1. Delta Air Lines Cost and Productivity Analysis Ujaval Patel

2. Airline Information Delta is considered a legacy carrier. It has: – A heterogeneous fleet mix – Fleet hubs (Dom: ATL, DTW, MSP, LGA, SLC, JFK, CVG, MEM; Int: CDG, NRT, AMS) – Small percentage of unionized workers – Categorized seating classes – Seat assignments – Frequent flyer program – GDS

3. Definitions RPM –Revenue Passenger Mile – One revenue paying passenger transported one mile. ∑ i = 1 to All Flights (# of revenue passengers * # of miles traveled) ASMs – Available Seat Miles – One available seat flown 1 mile. ∑ i = 1 to All Flights (# of seats on flight * # of miles flown) RASM – Revenue Per Average Seat Mile –Revenue made from each seat mile offered = Operating Revenue/ASMs CASM – Cost Per Average Seat Mile -Cost to operate each seat per mile offered = Operating costs /ASMs Yield – measure of the average fare paid by all passengers per mile flown. = Total Operating Revenue/ # Revenue Passenger Miles = Load Factor * Yield PRASM - passenger revenue per ASM. = Total passenger revenue/ASM Fuel Consumed – Total volume of fuel used Fuel Costs per ASM = Fuel Cost / ASM Non-Fuel Costs per ASM = (Operating Expenses – Fuel Costs)/ASM

4. RSM, ASM, and Load Factor Comparison The trends shown represent the rise in 3 rd Quarter RPMs and ASMs. 2010 showed a great increase in both RPMs and ASMs, though the trend seems to be tapering off a little, due to the merger with Northwest. The load factor has gradually increased from ~80% to ~90% in 6 years.

5. Operating Revenue, Operating Expenses, and Income Before Taxes The 3 rd quarter is prime summer traveling season and sees the most RPMs and ASMs. 2008 and 2009 signal the high cost to keep up profits up even during the summer. The merger in 2010 saw expenses and revenues dramatically rise, and this has led to higher Q3 profits.

6. RASM, CASM, Yield, PRASM By 2009 the yeild was dropping and CASM was seeing a rise. This was cutting into profits. With the merger in 2010, the yeild was climbing again and CASM was dropping. Though, currently CASM is back at 2009 levels.

7. Fuel OPEX, Non-Fuel OPEX, Fuel Consumption The summer months tend to have higher than average fuel prices. 2008 saw a price spike in fuel prices and thus there was a spike in Fuel OPEX. With the merger Fuel OPEX has increased steadily, while Non-Fuel OPEX and fuel consumption has remained relatively steady.

8. OPEX ASMs and Fuel Cost The price of fuel saw a spike in 2008 and the price dropped back down in 2009, but it has steadily creeped up over the past 3 years. As expected Fuel OPEX per ASM closely follows the trend of fuel cost. Where as Non-Fuel OPEX has remained fairly stable.

9. Final Thoughts Fuel prices and dropping profits in Q3 were probably an indicator of two years of lost profits at Delta in 2008 and 2009. With the merger in 2010 with Northwest fuel expenses did rise as the fleet size increased. Additionally, airline expenses rose to handle the larger company that was formed. With an increased market share and a drop in CASM after the merger profits rose, and have steadily risen since.