Deltaairlinesbusinessstrategy 120430204532 Phpapp02

- Analysis
- Leadership
- Culture
- Outlook
- Business Model
- Strategy
- Customer Interface
- Recommendations
Pratt Institute | DM 672 | Business Strategy
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
Traffic
- 40,000+ daily commercial departures
- 2 million US passengers daily
AGENDA
Welcome Change. Welcome the new Delta.

KEY FACTS
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.
HQ in Atlanta, GA
Founded 1928
52,386 Employees
$22,697 Sales (in millions)
$3.6 billion merger with NWA
Worlds largest airline (by traffic)
COMPETITION
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.
American
United
Continental
US Airways
Southwest
America West
Jet Blue
ATA
British Airways
China Southern
Air France
AeroMexico
Aeroflot
Virgin
Singapore Airlines
SAS
- 9/11
COMMERCIAL AVIATION IN U.S.
- Fuel Costs
Helps Drive
- Chapter 11
- Executive Management
- Delta/NWA merger (Oct. 2008)
- $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
- Capacity Cuts
Source: FAA October 2008
PROFILE
Industry Airline Revenue Growth

(adjusted for inflation)
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
Source: EIU/IATA Economic Briefing 2008
OVERVIEW
U.S. Airline Revenue Growth

OUT OF BUSINESS (2008)
MAXJet
Big Sky
Aloha
ATA
Skybus
Eos
Champion
Air Midwest
Vintage Props & Jets
Gemini Air Cargo
ExpressJet
Chapter 11
Source: ATA Industry Review 2009
Frontier
Sun Country
Primaris
OVERVIEW
Income Statement (in millions)
2007
2008
12,758
4,170
482
1,744
15,137
4,446
686
2,428
Revenue
Passenger Mainline
Passenger Regional affiliates
Cargo
Other
Total Revenue
19,154
22,697
4,189
4,686
1,164
996
3,152
725
983
933
0
0
15
Salaries
Fuel
Depreciation
Contract Service
Contract Carrier Arrangements
Landing Fees
Aircract Mantenance
Passenger Commission
Impairment of intangible assets
Restructuring Charge
Other operating
Net Income
1. Fuel (23.7%)
2. Impairment of intangible assets
3. Salaries
Expenses
Operating Expense
Top Expenses 2008
$
$
16,843
1,612
4,802
7,346
1,266
1,153
3,616
839
1,169
1,030
7,296
1,131
1,363
$
$
31,011
(8,922)
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)
Source: WSJ DAL Financial Reports
FINANCIALS
Balance Sheet (in millions)

Assets
Cash/Investments
Accounts Receivable
Maintenance
Flight Equipment
Goodwill
Leasehold Rights
Other
Total Assets
Liabilities
Accounts Payable
Air Traffic Liabilities
Taxes Payable
Accrued Salaries
Debt
Pension & retirement
Deferred Revenue
Other
2006
2007
2,784
936
192
18,115
227
279
2,911
3,168
1,092
273
10,127
12,104
2,953
2,706
19,622
936
1,797
500
405
8,012
0
709
20,856
Total Liabilities
33,215
Total Equity
$ (13,593)
32,423
1,045
1,982
320
734
9,000
3,867
3,632
1,730
22,310
10,113
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 prepetition claims to be resolved in
connection with the Chapter 11 cases.
FINANCIALS
STRENGTHS
- Worlds largest mega carrier
Although airlines will seek to recover
- Innovative business strategies (Song, Delta re-branding)
the higher cost through...fare hikes and
- Acquisition of Northwest Airlines
higher fees, this will prove increasingly
- SkyTeam alliance
difficult in a weak U.S. economy.
- 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
- S&P, May 22, 2008

Airlines have no choice but to pass on
the cost of fuel...and when passengers
- Air transportation safety
do begin to push back in significant
- Operational costs
numbers the airlines have no choice
- Susceptibility to labor-related disruptions (employee strikes)
but to slash capacity.
- Technology dependence for operations

- No clear mission & vision
- Differentiation
- Rick Seaney, WSJ 2008
S.W.O.T.
OPPORTUNITIES
- Invest in new technologies
INDUSTRY FORCES
- New Presidential Administration
- Fuel alternatives
Power of Suppliers
- Reduce operational costs
Power of Buyers
- New sources of operating revenue

- Enhance the customer experience
- Renegotiate lease agreements (2012-Atlanta HQ HUB)
THREATS
Competitive Rivalry
OTHER FACTORS
- Video Conferencing Technology
Labor
- Fluctuating Fuel Costs & Supply Chain risks
Fuel Cost
- Unionized Labor Strikes (17% of workforce is unionized)
Weather
- Disruptions/interruptions of service at hub airports
Economy
- Profit losses and adverse publicity from any aircraft accident incidents
- Government Regulation CO2 Emissions
- Global Economic Recession
- Customer reaction to new policies (baggage & food)
9/11
Regulation
S.W.O.T.
INDUSTRY FORCES
Power of Suppliers
Power of Buyers
Now what!?
Competitive Rivalry
OTHER FACTORS
Labor
Fuel Cost
Weather
Economy
9/11
Regulation
HORIZON
U.S. Airline Revenue Growth
- Chapter 11
- NWA Merger
- Fuel Hedging
- Personnel Costs
- Poor Economy
- Cutting Capacity & Jobs
- New Revenue Streams

(adjusted for inflation)
Source: EIU/IATA Economic Briefing 2008
REVIEW
Income Statement (in millions)
2007
2008
12,758
4,170
482
1,744
15,137
4,446
686
2,428
Revenue
Passenger Mainline
Passenger Regional affiliates
Cargo
Other
Total Revenue
19,154
22,697
Expenses
4,189
4,686
1,164
996
3,152
725
983
933
0
0
15
Salaries
Fuel
Depreciation
Contract Service
Contract Carrier Arrangements
Landing Fees
Aircract Mantenance
Passenger Commission
Impairment of intangible assets
Restructuring Charge
Other operating
4,802
7,346
1,266
1,153
3,616
839
1,169
1,030
7,296
1,131
1,363
Operating Expense
16,843
31,011
Net Income
1,612
(8,922)
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)
REVIEW
STRENGTHS
WEAKNESSES
- Acquisition of Northwest Airlines

- Worlds largest mega carrier & flight network
- Low on-time rating

- Operating costs
- Pacific & Atlantic Ocean flight routes

- Employees
- SkyTeam & SkyMiles alliance
- Airport model
- Brand & History
- 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
S.W.O.T.
The Huff Daland

Dusters founded
(pre-Delta)
Begins operating as
Delta Air Lines
Chicago and Southern

Air Lines merger
W.T. Beebe becomes

Chairman and CEO
1924
1934
1953
1971
1928
1945
1966
1978
Merger: Huff Daland

Dusters + Delta
Airlines. Renamed
Delta Air Service
Official corporate name

becomes Delta Air
Lines, Inc.
Delta founder C.E.

Woolman dies. Charles
H. Dolson named CEO
The Airline
Deregulation Act
passes
Source: Delta website - Delta Through the Decades
LEADERSHIP
Delta celebrates its

50th year of service
Western Airlines
merges-becomes 4th
largest US carrier
Leo F. Mullin is named

President and CEO
Delta declares
Bankruptcy. Richard H.
Anderson becomes CEO
1979
1987
1997
2006
1981
1991
2001
2008
Delta launches
Frequent Flyer
Program
Pan Am Merger
U.S. airspace closed

for two days after
terrorist attacks on
Sept. 11th
Merger with NWA
Source: Delta website - Delta Through the Decades
LEADERSHIP
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: Profit 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
Facts & Updates

(PROJECTIONS)
- Profitability in 2009 due to:

1. Lower fuel costs
2. Capacity Discipline
3. Merger synergies
Text
- Reduction of Domestic Capacity

- Delta and NW Traffic updates
Change in % of Consumer
Spending for Airline Industry
10
8
6
4
2
0
2008
2009
2010
2011
2012
2013
-2
-4
-6
-8
-10
YEAR
"They're definitely taking

capacity down probably more
than what people thought they
would be doing,"
Helane Becker, airline analyst at Jesup &
Lamont Securities
OUTLOOK

(PROJECTIONS)
Change in % of Consumer
Spending for Airline Industry
10
8
6
4
2
0
2008
2009
2010
2011
-2
-4
Text2013
2012
US Personal Consumption
expenditures for US airlines
are expected to grow at an
annual compounded rate of
5.9% between 2008 and
2013.
-6
-8
-10
YEAR
Consumer Spending on airline

travel Growth Slows and
Flattens.
OUTLOOK
INVESTMENT OUTLOOK
CONTINENTAL
22
AMERICAN
US Personal Consumption
US AIRWAYS
expenditures for US airlines
NUMBER OF IRPs
20
are expected to grow at an

18
TAM
16
DELTA
Text
UNITED
annual compounded rate of

5.9% between 2008 and
2013.
14
12
CHINA SOUTHERN
Consumer Spending on airline
CHINA EASTERN
travel Growth Slows and

4.0
SELL
3.5
2.5
3.0
HOLD
2.0
BUY
Flattens.
Source: WSJ DAL Financial Reports FEB. 2009
OUTLOOK
FUEL
CUSTOMER
NEEDS
TECHNOLOGICAL
CHANGE
ECONOMY
LABOR
REGULATION
COMPETITION
ENVIRONMENT
MARKET FORCES
LABOR
COMPETITION
ENVIRONMENT
REGULATION
ECONOMY
TECHNOLOGICAL
CHANGE
FUEL
CUSTOMER
NEEDS
Turbulent Market Forces
Suppliers
Procurement
Inbound
Logistics
Operations
Excess Capacity
& Supply
Developement
Outbound
Logistics
Marketing
& Sales
Service
Customers
Lower Demand
& Spending
VALUE CHAIN
Network & Operations
Market & Customers
(Behind the scenes)
(Perception)
PARTNER NETWORK
CUSTOMER RELATIONS
Producers, Suppliers, Partners, Employees
Service (CSR), Employees, Sales, PR

CHANNELS
CUSTOMERS
RESOURCES
ACTIVITIES
VALUE PROPSITION
Fuel
Logistics
Air Transportation
Distribution
Operations
Cargo
Delta.com
Labor
Development
Entertainment
Internet
Airports
Brand Management
(Vacation, Transfer, Business, Elite)
Food
Phone
Content
Sales & Marketing
Travel Agents
SkyMiles
Terminal
Support
Strategy
e-commerce
Training & Consulting
Partner Airline
Maintenance
IT
Advertisers
Advertising
In-flight Service
Planes
Service
Content
Passengers
Costs
Margin
Revenue
(HR, R&D, Finance, Development, Purchasing, HUBS, etc.)
(Revenue - Costs)
(Passengers, Baggage, Entertainment, Food, Advertising)
$31 billion
Creating Value
$22.7 billion
-$8.9 billion
Capturing Value
Model created by Alexander Osterwalder, Arvetica
BUSINESS MODEL
Market & Customers
(Behind the scenes)
(Perception)
PARTNER NETWORK
CUSTOMER RELATIONS
PARTNER NETWORK
Producers,
Suppliers, Partners, Employees
RESOURCES
RESOURCES
Fuel
ACTIVITIES
VALUE PROPSITION
Logistics
Air Transportation
ACTIVITIES
Distribution
Fuel
Development
Entertainment
Air Transportation
Internet
Food
Phone
Cargo
SkyMiles
Terminal
Sales & Marketing
Content
Development
Strategy
Labor
Support
IT
Advertising
Brand
Management
Maintenance
Airports
Service
Planes
Content
VALUE PROPSITION
Cargo
Operations
Brand Management
Airports
Distribution
CHANNELS
Operations
Logistics
Labor
Support
Maintenance
Content
Passengers
Travel Agents
e-commerce
Entertainment
Partner Airline
Advertisers
In-flight
Service
Food
Sales & Marketing
SkyMiles
Strategy
IT
Costs
Service
Planes
Delta.com
Margin
(Revenue - Costs)
$31 billion
Creating Value
CUSTOMERS
AdvertisingRevenue
Content
$22.7 billion
-$8.9 billion
Capturing Value
BUSINESS MODEL
Market & Customers
(Behind the scenes)
(Perception)
CUSTOMER RELATIONS
CUSTOMER RELATIONS
PARTNER NETWORK
Service (CSR),
Employees, Sales, PR

RESOURCES
Fuel
ACTIVITIES
VALUELogistics
PROPSITION
Operations
Distribution
Air Transportation
Development
Labor
Brand Cargo
Management
Airports
Sales & Marketing
Content
Support
Entertainment
Strategy
Maintenance
IT
Food
Service
Planes
SkyMiles
VALUE PROPSITION
Air Transportation
Advertising
Delta.com
Entertainment
Internet
Content
SkyMiles
Passengers
Travel Agents
Passengers
e-commerce
Terminal
Internet
Partner Airline
(Vacation,
Transfer, Business, Elite)
Advertisers
In-flight Service
Phone
Advertising
Content
Travel Agents
Terminal
e-commerce
Partner Airline
Advertisers
In-flight Service
(Revenue - Costs)
$31 billion
Creating Value
CUSTOMERS
Delta.comPhone
Food
Margin
CUSTOMERS
CHANNELS
Cargo

Costs
CHANNELS
Revenue
$22.7 billion
-$8.9 billion
Capturing Value
BUSINESS MODEL
Delta Air Lines Overview

HUBS
Marketing
- 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
- 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 flights per day
- Delta Connection: 2,533 daily
- Delta + Alliance: 6,795 daily
STRATEGY
Delta
Awareness
planning
reservation
trip
airport
arrival
check-in
security
boarding
check-in
service de-boarding
baggage airport follow-up

claim
departure & memory
Delta
Awareness
Continues
customer experience mapping
CUSTOMERS
US Airways
Virgin
Atlantic
British
Airways
Delta
Continental
American
Southwest
United
JetBlue
CUSTOMERS
Creating Value
- Reduce costs, capacity, and increase efficiency
- 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
RECOMMENDATIONS
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
RECOMMENDATIONS
Maximize value by
Charging for a better
Customer Experience
RECOMMENDATIONS
Technology
Content, Access, & Information
Games, Movies,
Messaging, &
WiFi....
RECOMMENDATIONS
Advertising
Connect Advertisers to Customers
John Smith
age 40
race white
geography NYC
status Married
children 2
RECOMMENDATIONS
Service
Your sales force in the sky...
...can I interest you in

a glass of wine?
RECOMMENDATIONS
Technology
RFID baggage tracking
Industry could
save $650 million
to $1 billion
annually
RECOMMENDATIONS
WASTE
more than 2 million

plastic cups daily
RECOMMENDATIONS
Experience
Simulation & Visualization
RECOMMENDATIONS
Experience
Visualization
RECOMMENDATIONS
Experience
Visualization
RECOMMENDATIONS
RE-Imagine your Business Model
...Charge for EVERYTHING

RECOMMENDATIONS
RE-Imagine your Business Model
...Skydiving anyone?
Q&A

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- Analysis

Pratt Institute | DM 672 | Business Strategy

COMMERCIAL AVIATION IN U.S.

Welcome Change. Welcome the new Delta.

Since the founding of Delta Air Lines, our company has

Our vision is for Delta to build on its traditions and

Pratt Institute | DM 672 | Business Strategy

COMMERCIAL AVIATION IN U.S.

- $1.142 trillion in economic activity

Pratt Institute | DM 672 | Business Strategy

Industry Airline Revenue Growth

Source: EIU/IATA Economic Briefing 2008

Pratt Institute | DM 672 | Business Strategy

U.S. Airline Revenue Growth

Pratt Institute | DM 672 | Business Strategy

Income Statement (in millions)

Top Expenses 2008

Pratt Institute | DM 672 | Business Strategy

Source: WSJ DAL Financial Reports

Balance Sheet (in millions)

Pratt Institute | DM 672 | Business Strategy

Source: WSJ DAL Financial Reports

Although airlines will seek to recover

- Innovative business strategies (Song, Delta re-branding)

the higher cost through...fare hikes and

- Acquisition of Northwest Airlines

higher fees, this will prove increasingly

difficult in a weak U.S. economy.

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

- S&P, May 22, 2008

- Air transportation safety

do begin to push back in significant

numbers the airlines have no choice

- Susceptibility to labor-related disruptions (employee strikes)

but to slash capacity.

- Technology dependence for operations

- Rick Seaney, WSJ 2008

- New Presidential Administration

Threat of New Entrants

- Reduce operational costs

- New sources of operating revenue

- Video Conferencing Technology

- Fluctuating Fuel Costs & Supply Chain risks

- Unionized Labor Strikes (17% of workforce is unionized)

- Disruptions/interruptions of service at hub airports

Pratt Institute | DM 672 | Business Strategy

U.S. Airline Revenue Growth

Source: ATA Industry Review 2009

Industry Airline Revenue Growth

Source: EIU/IATA Economic Briefing 2008

Pratt Institute | DM 672 | Business Strategy

Income Statement (in millions)

Pratt Institute | DM 672 | Business Strategy

Top Expenses 2008

Source: WSJ DAL Financial Reports

- Acquisition of Northwest Airlines

- Low on-time rating

- Pacific & Atlantic Ocean flight routes

- Susceptibility to service disruptions

Pratt Institute | DM 672 | Business Strategy

The Huff Daland

Chicago and Southern

W.T. Beebe becomes