Delta AirlinesDelta AirlinesTodd Beals, Matt Tucker, Mary VickTodd Beals, Matt Tucker, Mary Vick

SWOT AnalysisSWOT Analysis

Strengths:Strengths:1. 31. 3rdrd Largest Mega Largest Mega

CarrierCarrier2. Innovative Strategic 2. Innovative Strategic

Business MovesBusiness Moves• SongSong• SkyTeam AllianceSkyTeam Alliance• Comair and Atlantic Comair and Atlantic

Southeast AirlinesSoutheast Airlines3. Industry-leading 3. Industry-leading

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

SWOT Cont’dSWOT Cont’d

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

SWOT Cont’dSWOT Cont’d

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

SWOT Cont’dSWOT Cont’d

Threats:Threats:

1. Various increased 1. Various increased costs post-Sept. 11costs post-Sept. 11thth (security, taxation, (security, taxation, terrorism-risk insurance)terrorism-risk insurance)

2. Global Airline Industry 2. Global Airline Industry Losses ($13 billion in Losses ($13 billion in 2002, $18 billion in 2001)2002, $18 billion in 2001)

3. Variety of Competitors 3. Variety of Competitors (national & regional (national & regional airlines, automobiles, bus, airlines, automobiles, bus, etc.)etc.)

Long-term Sustainable Long-term Sustainable Competitive AdvantageCompetitive Advantage

• Delta is achieving LTSCA by:Delta is achieving LTSCA by:– A largely non-union workforceA largely non-union workforce– Airline industry-leading airport modelAirline industry-leading airport model– Worldwide route systemWorldwide route system– Innovative entertainment systemInnovative entertainment system

Main Issues and Main Issues and ProblemsProblems• Rising Operational CostsRising Operational Costs

– Labor CostLabor Cost– Taxes and security feesTaxes and security fees

• Labor-Management MistrustLabor-Management Mistrust– Large Executive PerksLarge Executive Perks

• Declining Profits and Market ShareDeclining Profits and Market Share– Resulting from 9/11, war in Iraq, and SARSResulting from 9/11, war in Iraq, and SARS– Low-cost carriers stealing market shareLow-cost carriers stealing market share

• Customer ServiceCustomer Service– Poor MoralePoor Morale

Porter’Porter’s Five s Five ForcesForces

Delta Airlines

Current Competitors

American, United, Northwest, Continental,

Southwest, USAir, America West, Alaska, ATA, JetBlue, AirTran, Spirit, Frontier, Others

Potential Entrants

TED, Pinnacle Airlines

Buyer’s Bargaining Power

Ability to secure discount fares by advance

purchases and deeply discounted fares

available through the internet

Substitute Products

Automobiles, railroads, and buses

Supplier’s Bargaining

Power

Labor Union negotiating power,

fuel contracts, travel agent

commission rate structure, meal

service

Hall’s Competitiveness Hall’s Competitiveness ModelModel

US Airways

Northwest

Delta

Alaska

Continental

United

American

Southwest

Frontier

Jet Blue

America West

ATA

0

2

4

6

8

10

12

14

16

18

20

25 30 35 40 45 50 55 60 65

Operating Expenses per Available Seat-Mile (Relative Cost)

US Airways

Northwest

Delta

Alaska

Continental

United

American

Southwest

Frontier

Jet Blue

America West

ATA

Market Share

Cost Saving StrategyCost Saving Strategy

• Fuel Hedging ProgramFuel Hedging Program- - Rising fuel costs, deferred fleet additions, older Rising fuel costs, deferred fleet additions, older

less fuel efficient fleetless fuel efficient fleet- Reduced fuel costs by $26 million (pretax) in - Reduced fuel costs by $26 million (pretax) in

33rdrd qtr of 2003 qtr of 2003- Only 53% of fuel requirements- Only 53% of fuel requirements- 4- 4thth qtr , forecast 47%...should be more around qtr , forecast 47%...should be more around 75% 75%

with incremental increases followingwith incremental increases following

Forward IntegrationForward Integration

• Orbitz & Worldspan (on-line Orbitz & Worldspan (on-line reservations)reservations)– Delta has partial ownership in bothDelta has partial ownership in both

• Discounts:Discounts:– 3-5% discount for purchasing via internet (e-3-5% discount for purchasing via internet (e-

ticketing)ticketing)– 2% discount for check-in using self service kiosks2% discount for check-in using self service kiosks– Double SkyMiles promotion (6-12 months)Double SkyMiles promotion (6-12 months)

• Delta saves $25 per e-ticket issued vs. Delta saves $25 per e-ticket issued vs. paperpaper

Labor-Management Labor-Management RelationsRelations

• Investment in employeesInvestment in employees– Training seminars (semi-annually) Training seminars (semi-annually) – Specialized job training (40 hours/year)Specialized job training (40 hours/year)

• Executive compromisesExecutive compromises– Cap on executive compensation & Cap on executive compensation &

pensionspensions

• Bonuses based solely on Bonuses based solely on performanceperformance

Delta’s High Labor Delta’s High Labor CostCost

Airline Pilot Wage Comparison

$0

$50

$100

$150

$200

$250

$300

Delta Southwest AirTran JetBlue

Airline

Ho

url

y W

age

Series1

Labor ConcessionsLabor Concessions

• Proposal:Proposal:– 20% wage cut for all pilots20% wage cut for all pilots– No wage increases next 5 yearsNo wage increases next 5 years

• Incentives:Incentives:– 3% increase above industry (2008-2013)3% increase above industry (2008-2013)– 3% increase in Profit-sharing package3% increase in Profit-sharing package– Signing bonus of 100 shares of company stock Signing bonus of 100 shares of company stock – $1,000 Delayed Retirement bonus$1,000 Delayed Retirement bonus– Two seats on BOD for pilot’s union (10 Two seats on BOD for pilot’s union (10

currently)currently)

Market PenetrationMarket Penetration

• Regional market coverage increase via Regional market coverage increase via Comair, Song, and ASAComair, Song, and ASA

• Break-even load factors:Break-even load factors:– Regional jets = 50%Regional jets = 50%– Large jets = 63%Large jets = 63%

• A major hub-and-spoke airline such as A major hub-and-spoke airline such as Delta has costs that can be 150% higher Delta has costs that can be 150% higher than those of a carrier that only flies from than those of a carrier that only flies from one city to the next one city to the next

Increase Customer Increase Customer Loyalty:Loyalty:

Delta Needs to Set itself apart…Delta Needs to Set itself apart…• V.I.P. seating in every rowV.I.P. seating in every row • Sensitive to Special NeedsSensitive to Special Needs

- Special seats for obese - Special seats for obese travelerstravelers

• Free chocolates & Free chocolates & cocktailscocktails• Form Advisory CouncilForm Advisory Council

• Broad cross-section of customers Broad cross-section of customers providing executives with open and providing executives with open and honest criticism, feedback and honest criticism, feedback and complimentscompliments

Increase Customer Increase Customer Loyalty:Loyalty:

• A La Carte Food Service A La Carte Food Service – Order from a menu when booking flights onlineOrder from a menu when booking flights online– Collaboration with theme-restaurant giants such as Collaboration with theme-restaurant giants such as

Hard Rock Hard Rock

• Reduce fees & penaltiesReduce fees & penalties• $100 to change a ticket $100 to change a ticket • $25-80 for overweight bag$25-80 for overweight bag• $80 for oversized bag$80 for oversized bag• $40 for extra bag$40 for extra bag

Employee Ownership Employee Ownership CultureCulture

• Re-institute Profit sharing program Re-institute Profit sharing program – 2% of the company's profits2% of the company's profits

• Stock option plan Stock option plan – 10% OTC discount for all employees10% OTC discount for all employees

• People take better care of things People take better care of things they own they own – Special care ultimately passed on to Special care ultimately passed on to

the customer the customer

Technologically Technologically InnovativeInnovative

Delta hopes smart tags will help it track baggage and cut costs.

Credit: The Associated Press

RFID RFID TagsTags

• Allow for non-contact readingAllow for non-contact reading effective in environments where bar effective in environments where bar code code labels can’t survivelabels can’t survive

• Further improve baggage handling, Further improve baggage handling, provide provide real-time baggage updates, and provide real-time baggage updates, and provide better, faster and friendlier servicebetter, faster and friendlier service

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.

In-flight In-flight Entertainment:Entertainment:- Seat-back video in all - Seat-back video in all classesclasses- Pay-per-view movies - Pay-per-view movies (AVOD) (AVOD) - Interactive video games - Interactive video games - Live TV- Live TV

Telecommunications:Telecommunications:- Server technology; MP3’s- Server technology; MP3’s- High Speed via satellite- High Speed via satellite- Wireless Access for laptops- Wireless Access for laptops- In-seat power outlets- In-seat power outlets

Technologically Technologically InnovativeInnovative

Customer-CentricCustomer-Centric

• ““ZONE" System ZONE" System – Speeds up the boarding processSpeeds up the boarding process; ; rather than boarding back rows first, rather than boarding back rows first, passengers sitting in window seats board first, passengers sitting in window seats board first, followed by the middle seats, then aisle seats. followed by the middle seats, then aisle seats.

• Better Gate DisplaysBetter Gate Displays• Convenient kiosk check-inConvenient kiosk check-in

• Expanded ConcoursesExpanded Concourses

Customer-CentricCustomer-Centric

• More Kid-Friendly:More Kid-Friendly:– Free headphones, Children’s movies Free headphones, Children’s movies – Children’s music station, Free playing cards Children’s music station, Free playing cards – Coloring game booklet with crayonsColoring game booklet with crayons

• Bring front line employees out more Bring front line employees out more to assist, allowing flyers to get to assist, allowing flyers to get through the lines quickerthrough the lines quicker

3 Pronged ‘Hybrid’ 3 Pronged ‘Hybrid’ Strategy:Strategy:

• Technologically AdvancedTechnologically Advanced

• Customer-Centric ApproachCustomer-Centric Approach

• ConsistencyConsistency– Critical to final consumer’s perception - one Critical to final consumer’s perception - one

good flight does not make a good airline - nor good flight does not make a good airline - nor does the latest seating or entertainment does the latest seating or entertainment technology in isolation necessarily make a technology in isolation necessarily make a good airline. good airline.

What Could Go Wrong?What Could Go Wrong?

• Overweight people could get offendedOverweight people could get offended

• Technology advantages can be copiedTechnology advantages can be copied

• People become even more price sensitive and People become even more price sensitive and

don’t care about added value or extra amenitiesdon’t care about added value or extra amenities

– Unable to win over budget-minded fliers with offers of Unable to win over budget-minded fliers with offers of

better service and lower faresbetter service and lower fares

• Pilot contract negotiations could failPilot contract negotiations could fail

Declining Declining LoyaltyLoyalty

79% of US Consumers less likely to make future purchases online after receiving poor service

Delta Air Lines board member Gerald Grinstein (left) will become CEO Jan. 1, replacing current

CEO and Chairman Leo Mullin (right).

• New Leadership Needs to encourage the New Leadership Needs to encourage the hearts of the workers, inspire a shared vision hearts of the workers, inspire a shared vision and establish new rules, otherwise nothing and establish new rules, otherwise nothing major will really change.major will really change.

• Not able to keep employees "in high Not able to keep employees "in high spirits and motivated"spirits and motivated"

• It’s possible that the new chairman and It’s possible that the new chairman and CEO were selected merely as ‘interim CEO were selected merely as ‘interim leaders’ while the board seeks other leaders’ while the board seeks other candidates. This would be detrimental candidates. This would be detrimental if the public perceived them as if the public perceived them as temporary leaders.temporary leaders.

New Leadership Could New Leadership Could FailFail

  

Stock Continues To Stock Continues To DeclineDecline

- Lost $446 Million in 2003 Lost $446 Million in 2003 - Bankruptcy ?- Bankruptcy ?

THANK THANK YOU !YOU !