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Delta Airlines Joseph Schaeper.

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Presentation on theme: "Delta Airlines Joseph Schaeper."— 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. Target Market – Those traveling for business and those traveling for family/vacation. Brands of Delta Airlines Delta Airlines Regional Elite Sky Team

4 About Delta Airlines Headquartered in Atlanta, GA
Richard Anderson has been active CEO since September 2007. Delta has over 80,000 employees 365 locations around the world

5 PEST Analysis of Delta Airlines

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 risk Current economic recession 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.)

8 Social Factors Fewer airline related vacation spots
Some doubt of the safety with air travel since the attacks General airline travel has declined (driving instead of flying)

9 Technological Decrease in travel agencies
Internet airline ticket reservations Entry of websites such as Orbitz and Travelocity Use of technology to expedite the check-in process of air travel Increased 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 -Threat 2 3 4 Economic -Low economic growth rate -Unpredictable fuel costs. -Currency exchange risk -Current economic recession -Opportunity/Threat 5 1 Social -Unemployment rate -Decrease in travel -Safety Doubt Technological -Decrease in travel agencies -Internet reservations -Websites such as Orbitz -Internet check-in -Demand for in-flight technology -New aircraft designs -Opportunity

11 Industry Analysis Industry Analysis Porter’s Five Forces Model

12 Commercial Airline Industry
Buyers Suppliers Business Travelers Boeing/Airbus General Travelers TUG Technologies ASIG Fuel Competitors Substitutes American Airlines Train United Airlines Vehicles US Airways Boat

13 Power of Suppliers Power of Buyers Power Degree of Power
Bargaining Power Fuel Costs High Low Aircraft Number of Substitutes Power of Buyers Power Degree of Power Bargaining Power Business Travelers High Low Casual Travelers

14 Power of Substitutes Intensity of Rivalry Powers Degree of Power
Automotive Transportation High Locomotive Transportation Moderate Transportation by Boat Low Intensity of Rivalry Power Degree of Power Number of Competitors High Industry Growth Opportunities Low Entry Barriers Exit Barriers

15 Barriers of Entry Among the highest of any industry
Intricacies of employing thousands with various skills throughout their chosen market Deciding to buy or lease aircraft Identifying profitable geographical markets Purchasing a fleet could easily put a new company billions of dollars in debt Consumer loyalty Fuel 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.

17 Competitor & Market Analysis

18 Key Competitors American Airlines
Headquartered out of Fort Worth, Texas A 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, Illinois Strengthened 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 Airlines American Airlines United/Continental 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 Strategy Differentiation

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 Airlines obtain the largest profit margin on international flights. However, picking and choosing international destinations takes much analysis. Extent of Branding Each airline persuades customers to become loyal to their brand via frequent flyer cards, airport advertisement and marketing. Product/Service Quality 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. 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?
Factors Examples/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 Number of Destinations
Geographic Scope Airline Alliance Affiliation Delta Airlines Sky Team American Airlines One World United/Continental Airlines Star 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. Airline Number of Destinations Delta Airlines 350+ American Airlines 260+ United/Continental Airlines 371

27 Why So Many Destination?
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 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)

28 International Destinations
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 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)

29 Core Competencies The airlines have nearly identical core competencies. Everything they do can be easily mimicked by their competition. In-flight entertainment Frequent flying miles In-flight comfort 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 Greater market access for different airlines (will lead to greater competition) Continuing growth of low-cost carriers More megacities Increased congestion at airports Asia will account for 33% of the global market Air 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 Market Target 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. Airline Steps to strengthen Asian presence Delta Airlines Acquired the Narita-Tokyo hub with the merger of Northwest American Airlines Acquired Japan Airlines into the One World alliance United/Continental Increased flights to and from cities in Asia

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

36 Social Media Youtube 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.

37 Conclusions of Competitor and Market Analysis
Delta Airlines Main Competitors American Airlines United/Continental Airlines Airlines use the same business strategies to attract and retain customers Differentiation Branding Geographic Coverage

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

41 Changes in Delta’s Business Model
Appointment of Richard Anderson as CEO Twenty-three years of aviation experience Former CEO of Northwest Airlines 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 Additional hubs were gained which led to a more complex Hub and Spoke Model. Detroit, Michigan Minneapolis, Minnesota 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 $593.00 Change in total revenue between: : 18.5% : 23.6% : 13.2%

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

45 Delta Airlines SWOT Analysis
Strengths Weaknesses High capacity usage High 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 management Varying returns on investments World’s largest global airline Communication and monitoring a global workforce Turned profit for year ending 2010 Did not hedge fuel prices Union free workforce (pilots excluded) Quick changes are difficult to accomplish Ability to segment the market Hubs in harsh weather area Industry difficulty to turn profit

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

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, 2008 Question Marks High Delta 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. Low Cash Cows Dogs High Low Relative Market Share

48 Delta Airlines Competitive Scope
Delta’s Focus Segment Scope Focus on varying buyer types (Business travelers, general travelers) Geographic Scope Focusing 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 While not a low-cost carrier, still passing savings onto customers Not as luxurious as some foreign airlines 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 2 Quadrant 1 Quadrant 3 Quadrant 4

52 Conclusions of Internal Analysis, SWOT, Generic Strategy & Grand Strategy
Delta Airlines uses the Hub and Spoke business model 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 Double digit increases in revenue, radical net income A “Question Mark” in the BCG matrix Focuses on Differentiation Has a competitive segment and geographic scope Quadrant 1 of the Grand Strategy Matrix

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