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Running head: DELTA AIR LINES, INC.

ORGANIZATIONAL ANALYSIS 1

Delta Air Lines, Inc. Organizational Analysis

Rita E. Sprouse

Ohio Dominican University


DELTA AIR LINES, INC. ORGANIZATIONAL ANALYSIS 2

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Organizational History and Current State of Affairs

This portion of the paper will include key information about Delta Air Lines, Inc. (Delta):

(a) history; (b) culture; (c) important leaders over the years; (d) current products and service

offerings: (e) target markets; and (f) methods of product and service delivery.

History

This section describes the history of Delta. The company was founded in Macon,

Georgia, in 1924, as the world’s first crop-dusting service, Huff-Daland Dusters. The company

moved to Monroe, Louisiana, in 1925. In 1928, field manager C. E. Woolman and two partners

purchased the service and renamed it Delta Air Service after the Mississippi Delta region it

served. Delta was the first international mail and passenger route on the west coast of South

America. Delta operated its first passenger flights over route stretching from Dallas, Texas to

Jackson, Mississippi, via Shreveport and Monroe, Louisiana. Also, Delta was awarded a US

Postal Service contract in 1934 to fly from Fort Worth to Charleston via Atlanta (Hoover’s,

2011). In 1941, Delta relocated to Atlanta. Woolman became the president in 1945 and he

managed the company until his death in 1966 (Delta, 2011).

Delta offered its first night service in 1935, using the Stinson Model A; the first Delta

aircraft with two pilots. Douglas DC-2 and DC-3 service was introduced and the introduction of

flight attendants, called “stewardesses,” added to flight crews. Delta contributed to the war effort

by modifying 1,000 plus aircraft, over-hauling engines and instruments and training Army pilots

and mechanics. The company was recognized in 1945 by the National Safety Council, for more

than 300 million passenger miles and 10 years of flights without a passenger or crew fatality. In

1946, Delta was recognized for more than one-half billion passenger miles without a fatality

(Delta, 2011).
Delta added more flights in 1952 after it purchased Chicago and Southern Airlines. It

offered its first transcontinental flight in 1961. In 1972, it purchased Northeast Airlines, which

added service to New England and Canada; it offered service to the United Kingdom (UK) in

1978, when the US airline industry was deregulated (Hoover’s, 2011). Delta reached a milestone

is reached and celebrated 50 years service (Delta, 2011).

In 1982, Delta’s employees pledged $30 million to buy a Boeing 767 jet, The Spirit of

Delta. The company posted its first loss in 1983 due to the weak U.S. economy and rebounded

in 1985 when it was able to purchase Los Angeles-based Western Air Lines in 1986. Delta then

began service to Asia in 1987. In 1990, Delta joined TWA and Northwest to form Worldspan, a

computer reservation service (Hoover’s, 2011).

Delta continued to purchase gates, planes, and routes despite a slump in 1990 earnings.

These purchases elevated it from a domestic player to a top international carrier; however it also

contributed to a $2 billion loss for the company between 1991 and 1994. In efforts to recover,

Allen began a cost-reduction plan in 1994 that cut several routes and 15,000 jobs over three

years. These measures negatively affected employee morale and the company’s reputation began

to suffer in customer service. The company decided to discontinue unprofitable international

routes in 1995 and introduced no-frills Delta Express in 1996 (Hoover’s, 2011).

The company’s unprofitable code-sharing agreement was dissolved with Singapore

Airlines and it began a Latin American expansion drive. Delta signed a marketing accord with

United under which the carriers consolidated their frequent-flier programs (Hoover’s 2011). In

1998, Delta was the first airline to install automatic defibrillators on board all of its aircraft and

Air Transport World magazine named Delta its global Airline of the Year (Delta, 2011).
Delta formulated an alliance with Air France and Aeromexico in 1999. SkyTeam was

launched in 2000, which included Korean Air Lines. This realignment led it to end code-sharing

deals with the Swiss Group, Sabena, and Austrian Airlines. Delta purchased Atlantic Southeast

Airlines and Comair regional carriers.

After the terrorist attacks on New York and Washington, DC, on September 11, 2001, air

reduced travel forcing Delta to reduce its flight schedule and workforce by about 15% (Hoover’s

2011). As a result, Delta posted its first financial loss in six years (Delta, 2011). To attempt to

streamline the business further, the firm sold a 40% share in reservation system Worldspan in

2003.

Delta launched a budget carrier named Song in 2003 to compete with other low-fare

carriers (Hoover’s, 2011). The company leads the industry with a new model for passenger

check-in: (a) lobby redesign; (b) expanded kiosk use; (c) the introduction of Delta Direct phone

banks; (d) lobby assist agents; and (e) new signs and processes to improve traffic flow. This

undertaking implements the largest domestic codeshare alliance with Continental and Northwest.

It is the first US airline to offer prerecorded audio flight information at the gate. Delta is

celebrating 83 years of passenger service as of 2011 (Delta, 2011).

Delta filed for Chapter 11 bankruptcy protection on September 14, 2005, and emerged on

April 30, 2007. In November 2006, US Airways Group, Inc. proposed a merger with Delta,

initially offering $4.0 billion and 78.5 million shares of US Airways common stock. On January

10, 2007, US Airways increased the bid to $5.0 billion and 89.5 million shares. However, Delta

argued that its stand-alone plan offered better value to creditors, and the creditors committee

announced support to Delta’s stand-alone plan on January 31, 2007, and on February 1, 2007, US

Airways withdrew its proposal (Standard and Poor’s, 2011).


Important Leaders Over the Years

C. E. Woolman became the president in 1945 and managed the company until his death in

1966. In 1987, a longtime employee, Ronald Allen, became CEO. Leo Mullin replaced Allen in

1997. In 2003, CEO Leo Mullin stepped down and was replaced by Gerald Grinstein (Hoover’s,

2011). Richard Anderson, the former CEO of Northwest Airlines, succeeded Grinstein as Delta’s

CEO in September 2007 (Trubey, 2008).

Culture

Delta company culture is addressed. In 2006, Delta became the National Safety Council’s

2006 Occupational Industry Leader – the first airline recognized. J.D. Power Customer

Satisfaction Survey ranked Delta second overall of the network carriers in overall customer

service. Business Traveler readers named the company “Best Frequent Flyer Program,” “Best

Airline Web Site,” and “Best Airport Lounge” (Delta, 2011).

In May 2006, the company’s pilots voted to accept a contract with changes in pay,

benefits, and work rules designed to save Delta about $280 million a year. The deal avoided an

impending strike that the company said would have put it out of business (Hoover’s, 2011).

In 2008, Anderson oversaw one of the airline industry’s biggest mergers when Delta

acquired Northwest Airlines. “The culture of Delta Air Lines Inc. will survive the carrier’s

merger with Northwest Airlines,” said Delta’s CEO Richard Anderson to a group of Atlanta

business executives. Anderson said, its commitment is evident, its decision to offer employees

profit sharing and its emphasis on customer service, the company is also dedicated to providing

the best compensation (Trubey, 2008).

The acquisition deal faced several hurdles, including review by antitrust regulators and

initial opposition from Northwest’s unionized pilots. A month after the acquisition was
announced, a deal was finally agreed upon, and both sets of pilots were given raises and an

equity stake in the combined company. The consolidation was completed with Northwest

Airlines in early 2010 (Hoover’s, 2011).

Delta employees attempted to unionize three times in eight years according to The

Atlanta Journal-Constitution. The Associated Press wrote that Delta is “the only big U.S. airline

that is mostly nonunion.” TheStreet.com wrote that Delta’s CEO Richard Anderson reminded

workers “that after the merger the carrier agreed to provide 15% of pre-tax profits and 15% of its

stock to employees. Additionally, although the carrier lost billions of dollars in 2007 and 2008, it

offered raises in both years.” The publication quotes Anderson as saying: “There’s a moral

obligation to make this a good place to work” (Mutzabaugh, 2010). The New York Times

reported, flight attendants at Delta Air Lines rejected, by a narrow margin, a third attempt to be

represented by a union. Delta has argued that unions could disrupt its corporate culture, which

relies on direct talks with workers. That culture of cooperation contrasts with the poor relations

that Northwest had with many of its own labor groups. “Our direct relationship works well for

our people and our company,” Delta said in a statement after the vote. “Our flight attendants

have spoken and we are pleased that so many flight attendants agree” (Mouawad, 2010).

Delta’s commitment to its employees expands even further; maintaining strong working

relationship, it is important to mention that it has been named one of Human Rights Campaign’s

2011 ‘Best Places to Work’ for Lesbian Gay Bi Transsexual (LGBT). “The Human Rights

Campaign recognizes our commitment to and culture of inclusiveness in our workplace,” said

Mike Campbell, executive vice president – Human Resources and Labor Relations. “Once again

achieving a perfect score on the HRC’s Corporate Equality Index acknowledges our consistent

effort in making Delta a great place to work for our employees worldwide” (Delta, 2011).
Current Products/Services Offerings, Delivery and Target Markets

This section addresses current products, services, delivery, and target markets. As of

April 20, 2010, Delta served 355 destinations worldwide in 65 countries. Revenues in North

America accounted for 68% of 2009 total, Transatlantic 18%, Latin America 5%, and Pacific 9%

(Standard and Poor’s, 2011). Delta provides scheduled air transportation for passengers and

cargo throughout the United States, and around the world. Delta’s route network is based on the

hub system it operates at airports in Atlanta, Cincinnati, Detroit, Memphis, Minneapolis/St. Paul,

New York-JFK, Salt Lake City, Paris-Charles de Gaulle, Amsterdam and Tokyo-Narita. The hub

operations include flights, which gather and distribute traffic from markets in the geographic

region surrounding the hub to domestic and international cities and to other hubs. The network is

supported by a fleet of aircraft that vary in terms of size and capabilities (iStockAnalyst, 2010).

Current State of Affairs

Delta became one of the world’s largest airlines by traffic after its $2.8 billion

acquisition/merger of Northwest Airlines in 2008 (Hoover’s, 2010). Recently, Delta became the

second largest in October 2010 with the merger of UAL Corporation and Continental Airlines

(Standard and Poor’s, 2011). Fortune 500 2010 World most admired companies, ranked Delta

84th in its top100.

Mission and Vision Statement

This portion of the paper will describe the mission statement for Delta Air Lines, Inc.

(Delta). According to the authors of “Strategic Management and Competitive Advantage,” Jay

B. Barney and William S. Hesterly, a firm’s mission is its long-term purpose. Missions define

both what a firm aspires to be in the long-run and what it wants to avoid in the meantime.

Missions are often written down in the form of mission statements (Barney and Hesterly, 2010).

Mission Statement: Definition


The Business Dictionary defines a mission statement as a: written declaration of a firm's

core purpose and focus which normally remain unchanged, whereas business strategies and

practices may frequently be altered to adapt to the changing circumstances. Properly crafted

mission statements: (1) serve as filters to separate what is important from what is not; (2) clearly

state which markets will be served and how; and (3) communicate a sense of intended direction

to the entire organization. A mission is different from a vision in that the former is the cause and

the latter is the effect; a mission is something to be accomplished whereas a vision is something

to be pursued for that accomplishment (Business Dictionary, 2011).

Entrepreneur.com stated that a mission statement defines what an organization is, why it

exists, its reason for being. At a minimum, your mission statement should define who your

primary customers are, identify the products and services you produce, and describe the

geographical location in which you operate (Entrepreneur, 2011).

While defining a firm’s mission is an important step in the strategic management process,

it is only the first step in that process. A firm’s mission can help, hurt, or have no impact on its

performance, missions by themselves do not necessarily lead a firm to choose and implement

strategies that generate competitive advantages (Barney and Hesterly, 2010).

Delta’s Mission Statement

“We – Delta’s employees, customers, and community partners together form a force for

positive local and global change, dedicated to bettering standards of living and the environment

where we and our customers live and work” (Company-Statements-Slogans, 2011).

According to Delta’s website, Delta is focused on global good, entitled “Delta Force for
Global Good,” which includes the following categories: (a) Advancing Global Diversity; (b)

Improving Global Wellness; (c) Improving the Environment; (d) Promoting Arts and Culture;

and (e) The Breast Cancer Research Foundation (Delta, 2011).

Organization’s Business, Philosophy, Core Values, and Beliefs

Delta states, it is a culture of global inclusion and represents people of all languages,

ethnicities, cultures, gender identification, races, ages, sexual orientation, educations, religion,

work experiences, family status, capabilities, political views, geographical and regional

identification values, skills, personalities, citizenship status, socioeconomic backgrounds,

community membership and even communication styles (Delta, 2011).

Delta supports organizations within its local communities that are focused on Health and

Wellness. Delta is a proud sponsor of the American Cancer Society, The Breast Cancer Research

Foundation, St. Jude Children’s Hospital, the Children’s Miracle Network, the Carter Center, and

Habitat for Humanity, as well as many other causes (Delta, 2011).

Delta is an active partner in supporting community organizations, museums and exhibits

that enlighten and inspire people to better themselves and better their world. Current

partnerships include the National Black Arts Festival, the Atlanta Symphony Orchestra, Tribeca

Film Festival, the Minnesota Orchestra, the High Museum of Art, the Guthrie Theater, the Fox

Theater, and many others (Delta, 2011).

TheStreet.com writes Delta CEO Richard Anderson is quoted to have said: “There’s a

moral obligation to make this (Delta) a good place to work.” William Swelbar, a research

engineer at the MIT’s International Center for Air Transportation, said he thinks there’ a good

reason for Delta to make that argument. “One of the things Delta has always had with their

workforce is flexibility, and that drives their culture” (Mutzabaugh, 2010).


CEO Richard Anderson said, “Its (Delta) commitment is evident, in its decision to offer

employees profit sharing and its emphasis customer service, the company is also dedicated to

providing the best compensation possible” (Trubey, 2008).

Personal Version of Delta’s Mission Statement

Delta has a vested interest in employees, customers, shareholders, local and global

environments, by promoting diversity, superior customer service, maintaining profitability, and

continually investing in the improvement of the environment. We encourage positive

partnerships and understand that the ability to continually progress, transform, and expand our

business is vital for continued sustainability as a leader in the airline industry.

Changes to Delta’s Mission Statement

Enhancements to Delta’s mission statement: (1) naming the shareholders; (2) maintaining

profitability; and (3) the ability for the firm to continually progress, transform, and expand. It is

important that the business adapts to the varying needs of the market and recognizes these

changes are necessary to sustain a successful business.

For Delta to continue to be the leader, it will need to acknowledge when these

changes need to take place. Delta must be willing to adjust and make decisions that are best for

the firm’s survival, while continuing to value employees, customers, and the environment. It

must formulate positive partnerships and identify when or if these partnerships need end.

Analysis of the External Environment

This section describes the external environment for Delta Air Lines, Inc. (Delta). One of

the critical determinants of a firm’s strategy is the evaluation of the threats and opportunities in

its competitive environment. If a firm understands these threats and opportunities, it is one step

closer to being able to choose and implement a “good strategy”; that is a strategy that leads to

competitive advantage (Barney and Hesterly, 2010).


Opportunities

This section describes opportunities (or trends) Delta is currently experiencing: (1)

company growth due to strategic merger, becoming the second largest passenger airline in the

world after merging with Northwest Airlines in 2008 (Delta Air Lines, 2011); (2) offering

services in the world market for aircraft maintenance, repair and overhaul (MRO), MRO market

looks strong and is expected to grow during the next six years (Datamonitor, 2009); (3)

increasing market awareness as a preferred international carrier with place-based digital

advertising (Edison Research, 2009); (4) currently only airline offering no expiration on Sky

miles (Delta, 2011); (5) recession coming to an end, recovery of U.S. airline industry

(Datamonitor, 2009); (6) the company is well positioned to capitalize on the growing U.S.

regional airline industry (Datamonitor, 2009); (7) moderate growth in global air freight industry

(Datamonitor, 2009); (8) profit reported 2010 in second quarter, compared to prior year’s loss

2009 (Forbes’s, 2011); and (9) expanding opportunities for diverse business suppliers, new web

site expands opportunities for minority, woman-owned and small business suppliers (Delta,

2011).

Threats

This section describes threats Delta is currently facing: (1) environmental findings

regarding high-level carbon emissions could reveal more environmental damage than previously

determined (Delta, 2011); (2) according to U.S. Department of Transportation, Delta drew the

most consumer complaints of any U.S. airline in 2010 (USNews: Delta the worst airline, 2010);

(3) union battle continues in legal filings (Mouawad, 2010); (4) Delta matched American Airlines

fare hike (Baysden, 2011); (5) increasing competition for routes, services, and fares
(Datamonitor, 2009); (6) jet fuel prices continuing to fluctuate and are likely to increase due to

2011 turmoil in oil-producing regions.

An External Factor Evaluation (EFE) Matrix was constructed to summarize and evaluate

economic, social, cultural, demographic, environmental, political, governmental, legal,

technological, and competitive information (David, 2009). EFE Matrix list the external factors

identified through the external-audit process; identifying a total of 16 opportunities and threats

that are currently affecting Delta and the airline industry. A weight factor ranging from 0.0 (not

important) to 1.0 (very important) was assigned after comparing successful and unsuccessful

competitors; the sum of all the weights assigned to the factors must equal 1.0. A rating was

assigned to each opportunity is between 1 and 4 for each external factor to indicate how

effectively Delta’s current strategies respond to the factor. Ratings are company-based and both

threats and opportunities can receive a 1, 2, 3, or 4. Each factor’s weight is multiplied by its

rating to determine a weighted score. The sum of the weighted score for each variable

(opportunity and threat) to determine the total weighted score for Delta. The weighted score for

Delta is 2.64.

The EFE Matrix for Delta Air Lines, Inc. is provided in Table 1.1. Note that the most

important factor to being successful in the airline business is “Environmental finding regarding

high-level carbon emissions” as indicated by the .11 weight. Also note that Delta is doing

excellent in regard to handling two factors “Second largest passenger airline in the world, after

merging with Northwest Airlines in 2008” and “Recovery of US airlines industry – recession

coming to an end.” The factors are listed in quantitative terms to the best extent possible, rather

than in vague terms (David, 2009).


The total weighted score of 2.64 is above the average (midpoint) of 2.5, so Delta Air

Lines, Inc., is doing pretty well, taking advantage of the external opportunities and avoiding the

threats facing the firm. There is definitely room for improvement, because the highest total

weighted score would be 4.0. As indicated by ratings of 1, Delta needs to capitalize more on the

“2010 company profit in 2nd Quarter, compared to prior year’s loss 2009” and “increased

awareness as preferred international carrier with place-based digital advertising” opportunities.


TABLE 1.1 EFE Matrix for Delta Air Lines, Inc.

Weighted
Key External Factors Weight Rating Score
Opportunities
Second largest passenger airline in the world,
merged w/Northwest Airlines 2008 0.1 4 0.4
Delta expanding its outreach to small,
minority-owned businesses enhancing
diversity 0.03 2 0.06
Delta SkyMiles do not expire, only airline that
offers no expiration 0.05 3 0.15
Recovery of US airline industry - recession coming
to an end 0.05 4 0.2
2010 Company profit in 2nd Quarter, compared to
prior year's loss 2009 0.03 1 0.03
Delta is well positioned to capitalize on growing
US regional airline industry 0.04 2 0.08
Delta increased awareness as a preferred
international carrier w/place-based digital
advertising 0.06 1 0.06
Moderate growth in global air freight industry 0.04 2 0.08
World market for aircraft maintenance, repair,
and overhaul (MRO) 0.08 2 0.16

Threats
Intense Competition - routes, services, and
fares 0.06 2 0.12
Delta joined airline fare hike 0.07 2 0.14
Delta drew the most consumer complaints of
any U.S. airline in 2010, according to U.S.
Dept of Transp. 0.08 3 0.24
Jet fuel prices may swing wildly or likely
increase due to 2011 turmoil in oil-producing
regions 0.05 3 0.15
Delta-union battle continues in legal filings 0.08 2 0.16
Environmental findings regarding high-level
carbon emissions could reveal more
environmental damage than previous thought 0.11 3 0.33
Reputation damaged Delta rated worst airline
by USNews.com 2010 0.07 4 0.28
Total 1.00 2.64

Analysis of the Internal Environment

This section of the paper will evaluate the internal strengths and weaknesses of Delta Air

Lines, Inc. (Delta) by providing financial statement summary information as well as financial

ratios for Delta and the industry. To support this analysis a spreadsheet showing the last three
years of side-by-side income statement and balance sheet fiscal year end data have been

provided.

Delta recorded revenues of $28,063 million during the financial year ended December

2009(FY2009), an increase of 23.6% over FY2008. The operating loss of the company was $324

million during FY2009, when compared to an operating loss of $8,314 million in FY2008. The

net loss was $1,237 million in FY2009, when compared to a net loss of $8,922 million in

FY2008 (Datamonitor, 2010).

Delta recorded revenues of $22,687 million during the financial year ended December

2008 (FY2008), an increase of 18.5% over FY2007. The increase in revenues was due to the

inclusion of Northwest’s operations, fare increases, pricing and scheduling initiatives and

increased service international destinations. The operating loss of the company was $8,314

million during FY2008, when compared to an operating profit of $1,096 million in FY2007. The

net loss was $8.922 million in FY2008, when compared to a net profit of $1,612 million in

FY2007 (Datamonitor, 2009).

Delta is the world’s largest airline, providing scheduled air transportation for passengers

and cargo throughout the US and around the world. Despite economic slowdown, the company

has recorded strong financial performance in recent years. The company's revenue increased at a

compounded annual growth rate (CAGR) (2004–09) of 13%. The revenue increased from

$15,235 million in FY2004 to $28,063 million in FY2009. Delta witnessed an increase of 18.5%

in its FY2008 revenues over FY2007 and an increase of 23.6% in its FY2009 revenues over

FY2008. The increase in the company believes the merger will generate approximately $2 billion

in annual revenue and cost synergies by FY2012 from more effective aircraft utilization and

diversified route system (Datamonitor, 2010).


Although, Delta’s revenues have increased in 2010, conducting an internal evaluation of

its profitability accounting ratios suggest that its profitability increased due to the merger with

Northwest Airlines, prior to this merger, Delta had two consecutive years of losses (2009 and

2008). Reviewing Delta’s liquidity ratios, both the current ratio and quick ratio fall below the

recommended ranges. Current ratio recommended range is 2 to 3, Delta’s is .64. Quick ratio, a

ratio of 1 is thought to be acceptable in many industries, Delta’s is .61. Delta has high debt and

is carrying a large amount of liabilities (Barney and Hesterly, 2009).

Another ratio to evaluate is the leverage ratios, or ratios that focus on the level of firm’s

financial flexibility, including its ability to obtain more debt. The debt to equity ratio is a

measure of the use of debt versus equity to finance a firm’s business activities. Generally

recommended less than 1(Barney and Hesterly, 2009). Delta’s debt to equity ratio is .98. This

indicates Delta has high debt and should not take on anymore.

Please refer to the Table below containing some accounting ratios for Delta:

Accounting Ratios 2010 2009


ROA 0.01 N/A
ROE 0.66 N/A
Gross Profit Margin 0.45 0.40
Current Ratio 0.64 0.81
Quick Ratio 0.61 0.78
Debt to assets 0.98 0.99

Delta’s Balance Sheet and Income Statement Spreadsheets are provided on the following

pages for reference.


Financial State of the Delta Air Lines, Inc
Balance Sheet Figure 1A
Values in Millions
Period Ending Date 2010 2009 2008
Assets
Cash and Short Term Investments 3610.00 4678.00 4467.00
Total Receivables, Net 1456.00 1353.00 2652.00
Total Inventory 318.00 327.00 388.00
Prepaid Expenses 1159.00 853.00 637.00
Other Current Assets, Total 764.00 780.00 830.00
Total Current Assets 7307.00 7991.00 8974.00

Property/Plant/Equipment, Total-Net 20307.00 20433.00 20627.00


Goodwill, Net 9794.00 9787.00 9731.00
Intangibles, Net 4749.00 4829.00 4944.00
Long Term Investments 0.00 0.00 0.00
Note Receivable - Long Term 0.00 0.00 0.00
Other Long Term Assets, Total 1031.00 749.00 808.00
Total Assets 43188.00 43789.00 45084.00
Liabilities and Shareholders' Equity
Accounts Payable 1713.00 1249.00 839.00
Payable/Accrued 0.00 0.00 0.00
Accrued Expenses 2024.00 1802.00 1097.00
Notes Payable/Short-Term Debt 0.00 0.00 295.00
Current Port. Of LT Debt/Capital Leases 2073.00 1533.00 1014.00
Other Current Liabilities, Total 5575.00 5213.00 3360.00
Total Current Liabilities 11385.00 9797.00 6605.00

Total Long Term Debt 13179.00 15665.00 7986.00


Deferred Income Tax 1924.00 1917.00 855.00
Minority Interest 0.00 0.00 0.00
Other Liabilities, Total 15803.00 16165.00 6864.00
Total Liabilities 42291.00 43544.00 22310.00

Redeemable Preferred Stock 0.00 0.00 0.00


Preferred Stock - Non-Redeemable, Net 0.00 0.00 0.00
Common Stock 0.00 0.00 0.00
Additional Paid-In Capital 13926.00 13827.00 9512.00
Retained Earnings (Accumulated Deficit) -9252.00 -9845.00 314.00
Treasury Stock - Common -199.00 -174.00 -148.00
Other Equity, Total -3578.00 -3563.00 435.00
Total Equity 897.00 245.00 10113.00
Total Liabilities & Shareholders' Equity 43188.00 43789.00 32423.00
http://moneycentral.msn.com 2/23/2011
Financial State of Delta Air Lines, Inc.
Income Statement Figure 1B
All Numbers in thousands
Annual Data

Period End Date 2010 2009 2008

Operating Revenue (Revenue/Sales) 31,755,000 28,063,000 22,697,000

Total Revenue 31,755,000 28,063,000 22,697,000

Cost of Sales 17,358,000 16,643,000 14,870,000

Cost of Sales with Depreciation 17,358,000 16,643,000 14,870,000

Gross Margin 14,397,000 11,420,000 7,827,000

Gross Operating Profit 14,397,000 11,420,000 7,827,000

Selling/General/Administrative Expenses, Total 8,573,000 8,243,000 5,832,000

Operating Income 4,763,000 2,048,000 9,156,000

Operating Income b/f Depreciation 5,824,000 3,177,000 1,995,000

Depreciation 1,511,000 1,536,000 1,266,000

Depreciation Unreconciled 1,511,000 1,536,000 1,266,000

Operating Income After Depreciation 4,313,000 1,641,000 729,000

Interest Income 35,000 27,000 92,000

Other Income, Net (222,286,000) (1,564,000) (730,000)

Other Special Charges (450,000) (407,000) (8,427,000)

Special Income/Charges (450,000) (407,000) (8,427,000)

Total Income Avail for Interest Expense (EBIT) 1,612,000 (303,000) (8,336,000)

Interest Expense 1,004,000 1,278,000 705,000

Pre-tax Income (EBT) 608,000 (1,581,000) (9,041,000)

Income Taxes 15,000 (344,000) (119,000)

Net Income from Continuing Operations 593,000 (1,237,000) (8,922,000)

Net Income from Total Operations 593,000 (1,237,000) (8,922,000)

Total Net Income 593,000 (1,237,000) (8,922,000)


http://finapps.forbes.com 2/23/2011

Internal Factor Evaluation (IFE)


This section describes the internal environment for Delta Air Lines, Inc. (Delta). It is

important to analyze a firm’s internal strengths and weaknesses. A strategic-management audit

of a firm’s internal operations is vital to organizational health (David, 2009).

Strengths

This section describes Delta’s strengths Delta: (1) strategic merger of

Northwest Airlines (Datamonitor, 2010); (2) bilateral and multilateral marketing alliances with

foreign airlines to improve its access to international markets (Datamonitor, 2009); (3) consistent

top line growth (Datamonitor, 2009); (4) fleet upgrades and winglet installations annually

through mid-2013; and (5) exit the all-cargo business at the end of 2009 with the grounding of

the remaining Northwest Airlines' B747 200 freighters due to "age and inefficiency,” a cost

reduction measure (“Delta Exits,” 2009).

Weaknesses

This section describes weaknesses Delta is currently facing: (1) Overdependence on the

North American market (Datamonitor, 2009); (2) High debt obligations (Datamonitor, 2009); (3)

total current assets reduced from 7991 to 7301 (value in millions) (Money Central, MSN, 2010);

(4) unfunded employee post retirement benefits(Datamonitor, 2010); and(5) sluggish

performance of Delta in Atlantic & Latin American regions (Datamonitor, 2010).

An Internal Factor Evaluation (EFE) Matrix was constructed to summarize and evaluate

the major strengths and weaknesses in the functional areas of Delta, and it also provided a basis

for identifying and evaluating relationships among those areas (David, 2009). IFE Matrix list the

key internal factors as identified through the internal-audit process; identifying a total of 10

strengths and weaknesses that are currently affecting Delta and the airline industry. A weight

factor ranging from 0.0 (not important) to 1.0 (all-important) was assigned to each factor. The
sum of all the weights assigned to the factors must equal 1.0. A rating was assigned to each

strength; strengths must receive a 3 (a minor strength) or a 4 (a major strength). A rating was

assigned to each weaknesses; weaknesses must receive a 1 (a major weakness) or a 2 (a minor

weakness). Ratings are company-based, whereas the weights are industry based. Each factor’s

weight is multiplied by its rating to determine a weighted score. The sum of the weighted score

for each variable (strength and weakness) to determine the total weighted score for Delta. The

weighted score for Delta is 2.59.

The IFE Matrix for Delta Air Lines, Inc. is provided in Table 2.1. Note that the most

important factor to being successful in the airline business is “Strategic merger with Northwest

Airlines” as indicated by the .15 weight. Also note that Delta is doing excellent in regard to

handling two factors “Consistent top line growth” and “Bilateral and multilateral marketing

alliances with foreign airlines to improve its access to international markets.” The factors are

listed in quantitative terms to the best extent possible, rather than in vague terms (David, 2009).

The total weighted score for Delta is 2.59, just above the average (midpoint) of 2.5,

indicating there is definitely room for improvement in Delta’s strategies, policies, and procedures

(David, 2009). Delta has high debt, is over-dependent on the North American market, and its

total current assets has decreased from 2009 to 2010. All of these factors need to be looked at

closely.

The IFE Matrix provides important information for strategy formulation. For example,

Delta may want to focus on finding ways to reduce the company’s debt. Delta may also want to

become more aggressive in its expansion into foreign markets, to lessen its dependency on the

North American market, because that is a really important (weight .12) factor to being successful

in the airline business (David, 2009).


TABLE 2.1 IFE Matrix for Delta Air Lines, Inc.

Weighted
Key Internal Factors Weight Rating Score

Strengths
Strategic merger of Northwest Airlines 0.15 4 0.64
Bilateral and multilateral marketing alliances w/foreign airlines to improve its
access to international markets 0.12 3 0.36
Consistent top line growth 0.12 4 0.48
Fleet upgrades and winglet installations annually through mid-2013 0.08 3 0.24
Exit the all-cargo business at the end of 2009 w/grounding of remaining
Northwest Airlines' B747 200 freighters due to "age and inefficiency" - cost
reduction measure 0.06 3 0.21

Weaknesses
Overdependence on the North American market 0.11 1 0.11
High debt obligations 0.12 1 0.12
Total Current Assets reduced from 7991 to 7301 (value in millions) 0.09 2 0.20
Unfunded employee post retirement benefits 0.08 1 0.09
Sluggish performance of Delta in Atlantic & Latin American Regions 0.07 2 0.14
TOTAL 1.00 2.59
is the
weighted
average

Strategic Recommendations

This section of the paper will describe the Strengths-Weaknesses-Opportunities-Threats

(SWOT) analysis conducted on Delta Air Lines, Inc. (Delta). The Strengths-Weaknesses-

Opportunities-Threats (SWOT) Matrix will be presented; it is an important matching tool that

helps develop four types of strategies: (a) SO (strengths-opportunities) Strategies; (b) WO

(weaknesses-opportunities) Strategies; (c) ST (strengths-threats) Strategies; and (d) WT

(weaknesses-threats) Strategies (David, 2009).

SO Strategies use a firm’s internal strengths to take of advantage of external

opportunities. WO Strategies aim at improving internal weaknesses by taking advantage of

external opportunities. ST Strategies use a firm’s strengths to avoid or reduce the impact of
external threats. WT Strategies are defensive tactics directed at reducing internal weakness and

avoiding external threats (David, 2009).

A schematic representation of the SWOT Matrix for Delta is provided in Figure 2.1, and

is composed of nine cells. The SWOT matrix is widely used in strategic planning; however, the

analysis does have some limitations. First, SWOT does not show how to achieve a competitive

advantage. The matrix should be the starting point for a discussion on how proposed strategies

can be implemented as well as cost-benefit considerations that ultimately could lead to a

competitive advantage. Second, SWOT is a snapshot in time. Keep in mind as circumstances,

threats, and strategies change, the dynamics of a competitive environment may not be revealed in

a single matrix. Third, SWOT analysis may lead to a firm to overemphasize a single internal or

external factor formulating strategies. There are inter-relationships among the key internal and

external factors that SWOT does not reveal that may be important in devising strategies (David,

2009).

This section will identify one business strategy that will benefit Delta. A firm’s strategy

is defined as its theory about how to gain competitive advantages. A good strategy is a strategy

that actually generates such advantages. The ultimate objective, of the strategic management

process, is the realization of a competitive advantage. Delta will have competitive advantage if it

is creating more economic value than its rivals. Economic value is defined as the difference

between the perceived customer benefits from purchasing a product or service from a firm and

the total economic cost of developing and selling that product or service (Barney and Hesterly,

2009).

The business strategy Delta will need to implement is product differentiation. Product

differentiation is a business strategy whereby firms attempt to gain a competitive advantage by


increasing the perceived value of their products or services relative to the perceived value of the

other firm’s products or services (Barney and Hesterly, 2009). The strategic recommendation for

Delta is to completely overhaul, improve, and implement a plan to transform Delta’s reputation

in customer service to become the best, not the worst, service provider. This is a forward vertical

integration because Delta will be incorporating more stages of the value chain within its

boundaries. Delta will utilize components within the organization to directly bring about this

needed change (Barney and Hesterly, 2009).

Delta offers airline transportation services for passengers and cargo (Delta, 2011). It has

received harsh criticism by customers in regards to their customer service. USNews.com wrote,

“It (Delta) had the largest drop in passenger satisfaction in the American Customer Satisfaction

Index. According to the Air Travel Consumer Reports, Delta was number one in delays for

major airlines (78% of flights arriving on time in the 12-month period ending August 2010) and

first in consumer complaints (averaging 2.23 per 100,000 enplanements in 2010)” (“USNews:

Delta the worst airline, 2010).

The Wall Street Journal addressed customer service in an article titled: “What’s the Key

to Good Customer Service?” The article presented the following question: “Why do some

companies have consistently good customer service and others routinely disappoint and

frustrate?” (“What’s the key”, 2011). Response: Management, leadership and expectations. The

article goes on to state, “Effective leaders at companies create cultures where employees are

treated with respect and expectations are clear that customers should be treated with respect.

Managers and co-workers hold employees accountable. Providing good service to customer

becomes infectious. It’s simply what you do at work, and if it is to be long-lasting, it has to be an

enjoyable part of your job” (“What’s the key”, 2011).


Improving Delta’s reputation in customer service will be costly. The following will need

to take place: (a) a budget will need to be developed to face this challenge; (b) a committee or

board formulated to oversee the project (an outside firm may need to be hired); and (c) a

management and employee buy-in is required. The current standards and measurements that are

in place at Delta for customer service will need to be re-evaluated. The committee will need to:

(a) determine what items to keep, as well as what items to eliminate; (b) research all the markets

Delta occupies, evaluating what is currently working and what is not; and (c) observe Delta’s

competition to gain an understanding as to how its competitors provide better satisfaction to

consumers. Once the committee is able to obtain and evaluate all the critical information needed

then a plan of action will need to be formulated. The committee will need to develop a branded

customer service strategy that will incorporate Delta’s mission statement.

Both Human Resources and the Training department will play a role in this process. New

training materials will need to be developed; training classes will need to be facilitated and

feedback sessions conducted. It is crucial that the committee create an atmosphere to obtain

employee and management buy-in for this overhaul to be successful. Employees will need to

understand: (a) it is necessary to provide excellent customer service for the firm to continue to

stay in business and grow; and (b) their actions to improving customer service standards will

have an impact on the bottom line. It will need to be communicated clearly, whether the

employee is a pilot or a baggage handler, that their actions directly impact the customer

experience and perception. All employees need to be made aware of how they are personally

held accountable to the success of Delta and the company’s reputation.

Performance standards and expectations should be clearly written and presented to all

employees. Employees will need to understand that these are the standards they will be
evaluated on during their annual performance review. The employees will be provided with the

necessary tools to become successful. Continued education and training will be provided to

employees throughout their career, whether in a classroom setting or in a web-based training.

Once training has been completed, Delta employees will be ask to sign a commitment letter

stating that they completely understand excellent customer service is the standard at Delta, not an

option, and employee improvement will be encouraged.

Delta will engage the marketing department to assist in the communication of Delta’s

new strategy both internally and externally, concerning excellent customer service. The project

will engage both managers and employees to assist in putting together a slogan that incorporates

Delta’s excellent customer service initiative. This will encourage employee buy-in, by creating a

sense of ownership and pride for the company and this campaign. A contest will be rolled out to

request employees to submit their ideas for the new company slogan concerning what they feel

describes excellent customer service, as well as graphic design to visually display what excellent

customer should look like. The employee (or employees) whose idea is selected will be

recognized by the CEO and rewarded for their efforts.

An internal rewards and recognition program will be established to encourage improved

behaviors in customer service. Employees will be rewarded for excellent customer service. The

committee formulated to oversee this project will also do surveys to understand in what ways

employees wish to receive rewards and recognition. A recognition budget will then be

determined and put into place for employees to receive incentive and be recognized for their

outstanding customer service. Examples of employee recognition: (a) gift cards; (b) certificates;

(c) awards banquets; (d) various monetary rewards; (e) Delta logo merchandise; and (f)

promotion.
Delta’s product differentiation is to be perceived as the airline providing the best

customer service. Consumers will choose Delta over its competitors due to this service because

it is valuable. Improving Delta’s customer service and changing consumer’s current perception

will not be an easy. It is imperative that Delta employees must understand if customers are not

happy and satisfied because these customers will take their business elsewhere. If consumers

stop using Delta and continue to choose to do business with Delta’s competitors, it will be forced

to begin cost cutting measures to stay in business. Employees need to be held accountable to

excellent customer service standards and understand it is a vital component of Delta’s success as

a company.
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