Problems at Delta Airlines

In the late 1990s and early 2000s, the airline industry had changed and many of the older airlines like Delta found it difficult to adapt to the new paradigm. It was estimated that Delta had lost over $5.6 billion in the period between 2001 and mid-2004. It was also burning cash very rapidly and had used up $700 million of its unrestricted cash reserves within the first six months of 2004. (Analysts expected the airline to burn cash at the rate of $350 million per quarter for the rest of 2004 as well.) Analysts said that one of the main reasons for the high cash burn rate was the contribution to pension funds, which rose drastically in 2004, as many of Delta's pilots opted for early retirement. However, there were several other problems which the airline also needed to tackle, before it could be restored to financial health...

At Delta, pilots were the only category of employees that were unionized. Besides, according to company sources and analysts, Delta's pilots were the highest paid in the industry, earning on an average, between $100,000 and $300,000 a year. It was observed that the annual pay for a captain on Delta's smallest mainline jets (a typical mid-career position) was, on average, $195,000 a year. Comparatively, captains of similar-sized jets were paid around $113,000 a year at American Airlines and $152,000 a year at Southwest. Delta pilots also enjoyed more generous work rules, benefits and furlough protections than pilots at other airlines. Many analysts believed that excessively high pay and benefits for pilots were the main reason for the high labor costs at Delta...