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Delta Airlines Joseph Schaeper. PEST Analysis and Industry Analysis.

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Presentation on theme: "Delta Airlines Joseph Schaeper. PEST Analysis and Industry Analysis."— Presentation transcript:

1 Delta Airlines Joseph Schaeper

2 PEST Analysis and Industry Analysis

3 History of Delta Airlines Since it was founded in 1924, Delta has grown to become the world’s largest global airline. 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. Target Market – Those traveling for business and those traveling for family/vacation. Brands of Delta Airlines Brands of Delta Airlines Delta Airlines Delta Airlines Regional Elite Regional Elite Sky Team Sky Team

4 About Delta Airlines Headquartered in Atlanta, GA Headquartered in Atlanta, GA Richard Anderson has been active CEO since September Richard Anderson has been active CEO since September Delta has over 80,000 employees Delta has over 80,000 employees 365 locations around the world 365 locations around the world

5 PEST Analysis of Delta Airlines

6 Political Factors Pricing regulations Pricing regulations Wage legislation across the multiple countries Delta operates out of. Wage legislation across the multiple countries Delta operates out of. Increased security nationally and internationally. Increased security nationally and internationally.

7 Economic Factors Low economic growth rate Low economic growth rate Increasing and/or unpredictable fuel costs. Increasing and/or unpredictable fuel costs. Currency exchange risk Currency exchange risk Current economic recession Current economic recession Increased unemployment rate impacting all income classes Increased unemployment rate impacting all income classes Decrease in lower and middle class travel due to the economic recession (unemployment, lower salaries, no overtime, etc.) Decrease 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 Fewer airline related vacation spots Some doubt of the safety with air travel since the 9-11 attacks Some doubt of the safety with air travel since the 9-11 attacks General airline travel has declined (driving instead of flying) General airline travel has declined (driving instead of flying)

9 Technological Decrease in travel agencies Decrease in travel agencies Internet airline ticket reservations Internet airline ticket reservations Entry of websites such as Orbitz and Travelocity Entry of websites such as Orbitz and Travelocity Use of technology to expedite the check-in process of air travel Use of technology to expedite the check-in process of air travel Increased demand for in-flight technology (in-flight internet, movies, games, etc.) Increased demand for in-flight technology (in-flight internet, movies, games, etc.) Newer, more ideal aircraft designs created by Boeing and Airbus Newer, more ideal aircraft designs created by Boeing and Airbus

10 Factor Trend EvaluationImpact (1-low, 5-high) Rank Political -Pricing regulations -Wage legislation -Increased security -Threat Economic -Low economic growth rate -Unpredictable fuel costs. -Currency exchange risk -Current economic recession -Threat -Opportunity/Threat Social -Unemployment rate -Decrease in travel -Safety Doubt -Threat -Opportunity/Threat Technological -Decrease in travel agencies -Internet reservations -Websites such as Orbitz -Internet check-in -Demand for in-flight technology -New aircraft designs -Opportunity/Threat -Opportunity -Opportunity/Threat -Opportunity

11 Industry Analysis Porter’s Five Forces Model

12 Commercial Airline Industry BuyersSuppliers Business TravelersBoeing/Airbus General TravelersTUG Technologies ASIG Fuel CompetitorsSubstitutes American AirlinesTrain United AirlinesVehicles US AirwaysBoat

13 Power of Suppliers PowerDegree of PowerBargaining Power Fuel CostsHighLow AircraftHigh Number of SubstitutesLowHigh Power of Buyers PowerDegree of PowerBargaining Power Business TravelersHighLow Casual TravelersLow

14 Power of Substitutes PowersDegree of Power Automotive TransportationHigh Locomotive TransportationModerate Transportation by BoatLow Intensity of Rivalry PowerDegree of Power Number of CompetitorsHigh Industry Growth Opportunities Low Entry BarriersHigh Exit BarriersLow

15 Barriers of Entry Among the highest of any industry Among the highest of any industry Intricacies of employing thousands with various skills throughout their chosen market Intricacies of employing thousands with various skills throughout their chosen market Deciding to buy or lease aircraft Deciding to buy or lease aircraft Identifying profitable geographical markets Identifying profitable geographical markets Purchasing a fleet could easily put a new company billions of dollars in debt Purchasing a fleet could easily put a new company billions of dollars in debt Consumer loyalty Consumer loyalty Fuel costs (hedging fuel prices, speculating) Fuel costs (hedging fuel prices, speculating) Historically known as a money losing industry 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. 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. The airline industry is not an attractive one when it comes to starting a company or even investing in.

17 Competitor & Market Analysis

18 Key Competitors American Airlines American Airlines Headquartered out of Fort Worth, Texas Headquartered out of Fort Worth, Texas A global leader in the commercial airlines industry. Strengthened their global presence with a partnership with Japan Airlines. A global leader in the commercial airlines industry. Strengthened their global presence with a partnership with Japan Airlines. Approximately 260 global destinations Approximately 260 global destinations

19 Continued… United Continental Airlines United Continental Airlines Headquartered out of Chicago, Illinois Headquartered out of Chicago, Illinois Strengthened their global presence by merging United Airlines and Continental Airlines together. Strengthened their global presence by merging United Airlines and Continental Airlines together. Once acquisition is complete, will be the world’s largest global airline. Once acquisition is complete, will be the world’s largest global airline.

20 Evaluation as Compared to Competition Delta AirlinesAmerican AirlinesUnited/Continenta l Market Cap$8.17 Billion$2.19 Billion$7.51 Billion Growth (5 year projected) 3% Revenue$31.76 Billion$22.17 Billion$23.23 Billion Net Income$593 Million-$471 million-$ million Generic 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 Coverage Extent of Geographic Coverage Airlines obtain the largest profit margin on international flights. However, picking and choosing international destinations takes much analysis. Airlines obtain the largest profit margin on international flights. However, picking and choosing international destinations takes much analysis. Extent of Branding Extent of Branding Each airline persuades customers to become loyal to their brand via frequent flyer cards, airport advertisement and marketing. Each airline persuades customers to become loyal to their brand via frequent flyer cards, airport advertisement and marketing. Product/Service Quality Product/Service Quality Each airline attempts to differentiate themselves from others while providing, what they believe to be, the most ideal and enjoyable experience. Each airline attempts to differentiate themselves from others while providing, what they believe to be, the most ideal and enjoyable experience.

24 Product Scope The airline industry is unique when it comes to product scope. The 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. 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 Information Airfare-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 Geographic Scope AirlineNumber of Destinations Delta Airlines350+ American Airlines260+ United/Continental Airlines371 AirlineAlliance Affiliation Delta AirlinesSky Team American AirlinesOne World United/Continental AirlinesStar Alliance In 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.

27 Why So Many Destination? Delta Airlines and their top two competitors offer hundreds of destinations because that is their business strategy Delta Airlines and their top two competitors offer hundreds of destinations because that is their business strategy Airlines such as JetBlue and Southwest Airlines only offer a limited number of destinations Airlines such as JetBlue and Southwest Airlines only offer a limited number of destinations Delta Airlines chooses to service those in small market locations in addition to large market Delta Airlines chooses to service those in small market locations in addition to large market Has 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) Has 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 flights International flights yield higher profit margins than domestic flights Flight from Seattle to Washington is 2306 miles and costs around $400 Flight from Seattle to Washington is 2306 miles and costs around $400 Flight from Seattle to Tokyo is 4769 miles and costs $1800 Flight from Seattle to Tokyo is 4769 miles and costs $1800 Airlines 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) Airlines 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 Competencies The airlines have nearly identical core competencies. The airlines have nearly identical core competencies. Everything they do can be easily mimicked by their competition. Everything they do can be easily mimicked by their competition. In-flight entertainment In-flight entertainment Frequent flying miles Frequent flying miles In-flight comfort In-flight comfort Convenient use of technology (iPhone boarding pass) Convenient 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 markets Rapid growth of emerging markets Greater market access for different airlines (will lead to greater competition) Greater market access for different airlines (will lead to greater competition) Continuing growth of low-cost carriers Continuing growth of low-cost carriers More megacities More megacities Increased congestion at airports Increased congestion at airports Asia will account for 33% of the global market Asia will account for 33% of the global market Air travel will increase by roughly 4.8% Air travel will increase by roughly 4.8% Passenger travel will increase by roughly 5.0% (fuller planes leads to higher margins) 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 Target Market Target market for Delta, American and United/Continental Airlines would be identical. Target market for Delta, American and United/Continental Airlines would be identical. Business travelers, vacation travelers, general travelers. Business travelers, vacation travelers, general travelers. Strengthen presence in Asia due to the high growth of air travel. Strengthen presence in Asia due to the high growth of air travel. AirlineSteps to strengthen Asian presence Delta AirlinesAcquired the Narita-Tokyo hub with the merger of Northwest American AirlinesAcquired Japan Airlines into the One World alliance United/ContinentalIncreased flights to and from cities in Asia

35 Social Media Facebook Facebook Gets travelers excited Gets travelers excited Gives travel ideas Gives travel ideas Shows pictures of planes Shows pictures of planes Allows travelers to discuss their experiences on each airline Allows travelers to discuss their experiences on each airline Company monitors comments to fix or improve a certain aspect of the traveling experience Company monitors comments to fix or improve a certain aspect of the traveling experience

36 Social Media Youtube Youtube Allows potential customers to visually understand the process of flying with Delta Airlines. Allows 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. 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 Competitors Delta Airlines Main Competitors American Airlines American Airlines United/Continental Airlines United/Continental Airlines Airlines use the same business strategies to attract and retain customers Airlines use the same business strategies to attract and retain customers Differentiation Differentiation Branding Branding Geographic Coverage Geographic Coverage

38 Conclusions of Competitor and Market Analysis Continued Competitors Compete With: Competitors Compete With: Airfare Airfare Baggage Fees Baggage Fees On-board Service On-board Service In-flight Entertainment In-flight Entertainment Alliances Alliances Key Trends in the Airline Industry Key Trends in the Airline Industry Growth in emerging markets Growth in emerging markets Greater market Access Greater market Access Growth of low-cost carriers Growth of low-cost carriers Increase in megacities Increase in megacities Growth in Asia Growth in Asia Air travel and passenger count increases Air travel and passenger count increases

39 Internal Analysis, SWOT, Generic Strategy & Grand Strategy

40 Delta Airlines Business Model Hub and Spoke Model Used by the major airlines (Delta, American and United/Continental) Hub and Spoke Model Used by the major airlines (Delta, American and United/Continental) Taxi congestion at hub locations Increase in wait time Lower aircraft utilization time Taxi congestion at hub locations Increase in wait time Lower aircraft utilization time Allows airlines to maximize passenger enplanements on each flight by offering domestic and international connections Provides many more route options Maximizes revenue opportunities Allows airlines to maximize passenger enplanements on each flight by offering domestic and international connections Provides many more route options Maximizes revenue opportunities Cons Pros

41 Changes in Delta’s Business Model Appointment of Richard Anderson as CEO Appointment of Richard Anderson as CEO Twenty-three years of aviation experience Twenty-three years of aviation experience Former CEO of Northwest Airlines Former CEO of Northwest Airlines Richard Anderson took a risk by merging with his former airline, Northwest Airlines, during the economic recession Richard Anderson took a risk by merging with his former airline, Northwest Airlines, during the economic recession With the merger or Northwest Airlines, Delta expanded their operations With the merger or Northwest Airlines, Delta expanded their operations Additional hubs were gained which led to a more complex Hub and Spoke Model. Additional hubs were gained which led to a more complex Hub and Spoke Model. Detroit, Michigan Detroit, Michigan Minneapolis, Minnesota Minneapolis, Minnesota Tokyo, Japan Tokyo, 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 dollars Year Ending 2007 Year Ending 2008 Year Ending 2009 Year ending 2010 Total Revenue$19,154.00$22,697.00$28,063.00$ Net Income$1,612.00$8,922.00$1,237.00$ Change in total revenue between: : 18.5% : 23.6% : 13.2%

44 Delta Airlines Key Assets Cash & Equivalents Cash & Equivalents Short Term Investments Short Term Investments Property/Plant/Equipment Property/Plant/Equipment Accumulated Depreciation Accumulated Depreciation Goodwill Goodwill Net Intangibles Net Intangibles

45 Delta Airlines SWOT Analysis StrengthsWeaknesses High capacity usageHigh spoilage rate No. 1 in Fortune Magazine’s list of world’s most admired airlines Aircraft, leased or purchased, requires high amount of capital Diversity in upper managementVarying returns on investments World’s largest global airlineCommunication and monitoring a global workforce Turned profit for year ending 2010Did not hedge fuel prices Union free workforce (pilots excluded)Quick changes are difficult to accomplish Ability to segment the marketHubs in harsh weather area Industry difficulty to turn profit

46 Delta Airlines SWOT Analysis OpportunitiesThreats Untapped domestic and international destinations Condition of domestic and global economy Technology advancements in aviationThird-party online ticket sales In-flight entertainment (customer pays)Government regulations Increase in airline alliancesGas and oil fluctuations Terrorism

47 BCG Matrix Market Growth Rate High Low High Relative Market Share Stars Question Marks Cash Cows Dogs 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, 2008 Low 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.

48 Delta Airlines Competitive Scope ScopeDelta’s Focus Segment 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 Strategy Differentiation: Delta Airlines, along with their competitors, attempts to differentiate themselves from their competition Differentiation: Delta Airlines, along with their competitors, attempts to differentiate themselves from their competition While not a low-cost carrier, still passing savings onto customers While not a low-cost carrier, still passing savings onto customers Not as luxurious as some foreign airlines Not as luxurious as some foreign airlines Has recently begun an advertising campaign letting customers know about how Delta is “Building a better airline” Has 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 Matrix Delta 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 1Quadrant 2 Quadrant 3Quadrant 4

52 Conclusions of Internal Analysis, SWOT, Generic Strategy & Grand Strategy Delta Airlines uses the Hub and Spoke business model Delta Airlines uses the Hub and Spoke business model Hubs in Atlanta, Detroit, Minneapolis, Cincinnati, Salt Lake City, New York, Paris and Tokyo. Hubs in Atlanta, Detroit, Minneapolis, Cincinnati, Salt Lake City, New York, Paris and Tokyo. Appointment of Richard Anderson led to a change in the Delta way Appointment of Richard Anderson led to a change in the Delta way Double digit increases in revenue, radical net income Double digit increases in revenue, radical net income A “Question Mark” in the BCG matrix A “Question Mark” in the BCG matrix Focuses on Differentiation Focuses on Differentiation Has a competitive segment and geographic scope Has a competitive segment and geographic scope Quadrant 1 of the Grand Strategy Matrix Quadrant 1 of the Grand Strategy Matrix


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