Delta Airlines

Todd Beals, Matt Tucker, Mary Vick

SWOT Analysis
Strengths: 1. 3rd Largest Mega Carrier 2. Innovative Strategic Business Moves Song SkyTeam Alliance Comair and Atlantic Southeast Airlines 3. Industry-leading airport model (lobby re-design, self-service kiosks)

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

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

SWOT Contd
Threats: 1. Various increased costs post-Sept. 11th (security, taxation, terrorism-risk insurance) 2. Global Airline Industry Losses ($13 billion in 2002, $18 billion in 2001) 3. Variety of Competitors (national & regional airlines, automobiles, bus, etc.)

Long-term Sustainable Competitive Advantage

Delta is achieving LTSCA by:
A largely non-union workforce Airline industry-leading airport model Worldwide route system Innovative entertainment system

Main Issues and Problems

Rising Operational Costs
Labor Cost Taxes and security fees

Labor-Management Mistrust
Large Executive Perks

Declining Profits and Market Share

Resulting from 9/11, war in Iraq, and SARS Low-cost carriers stealing market share

Customer Service
Poor Morale

Porters Five Forces

Suppliers Bargaining Power

Buyers Bargaining Power Ability to secure discount fares by advance purchases and deeply discounted fares available through the internet

Current Competitors American, United, Northwest, Continental, Southwest, USAir, America West, Alaska, ATA, JetBlue, AirTran, Spirit, Frontier, Others

Labor Union negotiating power, fuel contracts, travel agent commission rate structure, meal service

Delta Airlines
Potential Entrants Substitute Products Automobiles, railroads, and buses

TED, Pinnacle Airlines

Halls Competitiveness Model

20 American 18

16 Delta 14

United US Airways Northwest Delta

are

12

Alaska Continental United Continental American Southwest Southwest Frontier

Northwest 10

US Airways

Jet Blue America West

4 America West Alaska

ATA

Jet Blue

ATA Frontier

0 25 30 35 40 45 50 55 60 65

Operating Expenses per Available Seat-Mile (Relative Cost)

Cost Saving Strategy

Fuel Hedging Program

- Rising fuel costs, deferred fleet additions, older

less fuel efficient fleet - Reduced fuel costs by $26 million (pretax) in 3rd qtr of 2003 - Only 53% of fuel requirements - 4th qtr , forecast 47%...should be more around 75%
with incremental increases following

Forward Integration
Orbitz & Worldspan (on-line reservations)

Delta has partial ownership in both

Discounts:

3-5% discount for purchasing via internet (e-ticketing) 2% discount for check-in using self service kiosks Double SkyMiles promotion (6-12 months)
Delta saves $25 per e-ticket issued vs. paper

Labor-Management Relations
Investment in employees
Training seminars (semi-annually) Specialized job training (40 hours/year)

Executive compromises
Cap on executive compensation & pensions

Bonuses based solely on performance

Deltas High Labor Cost

Airline Pilot Wage Comparison

$300

Hourly Wage

$250 $200 $150 $100 $50 $0 Delta Southwest AirTran JetBlue Airline Series1

Labor Concessions
Proposal:
20% wage cut for all pilots No wage increases next 5 years

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

Market Penetration
Regional market coverage increase via Comair, Song, and ASA Break-even load factors:
Regional jets = 50% Large jets = 63%

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

Increase Customer Loyalty:

Delta Needs to Set itself apart

V.I.P. seating in every row Sensitive to Special Needs

Free chocolates & cocktails Form Advisory Council

- Special seats for obese travelers

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

Increase Customer Loyalty:

A La Carte Food Service

Order from a menu when booking flights online Collaboration with theme-restaurant giants such as Hard Rock
Reduce fees & penalties

$100 to change a ticket $25-80 for overweight bag $80 for oversized bag $40 for extra bag

Employee Ownership Culture

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

Stock option plan

10% OTC discount for all employees

People take better care of things they own

Special care ultimately passed on to the customer

Technologically Innovative
RFID Tags
Allow for non-contact reading effective in environments where bar code labels cant survive Further improve baggage handling, provide real-time baggage updates, and provide better, faster and friendlier service

Delta hopes smart tags will help it track baggage and cut costs. Credit: The Associated Press

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

Telecommunications:
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.

Server technology; MP3s High Speed via satellite Wireless Access for laptops In-seat power outlets

Customer-Centric
ZONE" System

Speeds up the boarding process; rather than boarding back rows first, passengers sitting in window seats board first, followed by the middle seats, then aisle seats.

Better Gate Displays Convenient kiosk check-in Expanded Concourses

Customer-Centric
More Kid-Friendly:

Free headphones, Childrens movies Childrens music station, Free playing cards Coloring game booklet with crayons
Bring front line employees out more to assist, allowing flyers to get through the lines quicker

3 Pronged Hybrid Strategy:

Technologically Advanced Customer-Centric Approach Consistency

Critical to final consumers perception - one good flight does not make a good airline - nor does the latest seating or entertainment technology in isolation necessarily make a good airline.

What Could Go Wrong?

Overweight people could get offended Technology advantages can be copied People become even more price sensitive and dont care about added value or extra amenities
Unable to win over budget-minded fliers with offers of better service and lower fares

Pilot contract negotiations could fail

Declining Loyalty

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

New Leadership Could Fail

New Leadership Needs to encourage the hearts of the workers, inspire a shared vision and establish new rules, otherwise nothing major will really change. Not able to keep employees "in high spirits and motivated"

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

Delta Air Lines board member Gerald Grinstein (left) will become CEO Jan. 1, replacing current CEO and Chairman Leo Mullin (right).

Stock Continues To Decline

- Lost $446 Million in 2003 - Bankruptcy ?

THANK YOU !