THE ASCENT OF DELTA : Flying May Be Like a Bus. But Delta Has a Formula That Pleases Customers--and Wall Street.

UNDER GLITTERING HOTEL-BALLROOM CHANDELIERS, freshly minted flight attendants garbed in navy-blue uniforms file, two by two, past a red-velvet-draped backdrop. Before 400 beaming parents, spouses and children that Delta Air Lines Inc. has flown to Atlanta for a breakfast graduation ceremony, they pause to receive Delta certificates and personalized gold wings earned during a five-week training boot camp.

The flight attendants are proficient now at crawling on their knees through smoky aircraft interiors shaking with realistic turbulence accompanied by piped-in crash sounds, shoving aircraft doors open while planes are listing, inflating emergency-escape chutes and sliding down them feet first with arms extended. They have rehearsed these procedures in Delta’s training center within the carrier’s corporate campus located at Atlanta’s Hartsfield International Airport. In mock-ups of fuselages from Delta’s fleet, such as a Boeing 767, a Boeing 757 and a McDonnell Douglas MD-88, the fledgling crews practice the fine points of serving food aloft, delivering mellifluous public-address announcements and handling difficult passengers.

Senior Delta flight attendants act out problems from real life. For example, one pretends to be angry, another drunk, and they follow up their scenarios with advice on how to manage upset people. The class administers cardiopulmonary resuscitation in narrow aisles on startlingly lifelike dummies. An Estee Lauder image consultant delivers lectures on makeup and skin care in a room lined with vanities, mirrors and makeup lights. For international crews, there’s a special course on cultural sensitivities.

These 197 young men and women, most of whom have college degrees, have been chosen from a crush of 10,000 applicants to Delta every month. Only 1,000 are screened and 200 accepted. Finalists form a select group for a good reason: Flight attendants are front-line troops in the battle for airline market share, a blood-and-guts struggle that has littered the field with the remains of 38 large airlines that failed or merged in the nearly 13 years since deregulation.

The job is no longer filled by stereotypical airheads who offer “Coffee, tea or me?” as a popular satire portrayed them years ago. “Training is intense; it is hard work, much more than we expected,” says graduate Kimberly King, 22, from Burlington, Ky. Some of Delta’s new crew see the job as the first rung on a career ladder. Says Gregory Curtis, 25, a Tulane University graduate in political science: “I want the opportunity this job offers for a career with Delta. I wouldn’t want to be a flight attendant with any other company.” Shawn Bigley, 24, from Austin, Tex., echoes the sentiment: “For me it was Delta or bust.”

The flight attendants’ enthusiasm for Delta is understandable. Despite extravagant losses in recent months, Delta is one of the Big Three airline survivors (along with Chicago-based United Airlines and Ft. Worth-based American Airlines) that are expanding, adding new planes and pushing overseas.

And Delta, which began as a crop-duster company in Monroe, La., in 1928, has made its mark in the one area some people might think no longer even exists: customer service. In this, Delta has succeeded where an astonishing number of competitors, including Continental, Eastern and Pan Am, have flubbed it. Delta somehow manages to treat customers as though their comfort and travel problems matter. Its record is unsurpassed: For 17 years, Delta has placed No. 1 on the U.S Department of Transporation customer-satisfaction report, with the lowest percentage of passenger complaints about such annoyances as canceled flights, lost baggage and rude employees.

The Avmark Inc. newsletter for aviation executives gushed in last March’s issue, “Delta works as an airline should,” and observed, “Your editor recently flew Delta. As I talked to a flight attendant . . . a passenger came up to ask about a book he had left on his seat. Another attendant told the passenger, ‘Don’t worry, we will find it.’ She immediately deplaned and bought him a new copy. I do not remember the last time I heard a passenger complain about Delta.”

Of course, this is still modern-day jet travel. Even the father of deregulation, Cornell University professor emeritus Alfred E. Kahn, acknowledges that the overall quality of air travel has deteriorated, with sharp increases in “congestion, crowding and delay.” Given these irritations, it’s probably more accurate to say that Delta annoys travelers less than many competitors. Michael E. Levine, dean of the Yale University School of Organization and Management and former president of New York Air, says, “Delta has a consistent product--not great but very consistent. People seem to like the ‘no-surprises’ aspect.”

Wherever you go and whomever you talk to, you hear how nice Delta people are. Some skeptics chalk this up to Southern grace. Others, such as Donald J. Lloyd-Jones, president of Western Air Lines when the company merged with Delta in 1986, venture that maybe Delta people aren’t as stressed as competitors because they fly more amiable passengers--fewer irascible New Yorkers and Angelenos. “I think Southern passengers complain less,” he says.

Whatever the reason, Delta works hard to perpetuate this friendly image. Which takes us back to graduation in the Marriott Marquis Hotel ballroom in Atlanta. Delta personnel vice president Maurice W. Worth tells the new flight attendants they spend more time with customers than anybody at the airline. “Every day a crew on one L-1011 affects a thousand people,” he says. “The Delta way is to give something special, something extra, go one step further than a customer expects.”

Most flights today are so uncomfortable--with jammed airports, delays on takeoff and landing, and seating that crams passengers knee-to-seat--that any additional inconvenience, such as being bumped from a flight or losing a bag, can propel travelers straight into orbit. Houston-based Continental discovered two years ago, when service deteriorated due to rapid growth, that too many customers refused to fly its airline unless absolutely no other alternative was available. Last September, Continental hired former Delta president Hollis L. Harris to replace CEO Frank Lorenzo and whip the carrier into shape.

Delta’s relative success can best be appreciated viewed through the prism of recent history. From 1980 to 1990, six valiant competitors--Braniff, Continental, Eastern, Midway, Frontier and Pan American--stalled, then nose-dived into bankruptcy. Barnstormers Braniff and Continental performed this fiscal stunt twice. Two of the carriers--Braniff and Eastern--liquidated. Frontier was taken over by People Express, which in turn was swallowed by Continental. Today, Continental, Midway and Pan Am operate under protection of the federal bankruptcy laws. Trans World Airlines is expected to join them before long. Most analysts expect Midway, Pan Am and TWA to disappear eventually from the aviation roster.

In contrast, Delta had an 8.5% average annual compound growth rate by the industry’s prime yardstick: revenue passenger miles--one passenger flown one mile. During the decade, Delta’s increased traffic translated into a healthy annual growth rate of 12.5% in pretax profits. United and American also solidified their strength during the ‘80s, and analysts agree that this troika will dominate U.S. air travel for the foreseeable future.

The shakeout of the weak and consolidation of the strong kindled analysts’ hopes that a more stable era of aviation lay ahead in the ‘90s. But the Gulf War smashed those expectations and led to one of the most ruinous periods ever. Threats of Iraqi terrorism frightened passengers into canceling trips, while aviation-fuel prices skyrocketed. A U.S. recession cut traffic further. Not one big U.S. airline made a dime during the two quarters from October, 1990, through March, 1991. According to Lee Howard, executive officer of the Washington, D.C., consulting firm Airline Economics, the industry’s total deficit rose to a disheartening $4 billion.

Delta’s 1991 fiscal year ends in June, but the company has told analysts to expect a deficit, which will be only its second in 44 years. For the three quarters ending March 31, Delta lost $343.5 million. Despite this setback, Delta’s fundamental strength reasserted itself as soon as a cease-fire was declared in the Gulf. Says Delta president W. Whitley Hawkins: “Traffic picked up almost the morning after the war ended. Since then we’ve had double-digit growth.” During the January through March quarter, Delta’s revenue passenger miles jumped by more than 8%. United and American, which operate more international routes where traffic has not yet fully rebounded, each registered further declines of more than 3%.

Some analysts and competitors complain that Delta prospers in part because it is content to imitate. For so many years, critics say, Delta’s only competition in prime southeastern markets was Eastern. Eastern, which folded last January, was such a management basket case that wooing away passengers didn’t take much pizazz.

Indeed, Delta has sometimes competed like a slow-and-steady tortoise. United and American have run circles around Delta when it comes to innovative marketing ideas such as advance check-in, frequent-flyer programs and computerized reservation systems for travel agents. Delta mysteriously waited three years before implementing these marketing breakthroughs.

But Delta pioneered the route structure called “hub-and-spoke” that has become the industry standard. By this method, passengers are transported to a central city from which they fan out to far destinations. Delta operates six hubs: Los Angeles, where Delta and United are neck and neck for first place, with about 15% of the market each; Atlanta, where Delta’s market share has jumped to more than 70% since Eastern closed up shop; Dallas/Ft. Worth, where it is No. 2 to American, with a 28% share; Salt Lake City, where Delta dominates with 79% of the business; Cincinnati, with 72%, and Orlando, where Delta ranks No. 1 with a 27% market.

Delta’s primacy in L.A. arises from the merger with Los Angeles-based Western Air Lines. Since then, Delta and United have sparred for the top spot; Delta pulled ahead in the first three months of this year with 15.9% of all emplanements.

To perpetuate the “Delta Spirit” throughout its empire, Delta pumps up its employees with chauvinism by providing them with something rare indeed in today’s economy: a job for life. Delta has not laid off a single permanent employee in the past 34 years. In an industry replete with bitter struggles between management and unions, where massive layoffs, deep salary cuts, worker slowdowns, ugly picketing and public mudslinging grab headlines, Delta stands apart, a fortress of paternalistic management and anti-union sentiment.

For starters, Delta pays the highest salaries in the business, an average of more than $56,000 annually compared to $48,000 at United and $45,000 at American. After the merger with Western, the Teamsters tried to organize the baggage handlers, but the workers weren’t interested. Delta’s only national union, the Air Line Pilots Assn., settled last summer on a new contract with the best pay in the industry. In return, the pilots agreed to fly five more hours a month.

“I’ve been with Delta for 21 years, and they do take a big interest in employees,” says pilot Rhea Nichols, communications chairman of ALPA at Delta. “They’re much more person-oriented than any other airline, so it’s hard for a union to succeed. I’ll bet if you talk to pilots for every other airline and ask them who they would like to work for, 100% would say ‘Delta.’ ”

To find compatible employees, Delta spends an inordinate amount of time on pre-employment interviews. This atmosphere isn’t for everyone. Some applicants walk away when they learn, for example, that Delta’s conservative codes do not allow women to wear miniskirts or men to sport earrings. Some employees, such as ramp and ticket agents and cabin clean-up crew, are hired first as temporaries--they don’t receive paid holidays, sick days or vacation--a designation they may hold for as long as six years. Extensive use of temps, as much as 10% of its work force, helps Delta preserve that tradition of no layoffs and enables managers to be sure of new hires. Says John Pincavage, partner at the New York City-based financial consulting firm Transportation Group: “With this system, Delta gets to find out if an employee is right for them--conservative, hard-working, loyal. Delta people understate their accomplishments, they’re quiet and go about their job,” he says. “They are a whole different culture from other airlines.”

DELTA’S CAPTAIN--ITS CHAIRMAN AND CHIEF executive--is a far cry from the silk-scarf romantics who founded the aviation industry early this century. Nor is he a modern bare-knuckles marketing whiz like American’s chairman, Robert L. Crandall, or a smooth turnaround specialist like Stephen M. Wolf, chairman of United.

Delta’s Ronald W. Allen, 49, a tall, gregarious Atlanta native and “good ol’ boy” from Georgia Tech, may well be the only CEO in America who has vaulted into the management cockpit via the personnel department--a backwater at most companies. Allen never held an operating, or “line,” job with responsibility for an exciting part of the aviation business: scheduling or flight operations, maintenance or equipment purchase, or in-flight service. Instead, this earnest corporate bureaucrat was handpicked and groomed at a young age by former CEO Thomas Beebe. He shot up through the ranks by running departments such as methods and training, personnel, and administration. An industrial engineer by education, Allen took over in August, 1987.

If his principal job is the care and feeding of the 62,900 permanent employees, Allen seems an inspired choice. Relaxing on the sofa in his walnut-paneled office filled with airplane models, he appears to be an informal chief executive. One of his favorite items on display is a screwdriver mounted on a plaque, a gift from Delta mechanics. On a flight of a new Boeing 757 a few years ago, passenger Allen learned that a man was trapped in the lavatory. Allen grabbed a knife from the galley and freed the grateful prisoner. The mechanics thought he could use a screwdriver for the next emergency.

Allen is almost boyish when he exclaims, “I love to sit through personnel meetings!” He muses, “Cultivating a motivated and loyal work force is a tradition. Delta founder C. E. Woolman started it, and management is dedicated to building on what he began.” “Delta justifies its employees’ faith,” says Lloyd-Jones, who today is president of American Express Bank’s Aviation Services Inc. “Walk with Ron Allen through a maintenance base, and you will see him stop and talk and call workers by name.”

As the company has grown, management has formalized two-way communications essential to high morale. Delta department heads are required to meet once every 18 to 24 months in groups that encompass all those who report to them. The agenda: Management passes on goals, strategies and future plans, and invites questions. Delta department liaisons take notes and supply a written response to anyone whose question cannot be answered immediately.

“I read every single file,” Allen says. “It’s a joke around here when a question is asked and someone says, ‘I’ll get back to you on that.’ In most companies, no one does. We do.” He loves to tell stories about the peanuts and beer. A few years ago, when peanuts started to get expensive, Delta decided to cut them out. But customers grumbled to flight attendants. “Flight attendants felt terrible,” says Allen, “and morale began to drop.” The same thing happened with beer. Beer is hard to transport because it’s heavy and must be refrigerated. “But,” says Allen, “passengers want a beer with their peanuts.” To prevent further erosion in flight-attendant esprit , Delta reconfigured aircraft to carry the bulky beer and reinstated the peanuts.

Allen acknowledges that the second pillar of Delta’s strength is a solid balance sheet. Conservative fiscal policies allow Delta not only to ride out bad years in a notoriously cyclical industry but also to continually update its fleet. Each of the Big Three has strong financial underpinnings. But Delta boasts the youngest fleet, at an average 8.7 years, compared to 12.3 at United and 9.6 at American. Since new airplanes deliver lower operating costs, Delta is well-positioned to cash in on an anticipated rebound in traffic.

With that day in mind, Delta is expanding rapidly. Eight cities have been added during the first half of this year, swelling the figure to 188. The carrier is taking delivery of new aircraft in large numbers--27 jetliners through June including several of the latest McDonnell Douglas plane, the MD-11. Another 20 planes will be added to the fleet by year-end, as well as 10 used L-1011s from Eastern. Depending on how many old planes Delta can sell, its fleet should number about 485 by December. Several new international routes have been inaugurated, notably Los Angeles to Tokyo and Los Angeles to Hong Kong.

To finance its growth, Delta has added $700 million in long-term debt since last year. On March 31, Delta owed $1.8 billion in long-term and current obligations, and had $2 billion in shareholders equity. Thus Delta’s debt-to-total-capital ratio was 47%, compared to 54% at American and 44% at United.

Despite ballooning debt, analysts regard Delta as a financially sound company. The rating agency Standard & Poor’s downgraded the company’s senior debt from A to A - in April, saying, “Continued substantial capital expenditures will cause an increased burden of debt and leases.” But, S&P; added, “Delta remains one of the healthiest airlines financially.”

To maintain Delta’s financial supremacy, Ron Allen holds tight rein over a highly centralized organization. Oddly, the company operates without a formal budget--another Delta tradition. Finances are managed by executives meeting every Monday morning with Allen, who approves or denies requests for all non-recurring expenditures of more than $5,000. Allen also personally approves every full-time hire.

Not everyone believes that a chief executive’s time is best spent overseeing such microscopic details. Former Delta assistant general counsel Sidney F. Davis complains about Allen in his book, “Delta Air Lines, Debunking the Myth.” Allen, he charges, is the “wrong man at the wrong time” for Delta. Davis criticizes Allen’s lack of operating experience, especially in marketing, his cautious style and his perpetuation of a “stodgy” Delta management.

While some Wall Street analysts welcome Delta’s cautious approach, others are puzzled by Delta’s comatose reaction to some marketing innovations--for example, that three-year interlude before establishing a computerized reservations system for travel agents. The idea was American Airlines’ brainchild: Agents lease software systems, which are used to book tickets, reserve seats, make hotel and car-rental reservations, and arrange tours. Travel agents often favor the airline from which they lease.

American conducted a blitzkrieg through the industry during the ‘80s to lock up a loyal band of subscribers for its versatile Sabre system. John Pincavage estimates that today American commands 38% of the software market, followed by United’s Apollo system with 32%. Delta threw in its lot with Northwest and TWA last year for a system called Worldspan, which trails with 22%.

American and United have also moved more swiftly to expand their international operations, which is important because international traffic is expanding faster than domestic. Delta claimed about 13% of the 1990 global market, behind United and American with about 17% each. Airlines add international routes one of two ways: by buying them from carriers or by negotiating for new authorities with the Department of Transportation. In the past, Delta has preferred to negotiate, to avoid problems sure to result from integrating unionized work forces.

It’s faster to buy, and last year United and American swooped down to lock up routes from faltering TWA and Pan Am. When American bought three of TWA’s six routes to London, Delta expressed interest in one of the leftovers, Baltimore to Heathrow. But the carrier has refused to comment on whether negotiations are underway.

Last year, Pan Am agreed to sell its London routes to United, but after Pan Am declared bankruptcy in January, the court opened bidding on its London routes. Delta offered $50 million for Los Angeles-London; observers expect a bidding contest with United.

Delta has taken one promising step by completing cross-equity purchases with two well-regarded international airlines: Swissair and Singapore Airlines Ltd. In addition to buying shares in each other’s companies, the three have initiated cooperative programs in marketing, promotions and flight-attendant training.

Closer to home, Delta has demonstrated a razor-sharp edge in California that prompts Bear, Stearns & Co. analyst Thomas Longman to conclude that “Delta is getting more aggressive.” Last June, Delta muscled into the overcrowded shuttle market between the L.A. Basin and the Bay Area.

Squared off against United, American and USAir Group’s USAir, Delta inaugurated service with an attention-grabbing promotional round-trip fare of $190. United returned the volley a few months later by dropping its price to $128. Both USAir and American blinked, and began to pull back. Then, last January, Southwest Airlines crashed the party by announcing a $40 round-trip fare on its Ontario to Oakland flight. Today it costs $59 to fly from L.A. to the Bay Area, and Delta brags that it’s the only carrier to serve free California wine.

EVERY DAY, DELTA employees are reminded of their company’s triumph over Eastern as they wend their way from Delta’s campus-like offices at the Atlanta airport past the mournful sight of dozens of unsold Eastern planes parked nose-by-tail near deserted hangars. The journey could be a metaphor for the entire industry.

When Congress cut the airlines loose from stringent regulation, managements accustomed to bucking critical decisions on fares and routes to the Civil Aeronautics Board suddenly had to solve problems themselves. Some tried to expand so fast they outgrew their ability to manage and sank. Shaky high-cost airlines that matched the bargains of low-cost newcomers sometimes ended up underpricing themselves into bankruptcy. Lean-and-mean managements learned to stand firm against union demands, but not without resentment that spilled over onto travelers and helped push a few airlines into liquidation.

What many managers learned too late is that running a big airline is one of the toughest jobs around. This cyclical industry tracks the ups and downs of the economy in almost perfect synchronization, which means bad times regularly depress earnings. Yet capital expenditures are astronomical; a new Boeing 747 jumbo jet costs as much as $140 million. Furthermore, the product airlines sell is exquisitely perishable. A carrier has only one chance to sell a seat on a plane. It can’t be put into inventory. Thus every empty space costs something in foregone revenue. Add to this high-priced labor expenditures that are tough to cut. Finally, the industry’s health often rests on events out of management’s control--the Gulf War or rotten weather or a rash of hijackings. To succeed, management must plan for stability during harsh economic times.

There is no doubt that Delta is strengthened by Eastern’s eclipse. One of the many goodies Delta picked up from Eastern is the designation as “Official Airline to Disney World and Disneyland.” Today at Walt Disney World Resort’s Magic Kingdom in Orlando, children squeal with delight as swirling seats transport them through a captivating Delta exhibition on the history of aviation called “Dreamflight.”

More important than Mickey Mouse is the virtual monopoly that Delta has at the Atlanta airport. Northwest is pondering whether to establish an Atlanta presence. But analysts believe the cost of building a base capable of challenging Delta could be daunting to any airline. Analysts are divided on the question of buying Delta stock. Riding the euphoria that has pushed the Dow-Jones Industrial Average up more than 450 points this year, Delta’s stock climbed to about $70 a share in late May, from $56 in January.

Stephen Leeb, president of Money Growth Institute in New Jersey, is bullish. “By the middle of next year, the strong carriers--American, Delta and United--will be recovering at a furious pace. Of the three, Delta has the most potential.”

In Atlanta, Delta managers are fastening their seat belts for recovery in a downsized industry, and Ron Allen likes the outlook. “I feel we are in for a good year,” he says. President Hawkins eyes a bonanza further out: the 1996 Atlanta Olympics. Delta toiled hard to help win that prize for the city. Hawkins says the carrier won’t find out until 1992 whether it will be the games’ official airline. But it’s tough to imagine that treasure eluding Delta’s grasp. After all, the airline’s name is the fourth letter in the Greek alphabet--the language of the original Olympians.