Delta Air Lines Case Study Prospectus Ayodele Locke Jonathan Long Markos Taddesse Robert Buonocore
Delta Air Lines Case Study Introduction to the Industry Robert Buonocore Up-to-date scan of Delta Jonathan Long Responses to Industry Questions Markos Taddesse Responses to specific Delta questions Markos Taddesse Suggestions related to the IT issues Ayodele Locke Final Conclusions Jonathan Long, Robert Buonocore
Introduction to the Industry Since 1978 airlines were permitted to select their own routes and establish fares. Varying prices has helped balance the costs and ensure that airlines are not flying with empty seats. Today it is likely that almost every passenger on a flight has paid a different price (McCartney 2003)
Introduction to the Industry (Continued) JetBlue – offering DirectTV to its passengers. New planes Lower maintenance costs Lower insurance costs September 11th Effects Caused more safety regulations Fear of flying – less passengers.
Introduction to the Industry (Continued) Airline Costs – According to the Air Transport Association (ATA) (McCartney 2002) Labor Costs make up the greatest percent. (38.4%) Administrative overhead (23.7%) Fuel Costs (11.6%) Cost of the Plane/interest (13.2%) Maintenance (2.5%) Food Programs (2.2%) Travel Agent Commissions (2.2%) Airport Fees (2.1%) Insurance (1.5%) Communications (1.5%) Advertising (1.0%)
Introduction to the Industry (Continued) Future Re-negotiating union contracts Small planes could create a business air taxi service that would be outpriced for most consumers but ideal for businesses.
Up to date scan of Delta Airlines September 2005 Delta files for bankruptcy Pilots gave deep concessions after lengthy negotiations Closed Dallas hub Cut jobs August 2006 Delta receives permission to outsource IT to IBM 200 employees effected Delta turns first profit under restructuring
Up to date scan of Delta Airlines November 2006 U.S. Airways attempts hostile takeover December 2006 Delta announces new SOA for DNS January 2007 U.S. Airways drops takeover bid April 2007 Delta emerges from bankruptcy
Responses to Industry Questions What information technologies have helped this industry? Reservation Systems and corporate data tracking Customer and corporate data tracking Telemetry data acquisition Telemetry data acquisition Did the technologies provide a competitive advantage or were they quickly adopted by rivals? Yes they do but they are quickly adopted by the industry. rlines are more adept at incorporating new innovations Smaller airlines are more adept at incorporating new innovations
Responses to Industry Questions Which technologies could this industry use that were developed in other sectors? RFID Is the level of competition increasing or decreasing in this industry? Is it dominated by a few firms, or are they fairly balanced? The Airline industry is dominated by a few big Airlines. The Airline industry is dominated by a few big Airlines. But Competition is increasing (Southwest, Jet Blue, Airtran) But Competition is increasing (Southwest, Jet Blue, Airtran) What problems have been created from the use of information technology and how did the firms solve the problems? Defective systems Disparate databases
Responses to specific Delta questions Why do people fly on discount airlines? Price, speed of service (in terms of turn around) What do they not like about discount airlines? Bare minimum services Inconvenient, not all cities are directly served Can Delta combine these answers with IT to regain market shares and profit? Yes, but not fully realized at this time.
Responses to specific Delta questions How does Delta use technology to reduce costs? Is it enough to make a difference ? How does Delta use technology to reduce costs? Is it enough to make a difference ? In house IT work In house IT work Delta Nervous System (DNS) Delta Nervous System (DNS) CRM software CRM software Self check in kiosk Self check in kiosk Yes it is making a difference Yes it is making a difference
Responses to specific Delta questions Can Delta use IT to become more like Southwest? Is that the best strategy? Can Delta use IT to become more like Southwest? Is that the best strategy? Yes, cut certain services, re-negotiate wages, implement systems that track companywide data for travel managers, improve budgeting software for more accurate forecasts, adopt own booking system that compete with the likes of Sabre, and Southwest own online booking system. Yes, cut certain services, re-negotiate wages, implement systems that track companywide data for travel managers, improve budgeting software for more accurate forecasts, adopt own booking system that compete with the likes of Sabre, and Southwest own online booking system.
Suggestions Related to the IT Issues Although Delta has implemented several large technology systems in recent years, including DNS & Operation Clockwork to help them improve productivity and their bottom line, lowering costs to compete with low cost airlines still remains a major hurdle. The following section will summarize some of Deltas IT challenges and suggested recommendations on how to address them.
Suggestions Related to the IT Issues Issue #1: Inefficient baggage bar code system. Issue #2: Outdated radio communication systems. Issue #3: Lack of web presence targeted to business customers. Issue #4: Inefficient passenger boarding process.
Suggestions Related to the IT Issues Issue #1: Inefficient baggage bar code system Delta airlines currently processes millions of pieces of baggage per year. Delta utilizes a bar code scanning system to keep track of bags that are tagged to specific flights. A tag is placed on each piece of luggage which is then scanned and then sent to the appropriate flight. This technology however is inefficient and leads of some baggage being lost and lost revenue in airline staff takes to locate or redirect the baggage. As many as 15 to 20 percent of bags are not scanned properly.
Suggestions Related to the IT Issues Suggestion #1: RFID Technology RFID Technology systems are a significant improvement over bar code scanning systems. RFID tags attach to customers luggage in the same way as bar code tags and each RFID tag is encoded with the owners information as well as their travel itineraries., RFID readers are able to locate baggage an average of 95% or greater compared with a scan rate of 70 to 80% with the current bar code scanning systems.
Suggestions Related to the IT Issues RFID Technology contd In 2004, Delta began testing this new technology and planned to implement it in 2007. Plans were put on hold indefinitely due to budget issues. The projected implementation costs for a RFID system was $15 to $20 million, a significant expenditure for an airline such as Delta that is facing financial woes. Delta however spends an estimated $100 million a year addressing lost luggage issues. In light of these figures, Delta should reconsider RFID technology because they would be able to quickly recoup their investment as well as gain greater customer satisfaction.
Suggestions Related to the IT Issues Issue #2: Outdated communication systems Delta and other airlines have radio systems that are decades old. Dispatchers and airplane captains communicate information such as flight patterns or weather info with each other via voice radio equipment. Voice radio equipment is prone to static, interference and poor voice quality.
Suggestions Related to the IT Issues Suggestion #2: VDLM2 Technology VDLM2 technology systems can transfer text data at fifteen times the rate of traditional radio systems in airlines. More efficient communications between dispatchers and airline captains helps to increase staff efficiency and cut down turnover rates, an important goal for all airlines. Competitor SouthWest airlines has already invested in this technology and Delta should follow suit.
Suggestions Related to the IT Issues Issue #3: No website targeted to business customers Southwest Airlines is one of the few profitable airlines today and one of the reasons is that they address the concerns of their customer base. Southwests business travel website lets business travelers book their flights online and has a backend system for keeping track of company travel data. Delta Airlines currently has one website and reservation system for all its customers with no such features for business travelers.
Suggestions Related to the IT Issues Suggestion #3: Business Travel website A Delta business travel specific website would help them have a better relationship with corporate travel departments. In addition to the key features offered by Southwests swabiz.com, Deltas business website should also offer travel discounts, travel news and customer satisfaction surveys and feedback forms. Traditionally business class tickets cost more than economy tickets so paying attention to the needs to this customer base could be a profitable endeavor for Delta.
Suggestions Related to the IT Issues Issue #4: Inefficient passenger boarding process Delta Airlines currently uses a passenger boarding system that does not help them to improve their turnaround times. The passenger boarding system using a standard back-to-front method does not address boarding delay due to passengers with aisle seats obstructing those with window or middle seats.
Suggestions Related to the IT Issues Suggestion #4: Reverse pyramid boarding system The Wilma reverse pyramid boarding system implemented by United Airlines calls for boarding rear window and middle seats first, followed by front window and middle seats; then those in the rear and front aisles and finally seats in the front of the plane would be boarded last. Business and first class passengers would be boarded before everyone else. Even a few minutes saved per flight translates into measurable savings for an airline. The quicker a plane boards and takes off, the more flights the airline can have in a day.
Delta Air Lines Case Study Conclusions Delta will benefit from adding interoperability to the Delta Nervous System with their Service Oriented Architecture. As Delta emerges from bankruptcy and posts profits, IT will continue to be an integral part of their success. In order to have future success, Delta will need to address certain issues: Inefficient baggage bar code system. Outdated radio communication systems. Lack of web presence targeted to business customers. Inefficient passenger boarding process.
Delta Air Lines Case Study Resources used Resources used Associated Press. Delta Airlines still considering an acquisition. CNNMoney.com. Retrieved November 11, 2007 from http://money.cnn.com/2007/11/07/news/companies/delta_acquisition.ap/?postv ersion=2007110718 Associated Press. Delta seeks to outsource 200 IT jobs to IBM. Mcpmag.com. Retrieved November 11, 2007 from http://mcpmag.com/news/article.asp?EditorialsID=1014 Broache, Anne. Can technology solve air travel woes? New York Times. September 27, 2007. Foust, D., Bachman, J. (2007). A surprising new pilot for Delta. Business Week, 4048, 44 Greenemeir, Larry. IT Pros Plus Marketing Experts Equal Better Service. Information Week. March 18, 2002.
Delta Air Lines Case Study Resources used Resources used Havenstein, H. (2006). Delta Set to Launch Three-Year SOA Project. Computerworld, 40(50), 8. McCartney, Scott. Which costs Airlines More: Fuel, Labor or (Ugh) Meals? The Wall Street Journal. November 6, 2002. McDougall, Paul. Techie Exodus At Bankrupt Delta Caused Flight Delays, Broader Chaos. Information Week. December 19, 2006. Overby, S. (2003, February 15). Delta Aims for Infrastructure Overhaul. CIO. Retrieved November 11, 2007 from http://www.cio.com/article/31708/http://www.cio.com/article/31708/ Post, Anderson (2006). Management Information Systems: Solving Business Problems with Information Technology. New York : McGraw-Hill.