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8/18/2019 Deltaairlinesbusinessstrategy 120430204532 Phpapp02 (1)

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Pratt Institute | DM 672 | Business Strategy

- Analysis

- Leadership

- Culture

- Outlook

- Business Model

- Strategy

- Customer Interface- Recommendations

AGENDA

COMMERCIAL AVIATION IN U.S.

Helps Drive

- $1.142 trillion in economic activity- $346.4 billion in earnings- 10.2 million jobs

Contributes

- $692 billion/year to U.S. GDP- 5.2% of U.S. GDP

Traffic

- 40,000+ daily commercial departures- 2 million US passengers daily


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Since the founding of Delta Air Lines, our company has

stood for safe and reliable air transportation,

distinctive customer service, and hospitality from

the heart.

Our vision is for Delta to build on its traditions and

always to meet our customers' expectations while

taking service to even higher levels of excellence.

We are a leader in a business we know best - airline

transportation.

KEY FACTS

HQ in Atlanta, GA Founded 192852,386 Employees$22,697 Sales (in millions)$3.6 billion merger with NWA

World’s largest airline (by traffic)

COMPETITION

AmericanUnitedContinentalUS Airways

Southwest America WestJet Blue ATA

“Welcome Change. Welcome the new Delta.”

British AirwaysChina Southern Air France AeroMexico

Aeroflot VirginSingapore AirlinesSAS


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Pratt Institute | DM 672 | Business Strategy PROFILE

- 9/11

- Fuel Costs

- Chapter 11

- Executive Management

- Delta/NWA merger (Oct. 2008)- Capacity Cuts

COMMERCIAL AVIATION IN U.S.

Helps Drive

- $1.142 trillion in economic activity- $346.4 billion in earnings

- 10.2 million jobs

Contributes

- $692 billion/year to U.S. GDP

- 5.2% of U.S. GDP

Source: FAA October 2008


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INDUSTRY FORCES

Threat of New EntrantsPower of SuppliersPower of Buyers

Availability of SubstitutesCompetitive Rivalry

OTHER FACTORS

LaborFuel CostWeatherEconomy9/11Regulation

OVERVIEW

Industry Airline Revenue Growth(adjusted for inflation)

Source: EIU/IATA Economic Briefing 2008


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OUT OF BUSINESS (2008)

MAXJetBig Sky Aloha

ATA SkybusEosChampion Air Midwest Vintage Props & JetsGemini Air CargoExpressJet

Chapter 11

FrontierSun CountryPrimaris

OVERVIEW

U.S. Airline Revenue Growth

Source: ATA Industry Review 2009



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Pratt Institute | DM 672 | Business Strategy FINANCIALS

Top Expenses 2008

1. Fuel (23.7%)

2. Impairment of intangible assets

3. Salaries4. Carrier Arrangements

5. Depreciation

6. Aircraft Maintenance

NET Income Comparison for 2008

Continental $ (585 million)

American $ (2 billion)

US Airways $ (2.2 billion)

Delta $ (8.9 billion)

2007 2008

12,758 15,137

4,170 4,446

482 686

1,744 2,428

19,154$ 22,697$

4,189 4,802

4,686 7,346

1,164 1,266

996 1,153

3,152 3,616

725 839

983 1,169

933 1,030

0 7,2960 1,131

15 1,363

16,843$ 31,011$

1,612$ (8,922)$

Passenger Mainline

Passenger Regional affiliates

Cargo

Other

Total Revenue

Revenue

ExpensesSalaries

Fuel

Depreciation

Contract Service

Contract Carrier Arrangements

Landing Fees

Aircract Mantenance

Passenger Commission

Impairment of intangible assetsRestructuring Charge

Other operating

Operating Expense

Net Income Source: WSJ DAL Financial Reports

Income Statement (in millions)


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2006 2007

2,784 3,168

936 1,092

192 273

18,115 10,127

227 12,104

279 2,953

2,911 2,706

19,622$ 32,423$

936 1,045

1,797 1,982

500 320

405 734

8,012 9,000

0 3,867709 3,632

20,856 1,730

33,215$ 22,310$

(13,593)$ 10,113$

Cash/Investments

Assets

Liabilities

Accounts Receivable

Maintenance

Flight Equipment

Goodwill

Leasehold Rights

Other

Total Assets

Accounts Payable

Air Traffic Liabilities

Taxes Payable

Accrued Salaries

Debt

Pension & retirementDeferred Revenue

Other

Total Liabilities

Total Equity

FINANCIALS

OBSERVATIONS

- 530% increase in Goodwill?

- Did Chapter 11 absolve pension?

- $20 billion “liabilities subject tocompromise”?

...This amount represents the debtors'

estimate of known or potential pre-

petition claims to be resolved in

connection with the Chapter 11 cases.

Source: WSJ DAL Financial Reports

Balance Sheet (in millions)


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STRENGTHS

- World’s largest mega carrier

- Innovative business strategies (Song, Delta re-branding)

- Acquisition of Northwest Airlines

- SkyTeam alliance

- Industry-leading airport model (lobby re-design, self-service kiosks)

WEAKNESSES

- Capacity cuts (20% capacity reduction)

- Employee cuts (2,000 job cuts)

- Low on-time rating

- Air transportation safety

- Operational costs

- Susceptibility to labor-related disruptions (employee strikes)

- Technology dependence for operations

- No clear mission & vision

- Differentiation

S.W.O.T.

“Although airlines will seek to recover

the higher cost through...fare hikes and

higher fees, this will prove increasingly

difficult in a weak U.S. economy.”

- S&P, May 22, 2008

“Airlines have no choice but to pass on

the cost of fuel...and when passengers

do begin to push back in significant

numbers the airlines have no choice

but to slash capacity.”

- Rick Seaney, WSJ 2008


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OPPORTUNITIES

- Invest in new technologies

- New Presidential Administration

- Fuel alternatives

- Reduce operational costs

- New sources of operating revenue

- Enhance the customer experience

- Renegotiate lease agreements (2012-Atlanta HQ HUB)

THREATS

- Video Conferencing Technology

- Fluctuating Fuel Costs & Supply Chain risks

- Unionized Labor Strikes (17% of workforce is unionized)

- Disruptions/interruptions of service at hub airports

- Profit losses and adverse publicity from any aircraft accident incidents

- Government Regulation CO2 Emissions

- Global Economic Recession

- Customer reaction to new policies (baggage & food)S.W.O.T.

INDUSTRY FORCES

Threat of New Entrants

Power of Suppliers

Power of Buyers Availability of Substitutes

Competitive Rivalry

OTHER FACTORS

Labor

Fuel Cost

Weather

Economy

9/11

Regulation


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Now what!?

HORIZON

INDUSTRY FORCES

Threat of New Entrants

Power of Suppliers

Power of Buyers Availability of Substitutes

Competitive Rivalry

OTHER FACTORS

Labor

Fuel Cost

Weather

Economy

9/11

Regulation


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Pratt Institute | DM 672 | Business Strategy REVIEW

U.S. Airline Revenue Growth


Industry Airline Revenue Growth(adjusted for inflation)

Source: EIU/IATA Economic Briefing 2008

- Chapter 11

- NWA Merger

- Fuel Hedging

- Personnel Costs- Poor Economy

- Cutting Capacity & Jobs

- New Revenue Streams


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Pratt Institute | DM 672 | Business Strategy REVIEW

Top Expenses 2008

1. Fuel (23.7%)

2. Impaired intangible assets (23.5%)

3. Salaries (15%)

4. Carrier Arrangements (11.7%)5. Depreciation (4%)

6. Aircraft Maintenance (3.8%)

NET Income Comparison for 2008

Continental $ (585 million)

American $ (2 billion)US Airways $ (2.2 billion)

Delta $ (8.9 billion)

2007 2008

12,758 15,137

4,170 4,446

482 686

1,744 2,428

19,154$ 22,697$

4,189 4,802

4,686 7,346

1,164 1,266

996 1,153

3,152 3,616

725 839

983 1,169

933 1,030

0 7,2960 1,131

15 1,363

16,843$ 31,011$

1,612$ (8,922)$

Passenger Mainline

Passenger Regional affiliates

Cargo

Other

Total Revenue

Revenue

ExpensesSalaries

Fuel

Depreciation

Contract Service

Contract Carrier Arrangements

Landing Fees

Aircract Mantenance

Passenger Commission

Impairment of intangible assetsRestructuring Charge

Other operating

Operating Expense

Net Income Source: WSJ DAL Financial Reports

Income Statement (in millions)


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STRENGTHS

- Acquisition of Northwest Airlines

- World’s largest mega carrier & flight network

- Pacific & Atlantic Ocean flight routes

- Employees

- SkyTeam & SkyMiles alliance

- Airport model

- Brand & History

S.W.O.T.

WEAKNESSES

- Low on-time rating

- Operating costs

- Susceptibility to service disruptions

- Technology dependence for operations

- Differentiation

- Merger consolidation

OPPORTUNITIES

- Reduce operational costs & capacity

- Streamline operations & supply chain

- New value-for-money strategies


- Customer retention initiatives

- Invest in new technologies

- Renegotiate lease & labor agreements

THREATS

- Alternatives

- Competition

- Increased regulation

- Market environment

- Economy

- Fuel costs

- Crashes/Terrorism



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Pratt Institute | DM 672 | Business Strategy LEADERSHIP

The Huff Daland

Dusters founded

(pre-Delta)

1924

Begins operating as

Delta Air Lines

1934

Chicago and Southern

Air Lines merger

1953

W.T. Beebe becomes

Chairman and CEO

1971

1928

Merger: Huff Daland

Dusters + Delta

Airlines. Renamed

Delta Air Service

1945

Official corporate name

becomes Delta Air

Lines, Inc.

1966

Delta founder C.E.

Woolman dies. Charles

H. Dolson named CEO

1978

The Airline

Deregulation Act

passes

Source: Delta website - Delta Through the Decades


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Pratt Institute | DM 672 | Business Strategy LEADERSHIP

Delta celebrates its

50th year of service

1979

Western Airlines

merges-becomes 4th

largest US carrier

1987

Leo F. Mullin is named

President and CEO

1997

Delta declares

Bankruptcy. Richard H.

Anderson becomes CEO

2006

1981

Delta launches

Frequent Flyer

Program

1991

Pan Am Merger

2001

U.S. airspace closed

for two days after

terrorist attacks on

Sept. 11th

2008

Merger with NWA

Source: Delta website - Delta Through the Decades


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The Work Environment

- Delta has always been family oriented but changed with the times

- Committed to maintaining corporate culture, committed to

employee and customers satisfaction. Anderson demonstrates

this through:

1. Employees: Profit sharing & Stock Options

2. Emphasis on customer service

3. Providing compensation packages

- Employees believe culture changed, but Anderson understands

both cultures of Delta and NW

- Delta is non-union, NW is unionized (pilots)

CULTURE


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Pratt Institute | DM 672 | Business Strategy OUTLOOK

Industry Airline Revenue Growth(PROJECTIONS)

- Profitability in 2009 due to:

1. Lower fuel costs

2. Capacity Discipline

3. Merger synergies

- Reduction of Domestic Capacity

- Delta and NW Traffic updates

Text

"They're definitely taking

capacity down probably morethan what people thought they

would be doing,"Helane Becker, airline analyst at Jesup &

Lamont Securities

Facts & Updates

-6

-10

-2

2

6

10

-4

-8

0

4

8

2010 20122008 2009

C h a n g e i n % o

f C o n s u m e r

S p e n d i n g

f o r A i r l i n e I n d u s t r y

YEAR

2011 2013


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Industry Airline Revenue Growth(PROJECTIONS)

Text

US Personal Consumption

expenditures for US airlines

are expected to grow at an

annual compounded rate of5.9% between 2008 and

2013.

Consumer Spending on airline

travel Growth Slows andFlattens.

-6

-10

-2

2

6

10

-4

-8

0

4

8

2010 20122008 2009

C h a n g e i n % o f

C o n s u m e r

S p e n d i n g f o r A i r l i n e I n d u s t r y

YEAR

2011 2013


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INVESTMENT OUTLOOK

Text

US Personal Consumption

expenditures for US airlines

are expected to grow at an

annual compounded rate of

5.9% between 2008 and

2013.

Consumer Spending on airline

travel Growth Slows and

Flattens.3.0

CHINA EASTERN

CHINA SOUTHERN

TAM

DELTA

AMERICAN US AIRWAYS

CONTINENTAL

UNITED

2.04.0

HOLD BUY SELL

14

12

16

18

N U M B E R O F

I R P s

20

22

3.5 2.5

Source: WSJ DAL Financial Reports FEB. 2009


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Pratt Institute | DM 672 | Business Strategy MARKET FORCES

CUSTOMER

NEEDS

FUEL

ECONOMY

REGULATION

ENVIRONMENT

LABOR

COMPETITION

TECHNOLOGICAL

CHANGE


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CUSTOMER

NEEDSFUELECONOMYREGULATIONENVIRONMENTLABOR COMPETITION TECHNOLOGICAL

CHANGE

VALUE CHAIN

Operations Developement OutboundLogistics

Marketing& Sales

InboundLogistics

ServiceProcurementSuppliers Customers

Lower Demand

& Spending

Excess Capacity

& Supply

Turbulent Market Forces


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Pratt Institute | DM 672 | Business Strategy BUSINESS MODEL

Network & Operations(Behind the scenes) (Perception)

Market & Customers

Capturing Value

Model created by Alexander Osterwalder, Arvetica

Air Transportation

Cargo

Entertainment

Food

SkyMilesTraining & Consulting

Advertising

Content

Delta.com

Internet

Phone

TerminalPartner Airline

In-flight Service

Passengers(Vacation, Transfer, Business, Elite)

Travel Agents

e-commerce Advertisers

Fuel

Distribution

Labor

Airports

ContentSupport

Maintenance

Planes

Logistics

Operations

Development

Brand Management

Sales & Marketing

Strategy

IT

Service

Producers, Suppliers, Partners, Employees

PARTNER NETWORK

Service (CSR), Employees, Sales, PR

CUSTOMER RELATIONS

Costs

$31 billion $22.7 billion

-$8.9 billion

Margin

(HR, R&D, F inance, Development , Purchasing, HUBS, etc. ) (Revenue - Costs)

Revenue(Passengers, Baggage, Entertainment, Food, Advertising)

CUSTOMERSCHANNELSVALUE PROPSITION ACTIVITIESRESOURCES

Creating Value


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Market & Customers

Capturing Value


Air Transportation

Cargo

Entertainment

Food


Advertising

Content

Delta.com

Internet

Phone


In-flight Service


Travel Agents


Fuel

Distribution

Labor

Airports

ContentSupport

Maintenance

Planes

Logistics

Operations

Development

Brand Management

Sales & Marketing

Strategy

IT

Service


PARTNER NETWORK


CUSTOMER RELATIONS

Costs


-$8.9 billion

Margin




Creating Value


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Market & Customers

Capturing Value


Air Transportation

Cargo

Entertainment

Food


Advertising

Content

Delta.com

Internet

Phone


In-flight Service


Travel Agents


Fuel

Distribution

Labor

Airports

ContentSupport

Maintenance

Planes

Logistics

Operations

Development

Brand Management

Sales & Marketing

Strategy

IT

Service


PARTNER NETWORK


CUSTOMER RELATIONS

Costs


-$8.9 billion

Margin




Creating Value


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Pratt Institute | DM 672 | Business Strategy STRATEGY

Delta Air Lines Overview

HUBS

- Cincinnati- Atlanta- JFK - Salt Lake City

- *Minneapolis

Customer Retention

- SkyMiles- SkyTeam- Crown Room Club

Subsidiaries

- Comair- Compass Airlines- Delta Shuttle- Delta AirElite- Mesaba Airlines- Northwest Airlines (3 business’)

Destinations

- 461 destinations in 96 countries- More than any other U.S. airline- Delta has 1,534 flights per day- Delta Connection: 2,533 daily- Delta + Alliance: 6,795 daily

- Inconsistent Message

- Does not speak to the customerexperience

“Welcome Change, Welcome the new

Delta” Approach

- Multiple agencies do work for them over

the years

- The Merger is a new opportunity

Marketing


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Pratt Institute | DM 672 | Business Strategy CUSTOMERS

baggage

claim

planning

trip reservation

airport

arrival check-in

security

check-in boarding

customer experience mapping

Delta Awareness

Delta AwarenessContinues

de-boardingservice airport

departure

follow-up

& memory


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Pratt Institute | DM 672 | Business Strategy CUSTOMERS

United

Continental

Delta

Southwest

British

Airways

US Airways

American

JetBlue

Virgin

Atlantic


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Pratt Institute | DM 672 | Business Strategy RECOMMENDATIONS

Creating Value

- Reduce costs, capacity, and increase efficiency

- Focus on domestic vs. international

- Evaluate and streamline suppliers

- Renegotiate contracts

- Evaluate and divest noncore business units & programs

- Monitor competition and borrow ideas from international market

Capturing Value

- Transparent & effective MarComm

- Maintain & revitalize marketing & customer retention initiatives- New & enhanced value proposition opportunities

- Charge for EVERYTHING


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Ideas...


- Technology (RFID & ICT)

- Sell more Advertising (Captive audience who you know all about)

- Trade content for passenger feedback, information, & marketing

- Monitor passenger content interaction & improve offerings

- Sales training for Flight-Attendants (the new sales force in the sky)

- Investigate alternative food, beverage, & service models

- Recycling and waste reduction


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P I i | DM 6 2 | B i S Q&A

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