Airlines Strategy Analysis

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Research Team: Todd Beals, Matt Tucker, Mary Vick 12/02/03

Mission – to be an air carrier with superior customer service that provides air transportation for passengers and cargo, utilizing low-cost carriers and regional jets throughout the United States and around the world.

Strengths: 1. 3rd largest mega carrier; established name; excellent reputation; worldwide brand recognition. Delta has been among the DOT’s top three in on-time, baggage handling, and customer satisfaction for the past three years. Delta’s new CEO, Grinstein, has an excellent reputation of resolving labor disputes. 2. Delta has continued to use innovative strategic business moves: a. Recently announced a new low-fare subsidiary airline servicing the East coast called Song, which has met its’ goal to push unit costs below 8 cents per seatmile, a standard industry measure. b. Joining with other major airlines in the industry to form a global alliance called, SkyTeam. The SkyTeam alliance results in cost savings by sharing cargo and passenger terminal facilities, integrating frequent-flyer programs, consolidating sales, maintenance and administrative operation, combining information technologies, and engaging in joint procurement where feasible (Corridore, 2003, p. 7). c. In early 2000, Delta acquired Comair, whose entire fleet consists of regional jets, and Atlantic southeast Airlines (ASA). The additional use of regional jets helps move Delta’s average aircraft capacity downward to better match demand. 3. Delta's industry-leading airport model includes a combination of airport lobby re-design, increased self-service technology and new airport customer service roles for employees that will help deliver speedy, convenient, helpful, friendly service to Delta customers. Delta fosters customer loyalty through quality trained employees, short waiting times, quality in-flight food service and good on-time performance. Weaknesses: 1. Labor is the industry’s largest cost item accounting for about 36% to 40% of total operating expense (Corridore, p.21). Delta has been forced to layoff 18% of its’ workforce, or 16,000 employees, with more to follow ( Delta’s pilots are the highest-paid among the major US carriers but it has been unable to persuade the pilots to agree to concessions that would lower labor expenses. (In addition, an unexpected jump in pilot retirements will cost Delta Air Lines an additional $140 million this quarter, forcing the carrier to widen its anticipated loss for the fourth quarter.) a. Poor Morale: The company's relationship with employees has been strained because of massive layoffs, bankruptcy-proof pension trusts and executive bonuses which were not tied to performance. 2. From 1993-2003, Delta’s market share has gone from 17.4% to 15.1%. Delta’s yield has decreased 13% compared to 2000 and 5% compared to 2001. RPM’s for the US industry as a whole declined 2.6% in 2002. According to the U.S. Department of

Transportation, Delta ranked 5th out of the 10 major U.S. Airlines in passenger load factor. 3. Recent Trend of Being Unprofitable: Stock price decreased 66 % from $38.80 on September 1st, 2001 to $13.02 on November 1st, 2003 (see appendix A). The company has been unable to make a profit for the last 2 years and is headed for its third straight loss this year Opportunities: 1. Today’s market is in high demand for affordable new regional jets, which offer low costs and high flexibility in route planning. According to CNN, there will be a 50 % growth in air traffic within the next 10 years. In addition, the U.S. GDP recently grew at an 8.2 Percent Pace in the 3rd Quarter of 2003, signaling a strengthening of business and consumer activity. Under its’ current pilot labor contract, Delta can operate as many regional jets as it likes, provided none has more than 70 seats. Delta can now compete with companies like Southwest, Jet Blue,...
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