3 History of Delta Airlines Since it was founded in 1924, Delta has grown to become the world’s largest global airline.Target Market – Those traveling for business and those traveling for family/vacation.Brands of Delta AirlinesDelta AirlinesRegional EliteSky Team
4 About Delta Airlines Headquartered in Atlanta, GA Richard Anderson has been active CEO since September 2007.Delta has over 80,000 employees365 locations around the world
6 Political Factors Pricing regulations Wage legislation across the multiple countries Delta operates out of.Increased security nationally and internationally.
7 Economic Factors Low economic growth rate Increasing and/or unpredictable fuel costs.Currency exchange riskCurrent economic recessionIncreased unemployment rate impacting all income classesDecrease in lower and middle class travel due to the economic recession (unemployment, lower salaries, no overtime, etc.)
8 Social Factors Fewer airline related vacation spots Some doubt of the safety with air travel since the attacksGeneral airline travel has declined (driving instead of flying)
9 Technological Decrease in travel agencies Internet airline ticket reservationsEntry of websites such as Orbitz and TravelocityUse of technology to expedite the check-in process of air travelIncreased demand for in-flight technology (in-flight internet, movies, games, etc.)Newer, more ideal aircraft designs created by Boeing and Airbus
10 Factor Trend Evaluation Impact (1-low, 5-high) Rank Political 4 -Pricing regulations-Wage legislation-Increased security-Threat234Economic-Low economic growth rate-Unpredictable fuel costs.-Currency exchange risk-Current economic recession-Opportunity/Threat51Social-Unemployment rate-Decrease in travel-Safety DoubtTechnological-Decrease in travel agencies-Internet reservations-Websites such as Orbitz-Internet check-in-Demand for in-flight technology-New aircraft designs-Opportunity
11 Industry AnalysisIndustry AnalysisPorter’s Five Forces Model
13 Power of Suppliers Power of Buyers Power Degree of Power Bargaining PowerFuel CostsHighLowAircraftNumber of SubstitutesPower of BuyersPowerDegree of PowerBargaining PowerBusiness TravelersHighLowCasual Travelers
14 Power of Substitutes Intensity of Rivalry Powers Degree of Power Automotive TransportationHighLocomotive TransportationModerateTransportation by BoatLowIntensity of RivalryPowerDegree of PowerNumber of CompetitorsHighIndustry Growth OpportunitiesLowEntry BarriersExit Barriers
15 Barriers of Entry Among the highest of any industry Intricacies of employing thousands with various skills throughout their chosen marketDeciding to buy or lease aircraftIdentifying profitable geographical marketsPurchasing a fleet could easily put a new company billions of dollars in debtConsumer loyaltyFuel costs (hedging fuel prices, speculating)Historically known as a money losing industry
16 Conclusions of PEST Analysis and Industry Analysis Economic and technological factors would be the areas Delta would most need to worry about.The airline industry is not an attractive one when it comes to starting a company or even investing in.
18 Key Competitors American Airlines Headquartered out of Fort Worth, TexasA global leader in the commercial airlines industry. Strengthened their global presence with a partnership with Japan Airlines.Approximately 260 global destinations
19 Continued… United Continental Airlines Headquartered out of Chicago, IllinoisStrengthened their global presence by merging United Airlines and Continental Airlines together.Once acquisition is complete, will be the world’s largest global airline.
20 Evaluation as Compared to Competition Delta AirlinesAmerican AirlinesUnited/ContinentalMarket Cap$8.17 Billion$2.19 Billion$7.51 BillionGrowth (5 year projected)3%Revenue$31.76 Billion$22.17 Billion$23.23 BillionNet Income$593 Million-$471 million-$ millionGeneric StrategyDifferentiation
21 Stock Valuation Over Past 2 Years Compared with American Airlines
22 Stock Valuation Over Past 2 Years Compared with United/Continental
23 Strategic Business Groups in the Airline Industry Extent of Geographic CoverageAirlines obtain the largest profit margin on international flights. However, picking and choosing international destinations takes much analysis.Extent of BrandingEach airline persuades customers to become loyal to their brand via frequent flyer cards, airport advertisement and marketing.Product/Service QualityEach airline attempts to differentiate themselves from others while providing, what they believe to be, the most ideal and enjoyable experience.
24 Product ScopeThe airline industry is unique when it comes to product scope.Delta and their main competitors are all attempting to characterize their product the same way; We offer the safest and most enjoyable flying experience.
25 How Competitors Compete? FactorsExamples/Additional InformationAirfare-Most common form of competition.-Most important in the eyes of many consumers.Baggage Fees-Consumers becoming more aware of baggage fees.-Too high of baggage fees results in nullification of price advantage in airfare.On-Board Service-Charging for food, drinks, pillows, blankets. Some charge, some do not.In-Flight Entertainment-Has recently become a large factor in choosing an airline for long duration flights.-Movie, personal TV, gaming, phone, etc.Alliances-To avoid losing customers, airlines have formed alliances.Ex. Delta flies John to Paris. Air France flies John to Madrid. Both companies make money.Number of Destinations-Servicing small market destinations equates to larger planes going to larger market destinations.
26 Number of Destinations Geographic ScopeAirlineAlliance AffiliationDelta AirlinesSky TeamAmerican AirlinesOne WorldUnited/Continental AirlinesStar AllianceIn order to avoid losing business to customers whom desire travel to a destination they do not fly to, airlines form alliances with other airlines.Servicing hundreds of destinations is what differentiates this group of competitors with other airlines.AirlineNumber of DestinationsDelta Airlines350+American Airlines260+United/Continental Airlines371
27 Why So Many Destination? Delta Airlines and their top two competitors offer hundreds of destinations because that is their business strategyAirlines such as JetBlue and Southwest Airlines only offer a limited number of destinationsDelta Airlines chooses to service those in small market locations in addition to large marketHas been proven to be a double-edged sword; half empty small planes equate to a financial loss while those same planes full equate to full larger planes (connection flights)
28 International Destinations International flights yield higher profit margins than domestic flightsFlight from Seattle to Washington is 2306 miles and costs around $400Flight from Seattle to Tokyo is 4769 miles and costs $1800Airlines can charge more money per mile on these flights due to the tedious conditions of the alternatives (Seattle to Tokyo via boat would take several days)
29 Core CompetenciesThe airlines have nearly identical core competencies.Everything they do can be easily mimicked by their competition.In-flight entertainmentFrequent flying milesIn-flight comfortConvenient use of technology (iPhone boarding pass)
30 Market Size Delta Airlines All numbers courtesy of the Department of Transportation
31 Market Size American Airlines All numbers courtesy of the Department of Transportation
32 Market Size United/Continental Airlines All numbers courtesy of the Department of Transportation
33 Key Trends in the Aviation Market Rapid growth of emerging marketsGreater market access for different airlines (will lead to greater competition)Continuing growth of low-cost carriersMore megacitiesIncreased congestion at airportsAsia will account for 33% of the global marketAir travel will increase by roughly 4.8%Passenger travel will increase by roughly 5.0% (fuller planes leads to higher margins)All factors are assuming an economic rebound from the current recession.
34 Steps to strengthen Asian presence Target MarketTarget market for Delta, American and United/Continental Airlines would be identical.Business travelers, vacation travelers, general travelers.Strengthen presence in Asia due to the high growth of air travel.AirlineSteps to strengthen Asian presenceDelta AirlinesAcquired the Narita-Tokyo hub with the merger of NorthwestAmerican AirlinesAcquired Japan Airlines into the One World allianceUnited/ContinentalIncreased flights to and from cities in Asia
35 Social Media Facebook Gets travelers excited Gives travel ideas Shows pictures of planesAllows travelers to discuss their experiences on each airlineCompany monitors comments to fix or improve a certain aspect of the traveling experience
36 Social MediaYoutubeAllows potential customers to visually understand the process of flying with Delta Airlines.Allows customers, and even employees, to submit video diaries of their vacations for others to enjoy.
37 Conclusions of Competitor and Market Analysis Delta Airlines Main CompetitorsAmerican AirlinesUnited/Continental AirlinesAirlines use the same business strategies to attract and retain customersDifferentiationBrandingGeographic Coverage
38 Conclusions of Competitor and Market Analysis Continued Competitors Compete With:AirfareBaggage FeesOn-board ServiceIn-flight EntertainmentAlliancesKey Trends in the Airline IndustryGrowth in emerging marketsGreater market AccessGrowth of low-cost carriersIncrease in megacitiesGrowth in AsiaAir travel and passenger count increases
39 Internal Analysis, SWOT, Generic Strategy & Grand Strategy
40 Delta Airlines Business Model Hub and Spoke ModelUsed by the major airlines (Delta, American and United/Continental)ConsProsTaxi congestion at hub locationsIncrease in wait timeLower aircraft utilization timeAllows airlines to maximize passenger enplanements on each flight by offering domestic and international connectionsProvides many more route optionsMaximizes revenue opportunities
41 Changes in Delta’s Business Model Appointment of Richard Anderson as CEOTwenty-three years of aviation experienceFormer CEO of Northwest AirlinesRichard Anderson took a risk by merging with his former airline, Northwest Airlines, during the economic recessionWith the merger or Northwest Airlines, Delta expanded their operationsAdditional hubs were gained which led to a more complex Hub and Spoke Model.Detroit, MichiganMinneapolis, MinnesotaTokyo, Japan
42 Delta Airlines Performance (visual) “As of 1992, in fact-though the picture would have improved since then-the money that had been made since the dawn of aviation by all of this country’s airline companies was zero. Absolutely zero.”- Warren Buffet, 1999
43 Delta Airlines Performance (by the numbers) All numbers in millions of dollarsYear Ending 2007Year Ending 2008Year Ending 2009Year ending 2010Total Revenue$19,154.00$22,697.00$28,063.00$Net Income$1,612.00$8,922.00$1,237.00$593.00Change in total revenue between:: 18.5%: 23.6%: 13.2%
45 Delta Airlines SWOT Analysis StrengthsWeaknessesHigh capacity usageHigh spoilage rateNo. 1 in Fortune Magazine’s list of world’s most admired airlinesAircraft, leased or purchased, requires high amount of capitalDiversity in upper managementVarying returns on investmentsWorld’s largest global airlineCommunication and monitoring a global workforceTurned profit for year ending 2010Did not hedge fuel pricesUnion free workforce (pilots excluded)Quick changes are difficult to accomplishAbility to segment the marketHubs in harsh weather areaIndustry difficulty to turn profit
46 Delta Airlines SWOT Analysis OpportunitiesThreatsUntapped domestic and international destinationsCondition of domestic and global economyTechnology advancements in aviationThird-party online ticket salesIn-flight entertainment (customer pays)Government regulationsIncrease in airline alliancesGas and oil fluctuationsTerrorism
47 BCG Matrix Market Growth Rate Stars Question Marks High Delta “The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think Airlines.”- Warren Buffet, 2008Question MarksHighDeltaLow Market Share: Delta Airlines holds a small share of the global airline industry. Ranked #1 in total passenger count.Market Growth: As the population increases and more alliances are made, growth is present.LowCash CowsDogsHighLowRelative Market Share
48 Delta Airlines Competitive Scope Delta’s FocusSegment ScopeFocus on varying buyer types (Business travelers, general travelers)Geographic ScopeFocusing on different locations allows an advantage for some airlines.“The airline business is crazy. I’ve not been enamored with the industry in general. You can’t depend on anybody and anything. It’s dog-eat-dog and one thing or another from one minute to the next. What I understand about it, I don’t like what I see.”- Robert Brooks, Hooters Air owner
49 Generic StrategyDifferentiation: Delta Airlines, along with their competitors, attempts to differentiate themselves from their competitionWhile not a low-cost carrier, still passing savings onto customersNot as luxurious as some foreign airlinesHas recently begun an advertising campaign letting customers know about how Delta is “Building a better airline”
50 Delta Airlines Grand Strategy Market Penetration: Entering into a new market, or destination, can be very rewarding and very costly depending on how it goes.Product Development: To differentiate themselves, Delta has installed in-flight wireless internet on all of their mainline aircraft.
51 Grand Strategy MatrixDelta Airlines is positioned in the first quadrant. This means Delta has a higher than normal competitive position among their competitors in an industry that has a good growth rate.Strategies for those in this quadrant need to focus on related diversification and product development.Quadrant 2Quadrant 1Quadrant 3Quadrant 4
52 Conclusions of Internal Analysis, SWOT, Generic Strategy & Grand Strategy Delta Airlines uses the Hub and Spoke business modelHubs in Atlanta, Detroit, Minneapolis, Cincinnati, Salt Lake City, New York, Paris and Tokyo.Appointment of Richard Anderson led to a change in the Delta wayDouble digit increases in revenue, radical net incomeA “Question Mark” in the BCG matrixFocuses on DifferentiationHas a competitive segment and geographic scopeQuadrant 1 of the Grand Strategy Matrix