Delta Air Strategies

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
Trafc
- 40,000+ daily commercial departures
- 2 million US passengers daily
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 1928
52,386 Employees
$22,697 Sales (in millions)
$3.6 billion merger with NWA
Worlds largest airline (by trafc)
COMPETITION
American
United
Continental
US Airways
Southwest
America West
Jet Blue
ATA
Welcome Change. Welcome the new Delta.
British Airways
China Southern
Air France
AeroMexico
Aeroot
Virgin
Singapore Airlines
SAS
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
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
OVERVIEW
Industry Airline Revenue Growth
(adjusted for ination)
Source: EIU/IATA Economic Brieng 2008
OUT OF BUSINESS (2008)
MAXJet
Big Sky
Aloha
ATA
Skybus
Eos
Champion
Air Midwest
Vintage Props & Jets
Gemini Air Cargo
ExpressJet
Chapter 11
Frontier
Sun Country
Primaris
OVERVIEW
U.S. Airline Revenue Growth
Source: ATA Industry Review 2009
Pratt Institute | DM 672 | Business Strategy FINANCIALS
Top Expenses 2008
1. Fuel (23.7%)
2. Impairment of intangible assets
3. Salaries
4. 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 7,296
0 1,131
15 1,363
16,843 $ 31,011 $
1,612 $ (8,922) $
Passenger Mainline
Passenger Regional afliates
Cargo
Other
Total Revenue
Revenue
Expenses
Salaries
Fuel
Depreciation
Contract Service
Contract Carrier Arrangements
Landing Fees
Aircract Mantenance
Passenger Commission
Impairment of intangible assets
Restructuring Charge
Other operating
Operating Expense
Net Income
Source: WSJ DAL Financial Reports
Income Statement (in millions)
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 3,867
709 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 Trafc Liabilities
Taxes Payable
Accrued Salaries
Debt
Pension & retirement
Deferred Revenue
Other
Total Liabilities
Total Equity
FINANCIALS
OBSERVATIONS
- 530% increase in Goodwill?
- Did Chapter 11 absolve pension?
- $20 billion liabilities subject to
compromise?
...This amount represents the debtors'
estimate of known or potential pre-
petition claims to be resolved in
connection with the Chapter 11 cases.
Balance Sheet (in millions)
STRENGTHS
- Worlds 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
difcult 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 signicant
numbers the airlines have no choice
but to slash capacity.
- Rick Seaney, WSJ 2008
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
- Prot 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
Power of Suppliers
Power of Buyers
Competitive Rivalry
OTHER FACTORS
Labor
Fuel Cost
Weather
Economy
9/11
Regulation
Now what!?
HORIZON
INDUSTRY FORCES
Power of Suppliers
Power of Buyers
Competitive Rivalry
OTHER FACTORS
Labor
Fuel Cost
Weather
Economy
9/11
Regulation
Pratt Institute | DM 672 | Business Strategy REVIEW
U.S. Airline Revenue Growth
(adjusted for ination)
Source: EIU/IATA Economic Brieng 2008
- Chapter 11
- NWA Merger
- Fuel Hedging
- Personnel Costs
- Poor Economy
- Cutting Capacity & Jobs
- New Revenue Streams
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 7,296
0 1,131
15 1,363
16,843 $ 31,011 $
1,612 $ (8,922) $
Passenger Mainline
Passenger Regional afliates
Cargo
Other
Total Revenue
Revenue
Expenses
Salaries
Fuel
Depreciation
Contract Service
Contract Carrier Arrangements
Landing Fees
Aircract Mantenance
Passenger Commission
Impairment of intangible assets
Restructuring Charge
Other operating
Operating Expense
Net Income
Income Statement (in millions)
STRENGTHS
- Acquisition of Northwest Airlines
- Worlds largest mega carrier & ight network
- Pacic & Atlantic Ocean ight 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
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
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
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: Prot 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
Pratt Institute | DM 672 | Business Strategy OUTLOOK
(PROJECTIONS)
- Protability in 2009 due to:
1. Lower fuel costs
2. Capacity Discipline
3. Merger synergies
- Reduction of Domestic Capacity
- Delta and NW Trafc updates
Text
"They're denitely taking
capacity down probably more
than 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 2012 2008 2009
C
h
a
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g
e

i
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%

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f

C
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s
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S
p
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f
o
r

A
i
r
l
i
n
e

I
n
d
u
s
t
r
y
YEAR
2011 2013
(PROJECTIONS)
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.
-6
-10
-2
2
6
10
-4
-8
0
4
8
2010 2012 2008 2009
C
h
a
n
g
e

i
n

%

o
f

C
o
n
s
u
m
e
r
S
p
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g

f
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r

A
i
r
l
i
n
e

I
n
d
u
s
t
r
y
YEAR
2011 2013
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
2.0 4.0
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
Pratt Institute | DM 672 | Business Strategy MARKET FORCES
CUSTOMER
NEEDS
FUEL
ECONOMY
REGULATION
ENVIRONMENT
LABOR
COMPETITION
TECHNOLOGICAL
CHANGE
CUSTOMER
NEEDS
FUEL ECONOMY REGULATION ENVIRONMENT LABOR COMPETITION
TECHNOLOGICAL
CHANGE
VALUE CHAIN
Operations Developement
Outbound
Logistics
Marketing
& Sales
Inbound
Logistics
Service Procurement Suppliers Customers
Lower Demand
& Spending
Excess Capacity
& Supply
Turbulent Market Forces
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
SkyMiles
Training & Consulting
Advertising
Content
Delta.com
Internet
Phone
Terminal
Partner Airline
In-flight Service
Passengers
(Vacation, Transfer, Business, Elite)
Travel Agents
e-commerce
Advertisers
Fuel
Distribution
Labor
Airports
Content
Support
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, Finance, Development, Purchasing, HUBS, etc.) (Revenue - Costs)
Revenue
(Passengers, Baggage, Entertainment, Food, Advertising)
CUSTOMERS CHANNELS VALUE PROPSITION ACTIVITIES RESOURCES
Creating Value
Market & Customers
Capturing Value
Air Transportation
Cargo
Entertainment
Food
SkyMiles
Advertising
Content
Delta.com
Internet
Phone
Terminal
Partner Airline
In-flight Service
Passengers
Travel Agents
e-commerce
Advertisers
Fuel
Distribution
Labor
Airports
Content
Support
Maintenance
Planes
Logistics
Operations
Development
Brand Management
Sales & Marketing
Strategy
IT
Service
PARTNER NETWORK
CUSTOMER RELATIONS
Costs
-$8.9 billion
Margin
Revenue
Creating Value
Air Transportation
Cargo
Entertainment
Food
SkyMiles
Advertising
Content
Fuel
Distribution
Labor
Airports
Content
Support
Maintenance
Planes
Logistics
Operations
Development
Brand Management
Sales & Marketing
Strategy
IT
Service
PARTNER NETWORK
VALUE PROPSITION ACTIVITIES RESOURCES
Market & Customers
Capturing Value
Air Transportation
Cargo
Entertainment
Food
SkyMiles
Advertising
Content
Delta.com
Internet
Phone
Terminal
Partner Airline
In-flight Service
Passengers
Travel Agents
e-commerce
Advertisers
Fuel
Distribution
Labor
Airports
Content
Support
Maintenance
Planes
Logistics
Operations
Development
Brand Management
Sales & Marketing
Strategy
IT
Service
PARTNER NETWORK
CUSTOMER RELATIONS
Costs
-$8.9 billion
Margin
Revenue
Creating Value
Air Transportation
Cargo
Entertainment
Food
SkyMiles
Advertising
Content
Delta.com
Internet
Phone
Terminal
Partner Airline
In-flight Service
Passengers
Travel Agents
e-commerce
Advertisers
CUSTOMER RELATIONS
CUSTOMERS CHANNELS VALUE PROPSITION
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 ights per day
- Delta Connection: 2,533 daily
- Delta + Alliance: 6,795 daily
- Inconsistent Message
- Does not speak to the customer
experience
Welcome Change, Welcome the new
Delta Approach
- Multiple agencies do work for them over
the years
- The Merger is a new opportunity
Marketing
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
Awareness
Continues
de-boarding service
airport
departure
follow-up
& memory
Pratt Institute | DM 672 | Business Strategy CUSTOMERS
United
Continental
Delta
Southwest
British
Airways
US Airways
American
JetBlue
Virgin
Atlantic
Pratt Institute | DM 672 | Business Strategy RECOMMENDATIONS
Creating Value
- Reduce costs, capacity, and increase efciency
- 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
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
Maximize value by
Charging for a better
Customer Experience
Technology
Content, Access, & Information
Games, Movies,
Messaging, &
WiFi....
Advertising
Connect Advertisers to Customers
John Smith
age 40
race white
geography NYC
status Married
children 2
Service
Your sales force in the sky...
...can I interest you in
a glass of wine?
Technology
RFID baggage tracking
Industry could
save $650 million
to $1 billion
annually
WASTE
more than 2 million
plastic cups daily
Experience
Simulation & Visualization
Experience
Visualization
Experience
Visualization
RE-Imagine your Business Model
...Charge for EVERYTHING
RE-Imagine your Business Model
...Skydiving anyone?
Q&A

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