BACKGROUND

Delta Airlines is an innovative, creative company and a well-established and res

pected airline. It is also the oldest and largest air passenger carrier in the w
orld as at September 2009, after acquiring NorthWest Airlines. Since its incepti
on in 1928 Delta has built a reputation of offering consistent superior customer
service to its passengers. For four decades, Delta held the reputation of being
the most consistently profitable airline, however with the US Federal Airline D
eregulation Act of 1978, coupled with the recession of early 1980s saw the Airli
ne suffering its first financial loss in the early 1980s.
The company however managed to turn the defeat around and was again profitable w
ell into the 1990s. Delta constantly faced challenges - economic downturns, comp
etition from low cost carriers (domestic) and other international airlines compe
ting for US international travellers. By the time Delta entered the 21st century
it was faced with new challenges; such as the crippling of the airline industry
in 2001 - a direct result of the terrorist attacks of September 11th, the const
antly rising fuel prices, and the economic downturn in 2009. Delta eventually fi
led for bankruptcy in 2005, when it was no longer able to meet its financial obl
igations.
Industry analysts typify the airline industry as unattractive, unstable and cycl
ical in nature. Delta operates in an intensely competitive environment, which is
still struggling to recover from the most recent recession. Efforts to compete
with low cost carriers have not met with expectations. A pioneer of the hub and
spoke model which it uses to map its destinations, Delta`s competitive edge is bei
ng the airline of choice for international travel. Through strategic alliances w
ith other international and domestic airlines, Delta offers more options to trav
ellers in choosing airlines to take them to their destinations. Currently Delta
airline flies to over 60 countries and is the only airline to fly to all six [fu
lly populated] continents. The challenges facing Delta have significantly impact
ed the organization`s financial stability. Despite the many financial obstacles, D
elta`s cash flow has remained positive. While it is on the road to recovery, the c
ompany must find creative ways to stimulate growth in a struggling airline indus
try [and by extension the economy] if it is to maintain strong financial health,
and remain viable.
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HISTORY
In 1928 C. E. Woolman and a group of investors from Monroe, Louisiana developed
a passion for passenger air travel. Formerly Huff Deland Dusters an aerial Crop
Dusting Company, Woolman purchased the Crop Dusting Company and renamed it Delta
Air Services.
In 1934 the company was awarded a mail contract from the US Post Office, and Del
ta flew its first passengers on August 5, 1934 from Atlanta to Dallas. The compa
ny took off` and in 1941 relocated its head office from Louisiana to Atlanta in ord
er to access the facilities of the city and the Atlanta Airport as well as to ta
p into the growing market of business travellers. The company began expanding, o
vertime acquiring struggling Airlines like Chicago and Southern Airways in 1953
and Northeastern Airlines 1972, thus adding more routes. Delta`s growth continued
well into the late 1970s; by 1978 the company ranked 5th in the industry transpo
rting some 3.3 million passengers, earning revenues of approximately US$2 billio
n dollars. However the Federal Airlines Deregulations Act of 1978 had a game cha
nging impact on the Airlines industry, especially legacy carriers like Delta. Th
is era saw the emergence of new Low Cost Carriers (LCC), resulting in a more com
petitive environment. The company continued on its growth path and in 1990 Delta
held the no. 3 position, moving 67.2 million passengers with total revenue earn
ings of US$8.5 billion. When Pan Am folded in 1991, Delta assumed ownership of t
he once iconic air line acquiring routes in the Central America and the Caribbea
n regions. Delta was now transformed from a regional carrier to a competitive Gl
obal carrier. The results were also evident in its profit margins, which ultimat
ely earned the company a reputation as the most consistently profitable one in t
he industry. Delta also earned the reputation of the best paying airline in the
industry. Delta`s employee rewards system resulted in a motivated and dedicated wo
rkforce and a high staff retention rate.
Notwithstanding, Delta Airlines had its share of challenges over the years. The
problems of the late 1980s and early 1990s the recession, rising fuel prices and
the war in the Middle East severely affected the airline industry. Although the
airline industry at that time was described as unstable and unpredictable, the
early 1990s saw the emergence of smaller low cost airlines, expanding the airlin
e industry, and resulting in an intensely competitive environment. In 1996, Delt
a Express was launched to compete against these airlines. A financial failure, D
elta Express
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operated until 2003 when it was divested and replaced by Song, a unique low-cost
subsidiary airline, which has also been divested. The terrorist attacks of Sept
ember 2001 affected the already struggling US Airline industry, as all the major
airlines suffered huge financial losses. Delta operated under bankruptcy provis
ions for two years (2005 2007). During this period, it returned to having a posi
tive cash flow. Its purchase of Northwest Airlines in 2008 has resulted in a mor
e favourable financial position, as the Airline recuperates from its financial d
emise.
Currently Delta Airlines operates an extensive domestic and international air ca
rrier serving over 160 million persons each year, in markets in North America, S
outh America, Europe, Asia, Africa, the Middle East, the Caribbean and Australia
. In 2001, Delta formed a global airline alliance called SkyTeam with Air France
, Areomexico, and Korean Air. To date SkyTeam is the second largest air alliance
in the world and have 13 members and growing. Delta`s strong employee relations,
focusing on its core business (air-transportation), its commitment to providing
superior service and employing prudent financial strategies, are the pillars on
which Delta Air Lines Incorporated grew and developed. Over the years Delta`s CEOs
have been home grown`, promoted through the ranks. Richard Anderson, the current C
EO was however recruited from United Health Group having had previous experience
with Continental Airlines and Northwest Airlines.
Delta in Jamaica
Delta directly employs six persons in Jamaica. Five persons are stationed at the
Montego Bay Sangster`s International Airport three in the areas of passenger servi
ce, and two in marketing. One individual in the area of passenger service is sta
tioned at the Norman Manley International Airport (Kingston). Additional staff i
s provided on a needs basis by AJAS. Delta operates up to 10 flights daily from
the Sangster`s International airport, and one from Norman Manley International Air
port (D. Harold, telephone interview October 25, 2010). On June 30, 1997 Delta a
nd Air Jamaica signed a letter of intent to pursue cooperation in marketing and
other services, including a codesharing agreement (Air Jamaica, 1997). All agree
ments have since been rescinded.
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COMPETITIVE ANALYSIS
SWOT ANALYSIS OF DELTA Strengths Reputation: SkyTrax, the world's largest Airlin
e and Airport review site ranks Delta a 3 star airline. The 3 Star ranking signi
fies a "satisfactory" standard of core product across most travel categories.
Within this decade, a study was conducted by Harris Interactive of airline reput
ations, By measuring the attitudes of over 20,000 consumers, the Airline Reputat
ion Quotient (RQ) study rated domestic and foreign airlines on issues ranging fr
om safety and trust to customer service and food. Delta was graded with an RQ of
70, bettered only by one airline in the United States and nine airlines worldwi
de (Hucko 2000).
Geographical Coverage: Delta is the only US airline that flies to all continents
, excluding Antartica. They are a founding member of Skyteam, the world`s second l
argest airline alliance that provides flights and easy connections for their cus
tomers. Workforce: In September 2009, Delta was the recipient of the "Better Way
" award offered by the Air Transport Association (ATA) in association with the F
ederal Aviation Administration (FAA). The award recognizes government and airlin
e industry employees who work together to advance the inspection and testing of
aircraft structure, components, or systems.
In July 2010, U.S. airlines reduced overall workforce 2.3% from a year earlier,
according to the U.S. Department of Transportation. Delta was the only airline o
f seven network carriers to increase its staff complement (4). The Atlanta compa
ny has had few labor problems compared with most major airlines the last strike
was a mechanic's walkout in 1947. Entrepreurial Orientation: Joining with other
major airlines in the industry to form a global alliance called, SkyTeam. The Sk
yTeam alliance results in cost savings by sharing cargo and passenger terminal f
acilities, integrating frequent-flyer programs, consolidating sales,
4
maintenance and administrative operation, combining information technologies, an
d engaging in joint procurement where feasible (Corridore, 2003, p. 7).
Innovation effectiveness: Delta contionuously incorporates and upgrades technolo
gy to enhance customer experience. For example, in 2008 Delta installed the Airc
ell mobile broadband network, Gogo. This enabled their customers traveling with
Wi-Fi enabled devices, such as laptops, smartphones and PDAs, to access the Inte
rnet.
Weakness Customer Satisfaction: Delta has been consistently slipping in customer
satisfaction ratings. In the J.D. Power and Associates 2010 North America Airli
ne Satisfaction Study, Delta was ranked 4th of 7 traditional airlines, slipping
from third. The recent merger with NorthWest airlines has not helped, as NorthWe
st had significantly low customer service ratings (Yamanouchi 2010). Financial S
tability: Delta filed for bankruptcy protection in 2005, having $20.5 billion in
debt. They have since exited bankruptcy, but still have a significant debt to c
ontend with. For the past 2 years, Delta has been operating at a loss, of up to
$8.9 billion. Pricing: Delta`s pricing structure has struggled against low cost ca
rriers such as SouthWest, JetBlue and Spirit Airlines. They have some of the hig
hest fares in the US airline industry.
Opportunities & Threats Political and Legal environment: Airline union rules: Un
ions can now be certified if they win a majority of votes cast. Before, they cou
ld only be certified if they won the votes of the majority of workers. Delta is
currently a nonunionized airline, one of only a few. This will change the way De
lta relates to its staff. (Threat) Passenger laws: Proposed laws to penalize air
lines who bump passengers. Also, to allow passengers to cancel or change reserva
tions within 24 hours without a charge. Airlines would have to refund baggage fe
es if the passenger arrived without luggage. (Threat)
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Deregulation: Allows easy entry of competitors into the airline industry. (Threa
t) Fuel Pricing: The Obama administration is proposing laws to develop a consist
ent fuel pricing mechanism (Hunt 2010). (Opportunity)
Economic environment: Emerging Markets: Markets in emerging economies, mainly BR
IC nations (Brazil, Russia, India & China), are expected to sustain growth over
the next 20 years. Their economies and demographic developments are realized by
air travel. (Opportunity) Recovery from the recession: The International Air Tra
nsport Association (IATA) has tripled its projections for 2010, anticipation a p
rofit of $8.9 billion up from $2.5 billion (ZIR 2010). (Opportunity)
Oil Price Volatility: While oil prices over the past two years have not reached
the dizzying $147 per gallon heights of 2007, prices are expected to rise slowly
in 2011 as global economic growth leads to higher global oil demand. (Threat)
Social and Cultural environment: Public acceptance of low fare concept: With a r
eduction in disposable income worldwide, low cost airlines have gained in popula
rity. (Threat). Customer Awareness: Public has increased the use of the internet
to shop around, with a premium on safety. (Opportunity) Technological environme
nt: Emerging technologies. This allowed Delta to be the first U.S. airline to pr
ovide onboard Wi-Fi for domestic mainline fleet. Also allows them to offer flat
seat bed and on demand digital experience (Delta 2010). (Opportunity) Unducted F
an driven aircraft: Aircraft technology being touted to result in planes vastly
improved in fuel effieciency. (Opportunity)
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Natural environment: Alternative energy sources: Airlines are castigated for the
ir contribution to global warming, despite data suggesting they contribute just
2%-3% of Carbon Dioxide emission worldwide. Nevertheless, Deltas main fleet supp
liers, Boeing and Airbus, are developing 787 and A380 airplanes that run on fuel
from algae and other bio fuel sources (Hamilton 2007). (Opportunity) Competitiv
e: Short haul travel: On short routes (less than 600 miles), Delta competes not
only with other airlines, but automobiles, buses and railroads. Reduction in dis
posable income made more persons opt for longer but cheaper travel. (Threat) Low
Cost Carriers (LCC): LCCs enjoyed huge cost advantages over legacy carriers lik
e Delta. LCCs offers stripped down, no frills travel, the interest being to get
the traveller from point A to point B. This, in recent years, is an increasingly
popular travel option. This is the model used by SouthWest, Jet Blue, Spirit am
ong others. (Threat) Other Legacy Carriers: Traditional airlines constantly seek
to improve, merge or join airline alliances. Chief amongst these are the One Wo
rld alliance airlines, headed by American Airlines. Porters Five Forces New entr
ants in the industry: This is a strong possibility in the industry, with the 197
8 deregulation of the industry and access to bank loans allowing for easy entry,
in an already competitive field. Even with the current weak state of the airlin
e industry, it has remained very hot` with numerous startup airlines emerging world
wide. Threat of Substitutes: Only a threat on the domestic front. There are no r
eal substitutes for planes in international travel. Buses, private motor vehicle
s and trains offer a low cost alternative to flying. The tradeoff is the time to
travel. Bargaining power of suppliers: Only two companies, Boeing and Airbus, s
upply aircrafts to Delta and most of the other airlines. Most airlines use the s
ame model planes. This is an oligopoly, but there is no sign of collusion betwee
n the actors.
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Bargaining power of customers: This is surprisingly weak. The high costs of swit
ching from one airline to another makes this not a popular option. Options to pu
rchase tickets on the airlines website or in advance can result in lower prices.
Competitive Rivaly: This is very strong amongst airlines. There is hardly any s
egmentation in the airline industry. The low cost carriers go after everyone, an
d markets everywhere. This has resulted in airlines cutting fares to remain comp
etitive.
Only airlines that can adapt and change will survive in the airline industry. Th
e industry is marked by intense competition. Delta is achieving a competitive ad
vantage in terms of its reach. It is virtually unmatched in the number of gates
it flies to worldwide. Its employee model, whereby only its pilots are unionized
, allows for staffing flexibility. Delta is known to be one of the highest payin
g airlines, which helps to keep staff motivated. Delta has continued to be innov
ative in its efforts to halt the slide in its customer satisfaction ratings. Wit
h the power of the prospects, wherein their reviews have a wide reach, Delta had
been innovative in its approach. The flat seat bed and the development of the w
orld's most sophisticated single-aisle in-flight entertainment system, represent
s efforts to put smiles on their customers faces. While Delta has been making a
loss, the loss is attributable to debt repayment. Delta`s cash flow has been posit
ive for the past two years. This suggests that the company is on its way to prof
itability. Delta over the years has attempted to meet the advent of the LCC head
on. In 1996, Delta introduced Delta Express on the low cost model. This offshoo
t was abandoned in 2003, and replaced by Delta Song, a direct competitor to JetB
lue and SouthWest. Song folded after three years. None of the attempts at a low
fare subsidiary was financially successful. Indeed, it served to detract from, r
ather than contribute to Delta`s success and reputation. Delta continues to spend
time and money in researching the low cost market to find the right fit for the
company. The LCCs are Deltas biggest threat and highlights a major weakness. By
including features that an LCC cannot match on their flights and continuing to f
ind ways in successfully re-enter that industry space, Delta is turning those th
reats into opportunities.
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CORPORATE LEVEL STRATEGY The Marketing Plan The Delta Mission Statement: Since t
he founding of Delta Air Lines, our company has stood for safe and reliable air
transportation, distinctive customer service, and hospitality from the heart. Ou
r vision is for Delta to build on its traditions and always to meet our customer
s' expectations while taking service to even higher levels of excellence. We are
a leader in a business we know best-airline transportation. We intend to be an
even greater company and will focus our time, attention, and investment on build
ing that leadership. We are dedicated to being the best airline in the eyes of o
ur customers. We will provide value and distinctive products to our customers, a
superior return for investors and challenging and rewarding work for Delta peop
le in an environment that respects and values their contributions.
Delta employs a four pronged corporate strategy: 1. Differentiation 2. Customer
Satisfaction and Rewards 3. Employee Retention and Rewards 4. Marketing and Prom
otion
Differentiation: Despite the negative publicity generated by falling into bankru
ptcy, Delta has persevered. One reason is the strength of the Delta brand that s
ets it apart in the industry. This is primarily built on its extensive flight se
rvice. When United and US Airway attempted aggressive takeovers, they asserted t
hat the new company would take on the Delta name. It was also one of the conditi
onalites of the NorthWest merger. Delta branded its low cost carrier Song in ord
er to protect the equity of its brand (Kotler, and Keller.2009. p. 257), as it d
id not want to associate the name Delta with the entity in the event that it fai
led. Maintaining the integrity of the Delta brand was a part of the reason for d
ivesting the Delta Express and Song brands, which served to water down the Delta
name.
Through acquisitions and mergers, starting in the 1950s, Delta has the widest ga
te span of any airline. Merging with Chicago Airlines and Southern Air Lines in
1953, Western Airlines in 1987 and in 2008 with NorthWest, have seen Delta`s fleet
capacity superior to all. Additionally,
9
Delta`s purchase of virtually all of Pan Am transatlantic flight in 1991 ensured t
hat for over twenty years, Delta has a very strong claim to being the world`s fore
most global airline.
Customer Satisfaction and Rewards (The Product): Delta is committed to keeping i
ts customers happy by finding innovative ways to enhance their flying experience
. Its reward programs are amongst the best in the industry. In the "Best of Busi
ness Travel Awards" from Business Traveler Magazine (January 2008), Delta was ag
ain recognized in three categories: Best Frequent Flyer Program, Best Airport Lo
unges and Best Airline Web Site. The foundation of Delta's differentiation is it
s customer service throughout the travel experience, premium in-flight offerings
and rewards programs for frequent flyers. The airline is looking to become one
of the top three ranked airlines for customer service, on-time performance, bagg
age handling and cancelled flights as part of its turnaround plan.
NorthWest Airlines was consistently low in customer satisfaction, and this affec
ted Delta ratings immediately after the 2008 merger. Delta has since been able t
o get back to ratings it enjoyed prior to the merger.
Employee Retention and Rewards: The airline industry is highly labor-intensive,
and it is vital for Delta to keep its workforce motivated and satisfied. Pilots
are the only unionized group. They represent 17% of Deltas more than 75,000 memb
ers of staff. Indeed, Delta staff in 2008, voted to reject overtures from the As
sociation of Flight Attendants (AFA). This prompted the AFA to unsuccessfully ch
arge Delta with harassment and intimidation`.
Compensation and benefits to all categories of workers have always been top of t
he industry. A part of Deltas strategy has always been to offer fantastic benefi
ts, including health benefits, 401(k) plans and free travel. The company strives
towards providing job security and a promote from within policy. As a result, Del
ta`s staff is among the most loyal anywhere. During the period of bankruptcy, Delt
a team members took a voluntary pay reduction, and mounted a Save our Delta` campai
gn. In 1982, they presented the company a brand new Boeing 767, named The Spirit
of Delta`.
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Marketing and Promotion: Marketing Strategy - Target markets and Pricing: Delta
attempts to provide services to significant parts of the freight, business and l
eisure segments. Each segment is unique in terms of its requirements. The busine
ss segment requires high flight frequency, high seat accessibility and a vast ga
te network and interconnectivity. Through its SkyTeam association, the second la
rgest air alliance in the world, Delta`s business customers has access to 15,089 d
aily flights to 791 destinations worldwide in 162 countries. Delta itself alread
y flies to more gates than any other airline in the world. This segment commands
higher prices. The leisure market is the weakest link in the Delta marketing ch
ain, as it is very price sensitive. Delta`s pricing mechanism is even higher than
most legacy airlines, one reason why it is so susceptible to the LCCs. This segm
ent produces very low yields for the industry and is very seasonal. Delta recogn
izes however that this is potentially the largest segment of the total airline m
arket, and its growth potential is the best of all segments. For its Freight seg
ment, Delta is currently the world`s No. 1 airline, flying cargo to 64 countries a
cross six continents. It has re-engineered its containers to envirotainers`. It pro
vides specialty cargo product services - live animal, human remains, perishables
, dangerous goods and high value firearms. Again, Delta`s pricing are at the high
end of the industry. A key part of Deltas marketing strategy is its Frequent Fly
er Program. It has been recognized as one of the industry`s best. Their program, S
kyMiles, was recognized for excellence among frequent travel programs and receiv
ed The Freddie Award. InsideFlyer magazine honored Delta Air for "helping to sta
rt and shape the world of loyalty programs throughout the past 25 years." This i
s a big hit with Delta`s primary customer base, the business travelers. Promotions
: Delta has been very intuitive in how it carries out its promotions. They have
minimized the traditional marketing media. The airline is aware that today`s digit
al travellers must be reached through different avenues than the traditional TV
and billboard advertising. Delta utilizes various social networking sites, such
as Facebook, pop-sites like YouTube and other internet medium to press home the
Delta message and channel users to its Delta.com website.
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Through their various slogans throughout the years, Delta has reached out to tra
vellers with a personal touch: Much more space (advertising of Delta business cl
ass leg room) Delta gets you there You'll love the way we fly Delta is ready whe
n you are Delta is my airline
In Jamaica and other smaller markets, marketing takes place through collaborativ
e marketing with hotels, travel agencies and tour companies. They seek creative
ways to package room and flight deals with partners in the travel industry. (D.
Harold 2010)
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STRUCTURE AND CONTROLS Structure: In order to remain viable and profitable Delta
Airlines and made several transitions in its management structure. In its forma
tive years the structure at Delta Airlines was described by the management team
and industry analysts as conservative. This is consistent with a simple manageme
nt structure, where elaborate administrative and formal reporting structures are
noticeably absent. Usually key decisions are made solely by the CEO. The core f
unctions are usually carried out by individuals who are interchangeable. There a
re no role differentiations, and hence results in individuals carrying out multi
ple functions. The end results are that organisations can quickly adapt to and r
espond to environmental demands.
Currently Delta Airlines employs the machine bureaucracy structure, where work p
rocesses is standardized and streamlined. This requires the involvement and full
participation of the company`s legal and finance teams in management decision mak
ing policies. (Organisation configuration of Mintzberg). Delta`s Board of Director
s is handpicked by its shareholders, and includes leaders of other reputable com
panies. The board is supported by four key committees, namely finance, corporate
governance, auditing, and personnel and compensation. All categories of workers
are represented on the Board of Directors, including a representative for Delta`s
only unionised workers its pilots. Delta reputedly has the best and most commit
ted workforce, and offering the highest compensation package across the board, r
esulting in a strong management/employee relationship.
Controls: The airline industry is characterised as cyclical and unstable and as
such requires that airline management teams find a balance between prudent manag
ement practices to ensure that its resource employees receive fair benefits, and
adequate return on investment for its shareholders, while at the same time driv
ing cost cutting initiatives, to achieve optimal financial results. In order to
ensure that it attains its planned objectives, Delta has stringent financial con
trol methods in place. In order to determine its position in relation to its obj
ectives, Delta Airlines employs several measures.
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Financial Control: 1. Delta uses several financial ratios, balance sheet as well
as information provided by industry analysts to determine whether or not planne
d objectives are met. Some of the ratios reviewed are: Quick Ratios Currant Rati
os Net Sales/Total Assets Current Debt/Equity Long Term Debt/Equity Total Assets
/Equity Net Income/Net Sales In addition sales and market share analysis are als
o compared by Delta for strategic business decision making.
2. Profitability Control is another financial control measure used by Delta Airl
ines. Profitability is reviewed by looking at each expense as a percentage of re
venue. In addition the company reviews the revenue environment, in terms of Pass
enger/Cargo and further by region. Expenses are reviewed in the same format as r
evenues.
Strategic Control: In order to determine if the company has maximised on the ava
ilable growth opportunities in terms of markets and products, the company consis
tently examines the airline environment by conducting primary and secondary mark
et audits. The financial statements also presents a financial picture of these a
ctivities in terms of revenue earned versus revenue spent for any undertaking.
Passenger satisfaction is measured by reviewing customer surveys conducted by in
dustry analysts.
Controls exist to determine whether or not the planned objectives are being met
and taking corrective measures where necessary, to ensure that organisations are
able to keep steady pace with the environment in which it operates.
14
Kotler and Keller - 2009 posits that a company`s strategic fit will erode because
the market environment changes faster than the company`s seven Ss (strategy, struc
ture and system which make up the hardware of the business, and style, skills, s
taff and shared values are the software.) (Kotler &Keller, 2009 p. 56) Systems D
elta has strong airline routes through its pioneering of the hub and spoke model
. Currently Delta operates five hubs, four major hubs and one secondary hub. Del
ta Airlines competes on a technological advantage in that it consistently upgrad
es its technology in order to match the needs of its customers. Examples are the
internet check-in, expanded gate information and virtual check-in on its Delta.
com website.
The structure that exists at Delta facilitates the flow of information from fron
t line staff to managers which aids in the decision making process. That is, emp
loyees are encouraged at Delta Airlines to contribute to the decision making pro
cess.
It has already been established that Delta Airlines has the staff and skills to
deliver the corporate strategies. Delta employees are hired at entry level posit
ions and move through the ranks to become managers. Employees are also encourage
d to participate in cross functional jobs, allowing them to have a broad view of
the business. The company promotes from within, hence employees are motivated t
o develop themselves for future job promotions. Evidently Delta Airlines managem
ent and employees also have shared values based on the structure and the coheren
t relationship that exists.
The control measures employed by Delta are mostly financial. In an industry that
is characterised as financially unstable, financial control measures serves its
purpose. However, it would be prudent if Delta does its own marketing research
to access first hand information on the needs and demands of the market. Specifi
cally, the leisure market is the weakest segment that Delta operates in. Delta h
as had two failed attempts at competing in this market, which could be due to in
effective control measure (the lack of marketing research information), in that
regard.
Notwithstanding, the financial controls are a crucial analytical tool as it guid
es the company to effective and efficient decision making, and helps to determin
e corrective actions. Control methods present an opportunity for managers to ide
ntify changes within the market it operates in
15
and to make the adaptation as quickly as possible in order to survive. Delta has
had it fair share of challenges over the years. Despite the negative publicity
received with regards to its falling customer service and having to file for ban
kruptcy in 2005, Delta seems to have the right controls in place. In addition, i
ts ability to adapt to such a dynamic and constantly changing industry speaks vo
lumes, as it has always managed to rebound in the end.
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FINANCIAL ANALYSIS
We examined Delta`s balance sheet, cash flow and income statement in order to arri
ve at financial performance of the company. Data was pulled from the financial d
ocuments for three years (2007-2009). The emphasis is placed on the net income,
return on asset ratio and debt to equity ratio. These figures will give a clear
analysis of Delta`s performance for the three years. Net Income: This is the profi
ts or losses reflected in a company`s balance sheet at the end of the year. It mea
sures the company`s financial performance within a given year. Based on the data p
resented in fig 1, Delta experienced a $1.2 million net loss in 2009. This is as
a result of a significant weakness in the airline environment due to the global
recession. Although Delta experienced a loss in 2009 this was a significant imp
rovement compared to the loss in 2008.
(Millions USD) Total Revenue Operating Income Net Income Cash Flow
Fig. 1
2007 19,154 1,096 1,612 614
2008 22,697 (8,314) (8,922) 1,607
2009 28,063 (324) (1,237) 352
Return on Assets (ROA): This measures the overall effectiveness of management in
generating returns to common stockholders with its available assets. During 200
7 the ROA (fig. 2) for Delta was positive which indicates that Delta had a good
return of their assets and is indicative of the company making money. This put D
elta in the top position in 2007, when compared to competitors. The years 2008 a
nd 2009 were not very good for Delta as they experienced a significant loss on r
eturns in 2008. Delta managed to grow some return in 2009, but was not enough to
have taken them out of the negative, even though they did much better than year
2008.
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Ratios Return on Assets Quick Ratio Current Ratio Net Sales/Total Assets Total L
iabilities/Total Sales Total Debt/Equity Total Assets/Equity Net Income/Net Sale
s
2007 0.05 0.73 0.76 0.59 0.68 0.88 3.21 -7.78
2008 -0.2 0.64 0.67 0.5 0.98 20.9 -0.71 -0.96
2009 -0.03 0.76 0.79 0.64 0.99 70.76 -0.90 0.14
Fig. 2
Debt to Equity: This is used to measure financial leverage of a company. A high
ratio indicates that the company is able to finance its growth with debt. Delta
has shown a steady increase in its debt to equity from 2007-2009, as reflected i
n the chart above and have managed to maintain the number 1 position from 2008-2
009. This has benefited their shareholders greatly as well as to increase their
earnings. While Delta has managed to maintain a steady growth in revenue for the
3 years (2007-2009), it showed that the company experienced a significant loss
in Net Income for 2008. The purchase of Northwest Airlines could have contribute
d to this significant loss. Notwithstanding, Delta managed to maintain a positiv
e cash flow for the period, which still have them maintaining their grounds in t
he industry.
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PROJECTIONS FOR THE AIRLINE INDUSTY (2010-2029) Commercial aviation has weathere
d many downturns in the past. Yet recovery has always followed quickly as the in
dustry reliably returned to its long-term growth rate of approximately 5 percent
per year. Airlines are working relentlessly to reduce costs by replacing older,
fuelhungry airplanes and finding more efficient ways to operate. Passenger Traf
fic: Encouraging near-term indicators as the global economy recovers. Global pas
senger traffic is forecasted to grow 6% in 2010 and an average 5.3% per year unt
il 2029. Air Cargo: After two years of decline, air cargo traffic is recovering.
Air cargo traffic growth turned positive in November 2009 after 18 straight mon
ths of decline, and is expected to return its 2007 peak. This is set to grow at
5.9% over the next 20 years. Profits: Global airline financial performance is ex
pected to improve to the breakeven point this year, following a $10 billion net
loss in 2009. Asia-Pacific airlines are expected to lead the world in profits, f
ollowed by North American airlines. GDP growth rate: Global gross domestic produ
ct (GDP), the key indicator of worldwide economic activity, is the greatest driv
er for growth in air travel. This is expected to grow an average of 3.2% per yea
r for the next 20 years. Regional Projections Region Asia Pacific Europe North A
merica Air Traffic Growth 6.8% 4.4% 2.8% Domestic 4.9% International Middle East
Latin America Commonwealth of Independent States (CIS) Africa 5.5% 4.4% 7.1% 6.
9% 4.8% 4% 4% 3.3% GDP 4.6% 1.2% 3.7%
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RECOMMENDATIONS From our analysis, Delta is the airline best positioned to take
advantage of the projected growth in world airline travel, based on its extensiv
e fleet and worldwide coverage. It also has a significant presence in those regi
ons poised for the largest growth. There are, however, a few changes that we rec
ommend.
Capacity Reallocation: The domestic market in the United States is dominated by
LCCs, how Delta has twice challenged unsuccessfully. As the Growth by Regional F
low table (Appendix A) shows, the growth rate in that market in expected to be t
he second lowest in the world over the next twenty years. Meantime, Delta`s cash c
ow, the international market, is poised for greater growth.
We recommend Delta should access the individual domestic routes in the United St
ates, with a view to cutting all underperforming ones. Delta`s current domestic/in
ternational capacity mix is 70/30. We recommend that this is altered to 60/40 wi
thin the next three years. Constant surveys of the market, the actual growth com
pared to the projections, will determine if this ratio should be further reduced
. Marketing efforts need to concentrate on the Asia/Pacific, Latin America and M
iddle East regions. Appendix C shows that the LCC model has not taken off in Asi
a, with less than 8% market share. It is however air marked for rapid growth, an
d Delta needs to be aware of this market if it plans to reenter the LCC market.
As part of the capacity reallocation, Delta should look at the United States cit
ies where it has its hubs. We recommend Delta close at least one of its hubs, st
arting with its Cincinnati hub which is central to its New York, Atlanta, Minnea
polis/St. Paul and Michigan hubs. They should look at the feasibility of establi
shing at least one hub in China, considering the growth of that region and its e
mergence as the world`s number two economy. Fleet Change: Delta`s fleet is on averag
e 14 years old. With new fuel efficient technology being developed and customer-
centric features becoming more commonplace, Delta would be prudent in acquiring
or leasing new airplanes. Certainly the MD-88, MD-9 and DC-9 models used for som
e domestic flights must be retired.
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As a part of the capacity reallocation strategy recommended, Delta should reduce
its inventory of single aisle planes such as the A319, 320 and the CRJ models a
nd increase its double aisle model used on international flights.
This should commence with the next year. Customer Relations: While Delta`s employe
es are totally committed to the company, this dedication has not fully translate
d to customer satisfaction. Delta must take steps to halt the sliding customer s
atisfaction scores. Offering the employees shares in the company, along with cus
tomer service training, should help.
A staff relations program must be immediately designed and implemented.
They must continue to be innovative in their offering to customers. Recently, De
lta introduced an enhanced Sky Club dining experience at their New York hub. The
y offered made to order meals through a full service caf and bar. The caf also off
ered an extensive wine and beer selection. This concept should be expanded to hu
bs in Cincinnati, Detroit, Memphis, Minneapolis-St. Paul, New York-JFK, Salt Lak
e City, Paris-Charles de Gaulle, Amsterdam and Tokyo-Narita over the next two ye
ars.
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CONCLUSION The environment in which airlines have been operating since 2001 has
been tumultuous. One financial disaster after another has been a feature of the
decade for airlines. Delta was dragged to the pits of the crisis but has risen a
nd recovered better than any legacy airline. Delta has always been a leader in i
nnovative flight experiences. It pioneered kiosk check-in which is now industry
standard. Features aimed at making flying with Delta an experience helps to offs
et its relatively high prices. The projections for growth make this an exciting
time for airlines. How they position themselves will determine their chances of
survival, in an era where capacity management is extremely tight and cost cuttin
g occurs almost daily. Fuel and labour costs are causes for concern for Delta, b
ut these are industry wide factors and may actually benefit Delta. With Delta`s ca
pitalization, these factors may drive some of delta`s competitors out of business.
The coming years should see Delta continue to soar above the rest.
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