Delta Earnings: Great Numbers -- Now You Have To Be Realistic with Employees

Third quarter earning reports have just started rolling in and the news is great across the board. Airlines are reporting massive profits and there's obviously a lot of back-patting and celebrating going on, as there should be. But a word of advice to Delta (DAL): learn from the past and stop talking about how sustained profitability is on its way. It's just going to set unrealistic expectations for employees and make you look foolish when the next crisis hits.

I certainly don't mean to take away from the airline's achievement this quarter. Delta earned $363 million in net income and nearly $1 billion excluding special items. That means the airline achieved a double digit operating margin, and a lot of that goes into profit sharing for employees. This is almost starting to sound like a normal company. Debt was reduced by $750 million and cash in the bank increased. Total unrestricted liquidity sat at $5.5 billion at the end of the quarter.

And that's exactly what should be happening. When times are good, it's time to start storing those acorns for leaner times. Because we know there will be leaner times ahead. That's just the way this industry works. But CEO Richard Anderson seems to think otherwise.

We are making progress toward our goal of consistent profitability with 10-12% annual operating margins and we expect to be profitable for the December quarter.

We heard this same message back in the late 1990s as the dotcom boom spiraled higher and higher. "The days of massive losses in this industry are over, we're going to be consistently profitable, hooray!" But then the dotcom crash happened and demand shrunk. Soon, September 11 decreased demand even further. Every time something good happened in the 2000s, something bad soon followed. There was the oil price spike. Then there was the worst recession since the great depression.

This industry is always going to be highly cyclical, and you never know what the next major hit is going be. This summer was blessed with very strong demand and relatively moderate oil prices. (Who would've thought we'd consider $70-$80 moderate?) But it won't stay this way forever. And since airlines have such high fixed costs, they don't have the ability to ride the economy up and down without there being a lot of pain.

That's why it's particularly important to be realistic for the sake of all employees. Suggesting that sustained profitability is possible with double digit margins is highly unlikely at best. There will be good times like these but there will also be bad times. And employees need to be given that dose of realism by their leaders, not fed some line that just sounds good when times are good.

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