Delta Air Lines Case Study Prospectus

1
Delta Air Lines Case Study Prospectus

• Ayodele Locke
• Jonathan Long
• Markos Taddesse
• Robert Buonocore

2
Delta Air Lines Case Study

• Introduction to the Industry
• Robert Buonocore
• Up-to-date scan of Delta
• Jonathan Long
• Responses to Industry Questions
• Markos Taddesse
• Responses to specific Delta questions
• Markos Taddesse
• Suggestions related to the IT issues
• Ayodele Locke
• Final Conclusions
• Jonathan Long, Robert Buonocore

3
Introduction to the Industry

• Since 1978 airlines were permitted to select
  their own routes and establish fares.
• Varying prices has helped balance the costs and
  ensure that airlines are not flying with empty
  seats. Today it is likely that almost every
  passenger on a flight has paid a different price
  (McCartney 2003)

4
Introduction to the Industry (Continued)

• JetBlue
• offering DirectTV to its passengers.
• New planes
• Lower maintenance costs
• Lower insurance costs
• September 11th Effects
• Caused more safety regulations
• Fear of flying less passengers.

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Introduction to the Industry (Continued)

• Airline Costs According to the Air Transport
  Association (ATA) (McCartney 2002)
• Labor Costs make up the greatest percent. (38.4)
• Administrative overhead (23.7)
• Fuel Costs (11.6)
• Cost of the Plane/interest (13.2)
• Maintenance (2.5)
• Food Programs (2.2)
• Travel Agent Commissions (2.2)
• Airport Fees (2.1)
• Insurance (1.5)
• Communications (1.5)
• Advertising (1.0)

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Introduction to the Industry (Continued)

• Future
• Re-negotiating union contracts
• Small planes could create a business air taxi
  service that would be outpriced for most
  consumers but ideal for businesses.

7
Up to date scan of Delta Airlines

• September 2005
• Delta files for bankruptcy
• Pilots gave deep concessions after lengthy
  negotiations
• Closed Dallas hub
• Cut jobs
• August 2006
• Delta receives permission to outsource IT to IBM
• 200 employees effected
• Delta turns first profit under restructuring

8
Up to date scan of Delta Airlines

• November 2006
• U.S. Airways attempts hostile takeover
• December 2006
• Delta announces new SOA for DNS
• January 2007
• U.S. Airways drops takeover bid
• April 2007
• Delta emerges from bankruptcy

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Responses to Industry Questions

• What information technologies have helped this
  industry?
• Reservation Systems
• Customer and corporate data tracking
• Telemetry data acquisition
• Did the technologies provide a competitive
  advantage or were they quickly adopted by rivals?
• Yes they do but they are quickly adopted by the
  industry.
• Smaller airlines are more adept at incorporating
  new innovations

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Responses to Industry Questions

• Which technologies could this industry use that
  were developed in other sectors?
• RFID
• Is the level of competition increasing or
  decreasing in this industry? Is it dominated by a
  few firms, or are they fairly balanced?
• The Airline industry is dominated by a few big
  Airlines.
• But Competition is increasing (Southwest, Jet
  Blue, Airtran)
• What problems have been created from the use of
  information technology and how did the firms
  solve the problems?
• Defective systems
• Disparate databases

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Responses to specific Delta questions

• Why do people fly on discount airlines?
• Price, speed of service (in terms of turn around)
  
• What do they not like about discount airlines?
• Bare minimum services
• Inconvenient, not all cities are directly served
  
• Can Delta combine these answers with IT to regain
  market shares and profit?
• Yes, but not fully realized at this time.

12
Responses to specific Delta questions

• How does Delta use technology to reduce costs? Is
  it enough to make a difference?
• In house IT work
• Delta Nervous System (DNS)
• CRM software
• Self check in kiosk
• Yes it is making a difference

13
Responses to specific Delta questions

• Can Delta use IT to become more like Southwest?
  Is that the best strategy?
• Yes, cut certain services, re-negotiate wages,
  implement systems that track companywide data for
  travel managers , improve budgeting software for
  more accurate forecasts, adopt own booking system
  that compete with the likes of Sabre, and
  Southwest own online booking system.

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Suggestions Related to the IT Issues

• Although Delta has implemented several large
  technology systems in recent years, including
  DNS Operation Clockwork to help them
  improve productivity and their bottom line,
  lowering costs to compete with low cost airlines
  still remains a major hurdle.
• The following section will summarize some of
  Deltas IT challenges and suggested
  recommendations on how to address them.

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Suggestions Related to the IT Issues

• Issue 1 Inefficient baggage bar code system.
• Issue 2 Outdated radio communication systems.
• Issue 3 Lack of web presence targeted to
  business customers.
• Issue 4 Inefficient passenger boarding process.

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Suggestions Related to the IT Issues

• Issue 1 Inefficient baggage bar code system
• Delta airlines currently processes millions of
  pieces of baggage per year. Delta utilizes a bar
  code scanning system to keep track of bags that
  are tagged to specific flights. A tag is placed
  on each piece of luggage which is then scanned
  and then sent to the appropriate flight.
• This technology however is inefficient and leads
  of some baggage being lost and lost revenue in
  airline staff takes to locate or redirect the
  baggage. As many as 15 to 20 percent of bags are
  not scanned properly.

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Suggestions Related to the IT Issues

• Suggestion 1 RFID Technology
• RFID Technology systems are a significant
  improvement over bar code scanning systems. RFID
  tags attach to customers luggage in the same way
  as bar code tags and each RFID tag is encoded
  with the owners information as well as their
  travel itineraries. ,
• RFID readers are able to locate baggage an
  average of 95 or greater compared with a scan
  rate of 70 to 80 with the current bar code
  scanning systems.

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Suggestions Related to the IT Issues

• RFID Technology contd
• In 2004, Delta began testing this new technology
  and planned to implement it in 2007. Plans were
  put on hold indefinitely due to budget issues.
  The projected implementation costs for a RFID
  system was 15 to 20 million, a significant
  expenditure for an airline such as Delta that is
  facing financial woes.
• Delta however spends an estimated 100 million a
  year addressing lost luggage issues. In light of
  these figures, Delta should reconsider RFID
  technology because they would be able to quickly
  recoup their investment as well as gain greater
  customer satisfaction.

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Suggestions Related to the IT Issues

• Issue 2 Outdated communication systems
• Delta and other airlines have radio systems that
  are decades old.
• Dispatchers and airplane captains communicate
  information such as flight patterns or weather
  info with each other via voice radio equipment.
• Voice radio equipment is prone to static,
  interference and poor voice quality.

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Suggestions Related to the IT Issues

• Suggestion 2 VDLM2 Technology
• VDLM2 technology systems can transfer text data
  at fifteen times the rate of traditional radio
  systems in airlines.
• More efficient communications between dispatchers
  and airline captains helps to increase staff
  efficiency and cut down turnover rates, an
  important goal for all airlines.
• Competitor SouthWest airlines has already
  invested in this technology and Delta should
  follow suit.

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Suggestions Related to the IT Issues

• Issue 3 No website targeted to business
  customers
• Southwest Airlines is one of the few profitable
  airlines today and one of the reasons is that
  they address the concerns of their customer base.
• Southwests business travel website lets business
  travelers book their flights online and has a
  backend system for keeping track of company
  travel data.
• Delta Airlines currently has one website and
  reservation system for all its customers with no
  such features for business travelers.

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Suggestions Related to the IT Issues

• Suggestion 3 Business Travel website
• A Delta business travel specific website would
  help them have a better relationship with
  corporate travel departments.
• In addition to the key features offered by
  Southwests swabiz.com, Deltas business website
  should also offer travel discounts, travel news
  and customer satisfaction surveys and feedback
  forms.
• Traditionally business class tickets cost more
  than economy tickets so paying attention to the
  needs to this customer base could be a profitable
  endeavor for Delta.

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Suggestions Related to the IT Issues

• Issue 4 Inefficient passenger boarding process
  
• Delta Airlines currently uses a passenger
  boarding system that does not help them to
  improve their turnaround times.
• The passenger boarding system using a standard
  back-to-front method does not address boarding
  delay due to passengers with aisle seats
  obstructing those with window or middle seats.

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Suggestions Related to the IT Issues

• Suggestion 4 Reverse pyramid boarding system
• The Wilma reverse pyramid boarding system
  implemented by United Airlines calls for boarding
  rear window and middle seats first, followed by
  front window and middle seats then those in the
  rear and front aisles and finally seats in the
  front of the plane would be boarded last.
  Business and first class passengers would be
  boarded before everyone else.
• Even a few minutes saved per flight translates
  into measurable savings for an airline. The
  quicker a plane boards and takes off, the more
  flights the airline can have in a day.

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Delta Air Lines Case Study

• Conclusions
• Delta will benefit from adding interoperability
  to the Delta Nervous System with their Service
  Oriented Architecture.
• As Delta emerges from bankruptcy and posts
  profits, IT will continue to be an integral part
  of their success.
• In order to have future success, Delta will need
  to address certain issues
• Inefficient baggage bar code system.
• Outdated radio communication systems.
• Lack of web presence targeted to business
  customers.
• Inefficient passenger boarding process.

26
Delta Air Lines Case Study

• Resources used
• Associated Press. Delta Airlines still
  considering an acquisition. CNNMoney.com.
  Retrieved November 11, 2007 from
  http//money.cnn.com/2007/11/07/news/companies/del
  ta_acquisition.ap/?postversion2007110718
• Associated Press. Delta seeks to outsource 200 IT
  jobs to IBM. Mcpmag.com. Retrieved November 11,
  2007 from http//mcpmag.com/news/article.asp?Edito
  rialsID1014
• Broache, Anne. Can technology solve air travel
  woes? New York Times. September 27, 2007.
• Foust, D., Bachman, J. (2007). A surprising new
  pilot for Delta. Business Week, 4048, 44
• Greenemeir, Larry. IT Pros Plus Marketing
  Experts Equal Better Service. Information Week.
  March 18, 2002.

27
Delta Air Lines Case Study

• Resources used
• Havenstein, H. (2006). Delta Set to Launch
  Three-Year SOA Project. Computerworld, 40(50), 8.
• McCartney, Scott. Which costs Airlines More
  Fuel, Labor or (Ugh) Meals? The Wall Street
  Journal. November 6, 2002.
• McDougall, Paul. Techie Exodus At Bankrupt Delta
  Caused Flight Delays, Broader Chaos. Information
  Week. December 19, 2006.
• Overby, S. (2003, February 15). Delta Aims for
  Infrastructure Overhaul. CIO. Retrieved November
  11, 2007 from http//www.cio.com/article/31708/
• Post, Anderson (2006). Management Information
  Systems Solving Business Problems with
  Information Technology. New York McGraw-Hill.