained that their company would be sharing more than $1 billion of profits.

The CEO of Delta Air Lines, Richard Anderson, clearly doesn't wish for Delta to be a "normal" industrial company; he wants it to perform a lot better than that. And he makes a pretty good case that sharing a good-sized piece of annual operating profit with employees is one of the ways Delta can do that.

This week the company distributed its second big chunk of profits to its roughly 80,000 workers, bringing the total for 2014 to just under $1.1 billion.

Here in Minnesota, the amount was about $110 million shared with nearly 10,000 workers. These profit-sharing payments worked out to be equal to about 16 percent of their 2014 income.

"It's based on a really simple formula," Anderson said in a conversation this week. "We take care of our employees. Our employees take care of our customers. When our employees and customers are satisfied, our shareholders get a good return. [Then] the capital markets give us more money to invest in airplanes and facilities and systems."

"If you look at the profitability of the industry over the last five years, I think by any measure Delta has been by far the most profitable airline in the world," he continued. "Profit-sharing has been one of the key enablers of that."

It's stunning just how much the financial performance of the company has improved.

Last year the company had a pretax profit, excluding one-time costs, of about $4.5 billion. That was up 70 percent from the year before.

That improved profitability is what generated $3.7 billion of free cash flow. The company had the money to return $1.35 billion to shareholders through dividends and stock buybacks, and still pay off some debt, as net debt is now down to a little over $7 billion from $17 billion in 2009.

On slides prepared for investors in December, Anderson and his team also had a good story to tell shareholders about how well the airline has been running.

On-time departures beat head-to-head rivals. Flight cancellations due to maintenance issues are way down. The customer service survey scores have gotten a lot better. Fuel costs compared with the rest of the industry have come down, and so on.

Anderson explained to investors in New York in December that in the budgeting process, except for front-line managers, no one was allowed to submit a budget for 2015 that included any more staff. They had to figure out how to run their part of the company this year with the people they already had.

And if people are going to be asked to work that hard, then it only makes sense that they deserve a slice of the profits.

"You know, the cool thing is that the people at Delta work really hard," Anderson said. "And they had been through some tough times. This industry after 9/11 went through a very tumultuous time. They worked hard, and they hung in there through enormous adversity. It's really nice to see folks who have contributed so much be rewarded."