Delta Airlines

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Delta Airlines

• Todd Beals, Matt Tucker, Mary Vick

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SWOT Analysis

• Strengths
• 1. 3rd Largest Mega Carrier
• 2. Innovative Strategic Business Moves
• Song
• SkyTeam Alliance
• Comair and Atlantic Southeast Airlines
• 3. Industry-leading airport model (lobby
  re-design, self-service kiosks)

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SWOT Contd

• Weaknesses
• 1. Labor expense (highest in industry, approx.
  40 of operating expense)
• 2. Market share, yields, load factor (all
  decreased significantly since Sept. 11th)
• 3. Stock price (down 66 since Sept. 2001)

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SWOT Contd

• Opportunities
• 1. Regional Jet Coverage (Compete with
  Southwest, Jet Blue, AirTran)
• 2. On-line reservation services (40 of
  Worldspan L.P., 18 of Orbitz LLC)
• 3. Customer service initiatives (self-service
  kiosks, e-ticketing)

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SWOT Contd

• Threats
• 1. Various increased costs post-Sept. 11th
  (security, taxation, terrorism-risk insurance)
• 2. Global Airline Industry Losses (13 billion
  in 2002, 18 billion in 2001)
• 3. Variety of Competitors (national regional
  airlines, automobiles, bus, etc.)

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Long-term Sustainable Competitive Advantage

• Delta is achieving LTSCA by
• A largely non-union workforce
• Airline industry-leading airport model
• Worldwide route system
• Innovative entertainment system

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Main Issues and Problems

• Rising Operational Costs
• Labor Cost
• Taxes and security fees
• Labor-Management Mistrust
• Large Executive Perks
• Declining Profits and Market Share
• Resulting from 9/11, war in Iraq, and SARS
• Low-cost carriers stealing market share
• Customer Service
• Poor Morale

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Porters Five Forces
Buyers Bargaining Power
Current Competitors
American, United, Northwest, Continental,
Southwest, USAir, America West, Alaska, ATA,
JetBlue, AirTran, Spirit, Frontier, Others
Ability to secure discount fares by advance
purchases and deeply discounted fares available
through the internet
Suppliers Bargaining Power
Labor Union negotiating power, fuel contracts,
travel agent commission rate structure, meal
service
Delta Airlines
Potential Entrants
TED, Pinnacle Airlines
Substitute Products
Automobiles, railroads, and buses
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Halls Competitiveness Model
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Cost Saving Strategy

• Fuel Hedging Program
• - Rising fuel costs, deferred fleet additions,
  older
• less fuel efficient fleet
• - Reduced fuel costs by 26 million (pretax) in
  
• 3rd qtr of 2003
• - Only 53 of fuel requirements
• - 4th qtr , forecast 47...should be more around
  75
• with incremental increases following

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Forward Integration

• Orbitz Worldspan (on-line reservations)
• Delta has partial ownership in both
• Discounts
• 3-5 discount for purchasing via internet
  (e-ticketing)
• 2 discount for check-in using self service
  kiosks
• Double SkyMiles promotion (6-12 months)
• Delta saves 25 per e-ticket issued vs. paper

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Labor-Management Relations

• Investment in employees
• Training seminars (semi-annually)
• Specialized job training (40 hours/year)
• Executive compromises
• Cap on executive compensation pensions
• Bonuses based solely on performance

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Deltas High Labor Cost
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Labor Concessions

• Proposal
• 20 wage cut for all pilots
• No wage increases next 5 years
• Incentives
• 3 increase above industry (2008-2013)
• 3 increase in Profit-sharing package
• Signing bonus of 100 shares of company stock
• 1,000 Delayed Retirement bonus
• Two seats on BOD for pilots union (10 currently)

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Market Penetration

• Regional market coverage increase via Comair,
  Song, and ASA
• Break-even load factors
• Regional jets 50
• Large jets 63
• A major hub-and-spoke airline such as Delta has
  costs that can be 150 higher than those of a
  carrier that only flies from one city to the next
  

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Increase Customer Loyalty

• Delta Needs to Set itself apart

• V.I.P. seating in every row
• Sensitive to Special Needs
• - Special seats for obese travelers
• Free chocolates cocktails
• Form Advisory Council
• Broad cross-section of customers providing
  executives with open and honest criticism,
  feedback and compliments

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Increase Customer Loyalty

• A La Carte Food Service
• Order from a menu when booking flights online
• Collaboration with theme-restaurant giants such
  as Hard Rock
• Reduce fees penalties
• 100 to change a ticket
• 25-80 for overweight bag
• 80 for oversized bag
• 40 for extra bag

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Employee Ownership Culture

• Re-institute Profit sharing program
• 2 of the company's profits
• Stock option plan
• 10 OTC discount for all employees
• People take better care of things they own
• Special care ultimately passed on to the customer

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Technologically Innovative
RFID Tags

• Allow for non-contact reading effective in
  environments where bar code
• labels cant survive
• Further improve baggage handling, provide
• real-time baggage updates, and provide
• better, faster and friendlier service

Delta hopes smart tags will help it track
baggage and cut costs.Credit The Associated
Press
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Technologically Innovative
In-flight Entertainment- Seat-back video in all
classes- Pay-per-view movies (AVOD) -
Interactive video games - Live
TVTelecommunications- Server technology
MP3s- High Speed via satellite- Wireless
Access for laptops- In-seat power outlets
Song employee Stacy Geagan tests a seat-back
touch screen. The airline plans to have live TV,
video games and music available on all its 36
planes by early spring.
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Customer-Centric

• ZONE" System
• Speeds up the boarding process
• rather than boarding back rows first,
• passengers sitting in window seats board
  first,
• followed by the middle seats, then aisle
  seats.
• Better Gate Displays
• Convenient kiosk check-in
• Expanded Concourses

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Customer-Centric

• More Kid-Friendly
• Free headphones, Childrens movies
• Childrens music station, Free playing cards
• Coloring game booklet with crayons
• Bring front line employees out more to assist,
  allowing flyers to get through the lines quicker

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3 Pronged Hybrid Strategy

• Technologically Advanced
• Customer-Centric Approach
• Consistency
• Critical to final consumers perception - one
  good flight does not make a good airline - nor
  does the latest seating or entertainment
  technology in isolation necessarily make a good
  airline.

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What Could Go Wrong?

• Overweight people could get offended
• Technology advantages can be copied
• People become even more price sensitive and dont
  care about added value or extra amenities
• Unable to win over budget-minded fliers with
  offers of better service and lower fares
• Pilot contract negotiations could fail

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Declining Loyalty
79 of US Consumers less likely to make future
purchases online after receiving poor service
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New Leadership Could Fail

• New Leadership Needs to encourage the hearts of
  the workers, inspire a shared vision and
  establish new rules, otherwise nothing major will
  really change.
• Not able to keep employees "in high spirits and
  motivated"
• Its possible that the new chairman and CEO were
  selected merely as interim leaders while the
  board seeks other candidates. This would be
  detrimental if the public perceived them as
  temporary leaders.

Delta Air Lines board member Gerald Grinstein
(left) will become CEO Jan. 1, replacing
current CEO and Chairman Leo Mullin (right).
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Stock Continues To Decline
 
 

• Lost 446 Million in 2003 - Bankruptcy ?

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