2 Problems at Delta Airlines

7/29/2019 2 Problems at Delta Airlines

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PROBLEMS AT DELTA

AIRLINES


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HISTORY

1924 - Started as aerial crop dusting company inGeorgia (USA)

1929 - Diversified passenger airline service

1955 - Pioneered Hub and Spoke Flight System 1978 - Commenced Trans - Atlantic service

1984 - Delta Connections - Tie up with regionalairlines

1991 - Acquired Pan American AirwaysWas largestacquisition in airline history

2003 - Launched low cost subsidiary SONG


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PROBLEMS AT DELTA AIRLINES

Accumulation of loss - $ 5.6 billion since 2001

Posted losses of $ 2 billion in 1st and 2nd Quarter of

2004biggest in Deltas history

Rapidly depleting cash reserves

Moving towards debt trap Total debt liability as on 2nd quarter of 2004 is $ 20 billion.

Outstanding debt repayment by early 2005 is $ 1.2 billion

Heading towards bankruptcy

Downgraded Credit Rating


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QUARTERLY PROFIT/LOSS

-2000

-1500

-1000

-500

0

500

2000 2001 2002 2003 2004

1

2

3

4


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Causative Factors

0

5

10

15

20

25

30

35

4045

50

2002 2003 2004

Fuel Prices(in $/barrel)

External

9/11 WTC TERRORIST ATTACK RISING FUEL PRICES


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Causative Factors

Market Share 200430

70

Low Cost Conventional

Competition from low cost airlines

Market Share 1995

95

5

Low Cost Conventional


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Causative Factors

InternalHigh cost of Labor

Highest pilot salaries in industry

Lowest pilot flying time per month

High percent of operational costs 43%

Operational Inefficiency Complexity of fleet mix

High training and maintenance cost

Burdensome Legacy Costs Old and inefficient operational process (hub and spoke model)

Pension and retirement plans

Cultural Shortcomings Rigid and bureaucratic culture

Relations with agents and partners


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PROBING QUESTIONS

IS MORE INVESTMENT NEEDED IN

SONG?

HOW TO IMPROVE OPERATIONAL

EFFICIENCY AND CUT DOWN COSTS?

l h ld fl b b d li h k


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Delta should fly between Hubs and Song Flies on the spokes

Loyalty Programs with Employees according to retirement age

Relaunch FFP

Cut down Salary and pension benefits

Stock based options on performance

Agency visit and promote company through road shows

Decentralizing and salary based units Reduce complexity of fleet

Recruit top mgmt from outside the industry

Pay pilots on per hour basis

E-Brokers and E-ticketing24X7 availability

Reduce spokes with less occupancy

Song targeted to leisure travelers and Delta for Business.

Reschedule timings of song to suit travelers

Fuel Hedging

Flight synchronizationWait time reduced

Outsource maintenance activity

Reduce retirement benefits

Phase out hub and spoke model to point to point.

Improve Credit Rating Catchy advertisements

Do not go for bankruptcy as it would hamper image

Increase notice period before retirement

New pilots to be inducted on Contract basis

Lease financing

Dilute the powers of the pilot union


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THE WAY OUT

Open to negotiations with pilots in respect to

wage cuts

Generate faith that pension schemes wont be

scrapped

Inculcating flexible work culture

Fixed contribution to participatory pensionplan

Reduction of complexity of fleet


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THE WAY OUT

Rejuvenate commission policy with travel

agents

Gradually phasing out Hub and Spoke model

Reduction in labor costs to match industry

standards of 28%

Simplicity in operations Depeaking to make better use of aircraft and

crews


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Delta Solution

Updating & upgrading customer products andservices

Redesigning Atlanta hub

Dehubbing Dallas operation and redeploymentof resources

Addition of destinations and non-stop flights

Growing low-cost subsidiary Song

Reducing fleet complexity

Downsizing manpower

Creating employment reward program


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REFERENCES

Business Strategy ICFAI (February 2005)

http://www.delta.com http://en.wikipedia.org/wiki/Delta_Air_Lines

2 Problems at Delta Airlines

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