In a hangar next to the offices of Leo Mullin, chief executive of Delta Air Lines Inc. (www.delta.com), there are two Delta planes that show the amazing progress that airplanes made between 1930 and 1940. From 1930, there is a five-passenger plane, with wicker seats, that closely resembles a cropduster. (The airline began as a cropdusting service in the Mississippi Delta, which is where it gets its name.) Close by, from 1940, is a huge, gleaming, silver bird, a DC3 that is a recognizable member of the family of planes that are in service today.

In the interview that follows, Mullin demonstrates that the information systems used to operate airlines are going through the same sort of fertile burst that airplane technology experienced in the 1930s. The implications are important for passengers, employees, partners, and, of course, the airlines themselves, which must find ways to cut costs and innovate to survive the industry’s hypercompetition and the steep fall in traffic caused by the weak economy and the terrorist attacks on Sept. 11.

Mullin, who spent his career in banking and utilities before taking the top job at Delta almost five years ago, also describes how he used two “burning platforms” to change the airline from a technological laggard into a leader of its industry.

Interestingly enough, even the display of the old DC3 wouldn’t have been possible without the leaps in information technology. Delta could restore it to its original state only because the Internet let it locate craftsmen with vintage skills—such as how to make seat cushions with precisely the feel they had in 1940. Delta went so far as to put mint-condition copies of Life magazine from late 1940 into each seatback pocket on the plane. The source? Auctions on eBay.
 

CONTEXT: How did information technology become such a focus for innovation at Delta?

LEO MULLIN: I joined Delta in August 1997, and I would say that I set technology as a priority within about two weeks. I went through a very fast educational process, not having come from the airline industry, so I was interviewing everybody who would speak to me, whether inside or outside the company. It became apparent that people felt Delta was a technology laggard.

The decision-making process for passengers had become highly oriented toward price. Airlines were no longer a “relationship” business, to use an old expression. Instead, airlines needed to be excellent in providing passengers with pricing options, which meant mastering technology. But Delta hadn’t made the necessary investments.

One of the best things that happened to Delta was that Y2K was on the horizon. To find out what our issues were regarding Y2K, I had a crucial meeting early on with Charlie Feld, who was a consultant at the time but soon became our chief information officer. Charlie told me, “You can’t get there from here.”

Then he took me through the state of Delta technology. It was one of the worst reports on technology I’ve ever heard.

Well, we had to get there from here; there was no way this airline was going to hit Jan. 1, 2000, and not be able to fly.

We had to transform this company technologically, and what we needed was a burning platform to get people to make the necessary leap. Y2K gave that to us.

I feel like if I had arrived in 1995, instead of the latter part of 1997, I wouldn’t have been as effective in getting people to focus on technology because Y2K would have seemed too distant. But the timing was right.

The other element that transformed us was Priceline.com Inc. Priceline was getting going during this period and needed a relationship with a major carrier to provide seats to sell. They got a cold shoulder from every other major carrier, but our marketing people talked to them because of our sense that online distribution was absolutely going to happen.

There was a hot debate, which I participated in personally, about whether helping Priceline would reduce our higher-priced ticket sales and thereby actually reduce revenue. But we all made the determination to get on board.

Then our finance department did a terrific job of structuring a deal. We recognized that we were enabling Priceline to become a successful organization and, therefore, our compensation shouldn’t be just in terms of ticket sales but also in equity in Priceline. The rest is history. We made an equity gain of nearly $1 billion from Priceline.

Even more than the financial success, the Priceline arrangement truly moved Delta to the forefront of the Internet world. To make Priceline go, we had to become educated about the Internet and be comfortable with it. All of a sudden, we were deeply in the game.

We lucked out on the financial side, but we didn’t just luck out in making the judgments that led to that deal, and that excited people. It really did. People thought, “We can do this stuff.” Then everybody began to climb onto the bandwagon, and we had this very fertile, intellectual environment, particularly where the Internet was concerned.

As a result, the way we relate to customers is as good as it gets technologically.

Now we generate roughly 20% of our passenger revenue from tickets sold online, which is far more efficient for us than other distribution channels. That percentage is growing dramatically. Even our interactions with travel agents are becoming much more effective because of technology. And we have designed products like the “Mind Your Own Business Travel” Web site [www.MYOBTravel.com], which offers professional travel-planning tools exclusively for small businesses that have not typically had the travel department or the technological expertise to relate to us.

Even in the current troubled economic times, we will spend approximately $600 million this year on information technology. I think Delta is as good as any airline now with respect to its technology. We’ve gone from being a technological laggard to a technological leader.

If an organization, in particular a large organization, is going to make a big change, such as our switch to being aggressive about technology, you have to have that burning platform, some message that really resonates and that will force change. We had two—Y2K and Priceline—and they both worked.

CONTEXT: You sound like as strong an advocate for information technology as any senior executive I’ve met in a long time.

MULLIN: When Jack Welch sat down with his executives at General Electric [www.ge.com], he might tell them they’d done a great job. But he’d spend five seconds on the congratulations. Then he’d say, “Because you’ve done such a great job, you get a chance to repeat your performance next year. How are you going to reduce your expenses by 5% and improve your competitive position by 5% at the same time?”

If you face a question like that—and lots of companies find themselves under that kind of pressure—you can’t just tell your employees to work harder. In today’s world, though, thank goodness, technology can let you make that sort of progress.

CONTEXT: You said that the online channels produce 20% of your sales. How big do you think that percentage can get over the next few years?

MULLIN: Our general feeling is around 40%, but it’s tough to tell.

I’m a veteran of the automated teller machine wars because I ran retail banking at First Chicago NBD Corp. for 10 of my 15 years at the bank. There was a tremendous amount of discussion that began in the early 1980s and lasted seven or eight years about whether the machines would ever take off. The feeling was that the ceiling on usage would be 20% to 30% of customers. But then ATMs reached critical mass, and that percentage is probably somewhere between 70% and 80% today. Many people can’t imagine life without ATMs.

So who knows whether 40% is the ceiling for online ticket purchases. In any case, we have a long distance to go and a lot of benefit to be gained.

CONTEXT: Tell me more about how you’re using technology to improve what customers experience.

MULLIN: Improving the travel experience for our customers is a constant focus. We know that passengers want fast, accurate information, especially during delays and cancellations. One of the basic things we are attempting to do is to contact customers very quickly when we have a problem. Our performance during Hurricane Floyd was a good example of this. Over a six-day span of difficult weather that affected 30 Delta cities and 25% of our operations, we contacted 78,000 affected passengers, and we let them know about changes an average of 12 hours in advance of their scheduled flight times.

In addition, we’ll wake people up at 3 a.m. to tell them about delays on early-morning flights. The phone calls probably scare the heck out of people, but they’re glad to know that they have been rebooked on a flight departing at 9:30 a.m. and they don’t have to hang around the airport because they arrived for the canceled 6:30 a.m. flight.

We’re also trying to get much more information from our Operational Control Center into the hands of gate agents and passengers. Up until two years ago, there was no way to do that. Now, if you look at our Gate Information Display Screens, we provide a regular flow of information pertaining to flight status, current and forecasted weather in the destination city, and connecting flights. If there is a standby list, we show passengers where they rank and how many standby seats are available.

I like to tell this story:

I once got delayed on a Delta flight at La Guardia Airport. The delay was initially two hours, then went to four, and ended up being seven hours. I went to the control tower to see what was going on and watched as the people there monitored the information flow concerning the weather, including extensive thunderstorms that were moving in jagged, unpredictable patterns. Someone would say that they might be able to get flights going in half an hour, and then the storms would move in again.

In the gate area, you could see in the faces of the passengers on my flight that they didn’t believe they were getting good information about what was going on. Well, there’s no reason we can’t put these weather displays on the screens at our gates, so people can see for themselves.

While I was at La Guardia, I also observed how having authoritative information can make such a difference. A flight was unloading after passengers had been sitting on the plane for two hours, so I walked over to the gate to see how the situation was handled. You can imagine the looks on the passengers’ faces as they gathered around the gate agents. The agents gave a pretty good explanation of what was going on. I’d rate their handling of the situation a B. Then something happened that changed the situation to an A. As the pilots walked off the plane, one of them stepped up to the microphone and said, “Ladies and gentlemen, we’re really sorry that this has happened, but let me tell you what’s going on here.” Then this pilot talked about what he, as a pilot, had to deal with and why the decision to unload the plane was completely appropriate and in their best interests. This pilot was so good that he transformed a negative situation into a positive one. People said, “We’re really glad Delta is making decisions like this.”

Overall, what passengers require is good information. Technology, along with personalized service, is an important tool in getting that information to the passengers.

CONTEXT: How have your dealings with employees changed? In particular, what has been the effect of your decision to give every employee inexpensive access to a computer at home?

MULLIN: We have a large remote work force. Approximately 9,500 pilots and 19,000 flight attendants never check into the office. There is no office. Yet they constantly have to get their assignments. They also need a way to get all of the basic employee and company information. So providing each employee with the opportunity to purchase a quality computer at an affordable price creates lots of benefits.

I also felt that, in terms of understanding the values of the Internet, people needed to experiment with it. If you don’t have a computer, you’re not going to use a computer.

The program has been a smashing success. We have a highly technologically educated work force, and I think giving people access to computers enhanced our culture. We didn’t start the program for this reason, but it was particularly beneficial for some folks in lower socioeconomic categories, who might not have had the money to buy a computer. I had a significant number of people come to me with tears in their eyes because their kids were going to be able to use a computer at home. Everyone has the same aspirations for their kids, and this program helped level the playing field.

CONTEXT: Do you feel this program contributed to the flight attendants’ decision to remain nonunion?

MULLIN: Did the Wired Work Force program have anything to do with the fact that our flight attendants voted 71% to 29% to stay nonunion, in an industry that is totally unionized except for Delta? I don’t know. But these things add up. People say we care about the employee, and I think technology has contributed to that feeling.

CONTEXT: Has technology helped you work more efficiently with suppliers and partners?

MULLIN: It clearly has. For instance, we now share information automatically with our food-service vendors. You might think a long flight is going out with 50 passengers, but then a weather problem cancels the flight in front of it and all of a sudden your plane is jammed. You’d better have the right amount of food.

We’re also using technology to do more competitive bidding and get the best price we can. We buy $7 billion of product every year, not including airplanes, so how we deal with suppliers is very important to the success of this airline.

Technology, more than anything else, is the foundation of future success for this industry. It’s an extraordinarily competitive industry. With the existence of very strong discount carriers, we don’t have a lot of pricing power. Yet employee costs have moved up dramatically. The margins have been squeezed, and this industry has been notoriously underprofitable. The crucial productivity improvements that are going to keep us moving ahead will rely on technology in every way—in relating to the customer, in relating to employees, in relating to our suppliers.