1. - Analysis
COMMERCIAL AVIATION IN U.S.
- Leadership
- Culture Helps Drive
- $1.142 trillion in economic activity
- Outlook - $346.4 billion in earnings
- 10.2 million jobs
- Business Model
Contributes
- Strategy - $692 billion/year to U.S. GDP
- 5.2% of U.S. GDP
- Customer Interface
Traffic
- Recommendations - 40,000+ daily commercial departures
- 2 million US passengers daily
Pratt Institute | DM 672 | Business Strategy AGENDA
2. “Welcome Change. Welcome the new Delta.”
KEY FACTS
Since the founding of Delta Air Lines, our company has HQ in Atlanta, GA
Founded 1928
stood for safe and reliable air transportation, 52,386 Employees
$22,697 Sales (in millions)
distinctive customer service, and hospitality from $3.6 billion merger with NWA
World’s largest airline (by traffic)
the heart.
COMPETITION
American British Airways
Our vision is for Delta to build on its traditions and United China Southern
Continental Air France
always to meet our customers' expectations while US Airways AeroMexico
Southwest Aeroflot
taking service to even higher levels of excellence. America West Virgin
Jet Blue Singapore Airlines
We are a leader in a business we know best - airline ATA SAS
transportation.
Pratt Institute | DM 672 | Business Strategy
3. - 9/11 COMMERCIAL AVIATION IN U.S.
- Fuel Costs Helps Drive
- $1.142 trillion in economic activity
- Chapter 11 - $346.4 billion in earnings
- 10.2 million jobs
- Executive Management
Contributes
- Delta/NWA merger (Oct. 2008) - $692 billion/year to U.S. GDP
- 5.2% of U.S. GDP
- Capacity Cuts
Source: FAA October 2008
Pratt Institute | DM 672 | Business Strategy PROFILE
4. Industry Airline Revenue Growth
(adjusted for inflation)
INDUSTRY FORCES
Threat of New Entrants
Power of Suppliers
Power of Buyers
Availability of Substitutes
Competitive Rivalry
OTHER FACTORS
Labor
Fuel Cost
Weather
Economy
9/11
Regulation
Source: EIU/IATA Economic Briefing 2008
Pratt Institute | DM 672 | Business Strategy OVERVIEW
5. U.S. Airline Revenue Growth
OUT OF BUSINESS (2008)
MAXJet
Big Sky
Aloha
ATA
Skybus
Eos
Champion
Air Midwest
Vintage Props & Jets
Gemini Air Cargo
ExpressJet
Chapter 11
Frontier
Source: ATA Industry Review 2009 Sun Country
Primaris
Source: ATA Industry Review 2009
Pratt Institute | DM 672 | Business Strategy OVERVIEW
6. Income Statement (in millions)
2007 2008
Revenue
Passenger Mainline 12,758 15,137
Passenger Regional affiliates 4,170 4,446 Top Expenses 2008
Cargo 482 686
Other 1,744 2,428 1. Fuel (23.7%)
Total Revenue $ 19,154 $ 22,697 2. Impairment of intangible assets
3. Salaries
Expenses
Salaries 4,189 4,802 4. Carrier Arrangements
Fuel 4,686 7,346
Depreciation 1,164 1,266 5. Depreciation
Contract Service 996 1,153
Contract Carrier Arrangements 3,152 3,616
6. Aircraft Maintenance
Landing Fees 725 839
Aircract Mantenance 983 1,169
Passenger Commission 933 1,030 NET Income Comparison for 2008
Impairment of intangible assets 0 7,296
Restructuring Charge 0 1,131 Continental $ (585 million)
Other operating 15 1,363
American $ (2 billion)
Operating Expense $ 16,843 $ 31,011 US Airways $ (2.2 billion)
Delta $ (8.9 billion)
Net Income $ 1,612 $ (8,922) Source: WSJ DAL Financial Reports
Pratt Institute | DM 672 | Business Strategy FINANCIALS
7. Balance Sheet (in millions)
Assets 2006 2007
Cash/Investments 2,784 3,168
Accounts Receivable 936 1,092
Maintenance 192 273 OBSERVATIONS
Flight Equipment 18,115 10,127
- 530% increase in Goodwill?
Goodwill 227 12,104
Leasehold Rights 279 2,953 - Did Chapter 11 absolve pension?
Other 2,911 2,706
- $20 billion “liabilities subject to
Total Assets $ 19,622 $ 32,423
compromise”?
Liabilities
Accounts Payable 936 1,045 ...This amount represents the debtors'
Air Traffic Liabilities 1,797 1,982
Taxes Payable 500 320 estimate of known or potential pre-
Accrued Salaries 405 734
Debt 8,012 9,000 petition claims to be resolved in
Pension & retirement 0 3,867
connection with the Chapter 11 cases.
Deferred Revenue 709 3,632
Other 20,856 1,730
Total Liabilities $ 33,215 $ 22,310
Total Equity $ (13,593) $ 10,113 Source: WSJ DAL Financial Reports
Pratt Institute | DM 672 | Business Strategy FINANCIALS
8. STRENGTHS
“Although airlines will seek to recover
- World’s largest mega carrier
- Innovative business strategies (Song, Delta re-branding) the higher cost through...fare hikes and
- Acquisition of Northwest Airlines higher fees, this will prove increasingly
- SkyTeam alliance difficult in a weak U.S. economy.”
- Industry-leading airport model (lobby re-design, self-service kiosks)
WEAKNESSES - S&P, May 22, 2008
- Capacity cuts (20% capacity reduction)
“Airlines have no choice but to pass on
- Employee cuts (2,000 job cuts)
the cost of fuel...and when passengers
- Low on-time rating
- Air transportation safety do begin to push back in significant
- Operational costs numbers the airlines have no choice
- Susceptibility to labor-related disruptions (employee strikes) but to slash capacity.”
- Technology dependence for operations
- No clear mission & vision - Rick Seaney, WSJ 2008
- Differentiation
Pratt Institute | DM 672 | Business Strategy S.W.O.T.
9. OPPORTUNITIES
- Invest in new technologies INDUSTRY FORCES
- New Presidential Administration Threat of New Entrants
- Fuel alternatives Power of Suppliers
- Reduce operational costs Power of Buyers
- New sources of operating revenue
Availability of Substitutes
- Enhance the customer experience
Competitive Rivalry
- Renegotiate lease agreements (2012-Atlanta HQ HUB)
THREATS OTHER FACTORS
- Video Conferencing Technology Labor
- Fluctuating Fuel Costs & Supply Chain risks Fuel Cost
- Unionized Labor Strikes (17% of workforce is unionized) Weather
- Disruptions/interruptions of service at hub airports Economy
- Profit losses and adverse publicity from any aircraft accident incidents
9/11
- Government Regulation CO2 Emissions
Regulation
- Global Economic Recession
- Customer reaction to new policies (baggage & food)
Pratt Institute | DM 672 | Business Strategy S.W.O.T.
10. INDUSTRY FORCES
Threat of New Entrants
Power of Suppliers
Power of Buyers
Now what!?
Availability of Substitutes
Competitive Rivalry
OTHER FACTORS
Labor
Fuel Cost
Weather
Economy
9/11
Regulation
Pratt Institute | DM 672 | Business Strategy HORIZON
11. U.S. Airline Revenue Growth
- Chapter 11
- NWA Merger
- Fuel Hedging Source: ATA Industry Review 2009
- Personnel Costs
- Poor Economy Industry Airline Revenue Growth
(adjusted for inflation)
- Cutting Capacity & Jobs
- New Revenue Streams
Source: EIU/IATA Economic Briefing 2008
Pratt Institute | DM 672 | Business Strategy REVIEW
12. Income Statement (in millions)
2007 2008
Revenue
Passenger Mainline 12,758 15,137
Passenger Regional affiliates 4,170 4,446 Top Expenses 2008
Cargo 482 686
Other 1,744 2,428 1. Fuel (23.7%)
2. Impaired intangible assets (23.5%)
Total Revenue $ 19,154 $ 22,697
3. Salaries (15%)
Expenses 4. Carrier Arrangements (11.7%)
Salaries 4,189 4,802
4,686 7,346
5. Depreciation (4%)
Fuel
Depreciation 1,164 1,266 6. Aircraft Maintenance (3.8%)
Contract Service 996 1,153
Contract Carrier Arrangements 3,152 3,616
Landing Fees 725 839 NET Income Comparison for 2008
Aircract Mantenance 983 1,169
Passenger Commission 933 1,030 Continental $ (585 million)
Impairment of intangible assets 0 7,296 American $ (2 billion)
Restructuring Charge 0 1,131
US Airways $ (2.2 billion)
Other operating 15 1,363
Delta $ (8.9 billion)
Operating Expense $ 16,843 $ 31,011
Net Income $ 1,612 $ (8,922) Source: WSJ DAL Financial Reports
Pratt Institute | DM 672 | Business Strategy REVIEW
13. STRENGTHS WEAKNESSES
- Acquisition of Northwest Airlines - Low on-time rating
- World’s largest mega carrier & flight network - Operating costs
- Pacific & Atlantic Ocean flight routes - Susceptibility to service disruptions
- Employees - Technology dependence for operations
- SkyTeam & SkyMiles alliance - Differentiation
- Airport model - Merger consolidation
- Brand & History
OPPORTUNITIES THREATS
- Reduce operational costs & capacity - Alternatives
- Streamline operations & supply chain - Competition
- New value-for-money strategies - Increased regulation
- Enhance the customer experience - Market environment
- Customer retention initiatives - Economy
- Invest in new technologies - Fuel costs
- Renegotiate lease & labor agreements - Crashes/Terrorism
Pratt Institute | DM 672 | Business Strategy S.W.O.T.
14. The Huff Daland
Dusters founded Begins operating as Chicago and Southern W.T. Beebe becomes
(pre-Delta) Delta Air Lines Air Lines merger Chairman and CEO
1924 1934 1953 1971
1928 1945 1966 1978
Merger: Huff Daland Official corporate name Delta founder C.E. The Airline
Dusters + Delta becomes Delta Air Woolman dies. Charles Deregulation Act
Airlines. Renamed Lines, Inc. H. Dolson named CEO passes
Delta Air Service
Source: Delta website - Delta Through the Decades
Pratt Institute | DM 672 | Business Strategy LEADERSHIP
15. Western Airlines Delta declares
Delta celebrates its merges-becomes 4th Leo F. Mullin is named Bankruptcy. Richard H.
50th year of service largest US carrier President and CEO Anderson becomes CEO
1979 1987 1997 2006
1981 1991 2001 2008
Delta launches Pan Am Merger U.S. airspace closed Merger with NWA
Frequent Flyer for two days after
Program terrorist attacks on
Sept. 11th
Source: Delta website - Delta Through the Decades
Pratt Institute | DM 672 | Business Strategy LEADERSHIP
16. The Work Environment
- Delta has always been family oriented but changed with the times
- Committed to maintaining corporate culture, committed to
employee and customers satisfaction. Anderson demonstrates
this through:
1. Employees: Profit sharing & Stock Options
2. Emphasis on customer service
3. Providing compensation packages
- Employees believe culture changed, but Anderson understands
both cultures of Delta and NW
- Delta is non-union, NW is unionized (pilots)
Pratt Institute | DM 672 | Business Strategy CULTURE
17. Facts & Updates
Industry Airline Revenue Growth
(PROJECTIONS)
10
- Profitability in 2009 due to: 8
Spending for Airline Industry
Change in % of Consumer
6
4
1. Lower fuel costs 2
0 2008 2009 2010 2011 2012 2013
-2
2. Capacity Discipline
Text -4
-6
-8
3. Merger synergies -10
YEAR
- Reduction of Domestic Capacity
"They're definitely taking
- Delta and NW Traffic updates
capacity down probably more
than what people thought they
would be doing,"
Helane Becker, airline analyst at Jesup &
Lamont Securities
Pratt Institute | DM 672 | Business Strategy OUTLOOK
18. Industry Airline Revenue Growth
(PROJECTIONS)
10
US Personal Consumption
8
Spending for Airline Industry
Change in % of Consumer
6
expenditures for US airlines
4 are expected to grow at an
2 annual compounded rate of
0 2008 2009 2010 2011
Text2013
2012
5.9% between 2008 and
-2
2013.
-4
-6
-8 Consumer Spending on airline
-10 travel Growth Slows and
Flattens.
YEAR
Pratt Institute | DM 672 | Business Strategy OUTLOOK
19. INVESTMENT OUTLOOK
22 CONTINENTAL
AMERICAN US AIRWAYS US Personal Consumption
20 expenditures for US airlines
are expected to grow at an
NUMBER OF IRPs
18
annual compounded rate of
16 TAM
DELTA
UNITED
Text 5.9% between 2008 and
2013.
14 CHINA SOUTHERN
12 CHINA EASTERN Consumer Spending on airline
travel Growth Slows and
4.0 3.5 3.0 2.5 2.0
SELL HOLD BUY Flattens.
Source: WSJ DAL Financial Reports FEB. 2009
Pratt Institute | DM 672 | Business Strategy OUTLOOK
22. Network & Operations Market & Customers
(Behind the scenes) (Perception)
PARTNER NETWORK CUSTOMER RELATIONS
Producers, Suppliers, Partners, Employees Service (CSR), Employees, Sales, PR
RESOURCES ACTIVITIES VALUE PROPSITION CHANNELS CUSTOMERS
Fuel Logistics Air Transportation
Distribution Operations Cargo Delta.com
Labor Development Passengers
Entertainment Internet (Vacation, Transfer, Business, Elite)
Airports Brand Management Food Phone Travel Agents
Content Sales & Marketing SkyMiles Terminal e-commerce
Support Strategy Training & Consulting Partner Airline Advertisers
Maintenance IT Advertising In-flight Service
Planes Service Content
Costs Margin Revenue
(HR, R&D, Finance, Development, Purchasing, HUBS, etc.) (Revenue - Costs) (Passengers, Baggage, Entertainment, Food, Advertising)
$31 billion $22.7 billion
Creating Value -$8.9 billion Capturing Value
Model created by Alexander Osterwalder, Arvetica
Pratt Institute | DM 672 | Business Strategy BUSINESS MODEL
23. Network & Operations Market & Customers
(Behind the scenes) (Perception)
PARTNER NETWORK
PARTNER NETWORK CUSTOMER RELATIONS
Producers, Suppliers, Partners, Employees
Producers, Suppliers, Partners, Employees Service (CSR), Employees, Sales, PR
RESOURCES ACTIVITIES VALUE PROPSITION CHANNELS CUSTOMERS
RESOURCES
Fuel Logistics
ACTIVITIES VALUE PROPSITION
Air Transportation
Distribution Operations
Fuel Logistics Cargo Delta.com
Air Transportation Passengers
Labor Development Entertainment Internet (Vacation, Transfer, Business, Elite)
Distribution
Airports Operations
Brand Management Food Cargo
Phone Travel Agents
Content Sales & Marketing SkyMiles Terminal
Labor
Support
Development
Strategy Entertainment
e-commerce
Training & Consulting Partner Airline Advertisers
Airports
Maintenance Brand Management
IT Advertising Food
In-flight Service
Planes Service Content
Content Sales & Marketing SkyMiles
Support Strategy Training & Consulting
Maintenance IT AdvertisingRevenue
Costs Margin
(Passengers, Baggage, Entertainment, Food, Advertising)
Planes Service
(HR, R&D, Finance, Development, Purchasing, HUBS, etc.) (Revenue - Costs)
Content
$31 billion $22.7 billion
Creating Value -$8.9 billion Capturing Value
Model created by Alexander Osterwalder, Arvetica
Pratt Institute | DM 672 | Business Strategy BUSINESS MODEL
24. Network & Operations Market & Customers
(Behind the scenes) (Perception)
CUSTOMER RELATIONS
PARTNER NETWORK CUSTOMER RELATIONS
Producers, Suppliers, Partners, Employees
Service (CSR),(CSR), Employees, Sales, PR PR
Service
Employees, Sales,
RESOURCES ACTIVITIES VALUE PROPSITION CHANNELS CUSTOMERS
Fuel
VALUELogistics
PROPSITION Air Transportation
CHANNELS CUSTOMERS
Distribution Operations Cargo Delta.com
Labor
Air Transportation
Development Entertainment Internet
Passengers
(Vacation, Transfer, Business, Elite)
Airports Brand Cargo
Management Food Delta.comPhone Travel Agents
Sales & Marketing
Content SkyMiles Terminal Passengers
e-commerce
Support Entertainment
Strategy Training & Consulting Internet Airline
Partner (Vacation, Transfer, Business, Elite)
Advertisers
Maintenance IT
Food Advertising Phone
In-flight Service
Travel Agents
Planes Service Content
SkyMiles Terminal e-commerce
Training & Consulting Partner Airline Advertisers
Costs Advertising Margin In-flight Service Revenue
(HR, R&D, Finance, Development, Purchasing, HUBS, etc.) (Revenue - Costs) (Passengers, Baggage, Entertainment, Food, Advertising)
Content
$31 billion $22.7 billion
Creating Value -$8.9 billion Capturing Value
Model created by Alexander Osterwalder, Arvetica
Pratt Institute | DM 672 | Business Strategy BUSINESS MODEL
25. Delta Air Lines Overview
HUBS
- Cincinnati
- Atlanta
- JFK
- Salt Lake City
- *Minneapolis
Marketing
Customer Retention
- SkyMiles
- Inconsistent Message - SkyTeam
- Crown Room Club
- Does not speak to the customer
experience Subsidiaries
- Comair
- Compass Airlines
“Welcome Change, Welcome the new - Delta Shuttle
Delta” Approach - Delta AirElite
- Mesaba Airlines
- Northwest Airlines (3 business’)
- Multiple agencies do work for them over
the years Destinations
- 461 destinations in 96 countries
- The Merger is a new opportunity - More than any other U.S. airline
- Delta has 1,534 flights per day
- Delta Connection: 2,533 daily
- Delta + Alliance: 6,795 daily
Pratt Institute | DM 672 | Business Strategy STRATEGY
27. US Airways
Virgin
Atlantic
Continental
Delta
British
Airways
American
Southwest United
JetBlue
Pratt Institute | DM 672 | Business Strategy CUSTOMERS
28. Creating Value
- Reduce costs, capacity, and increase efficiency
- Focus on domestic vs. international
- Evaluate and streamline suppliers
- Renegotiate contracts
- Evaluate and divest noncore business units & programs
- Monitor competition and borrow ideas from international market
Capturing Value
- Transparent & effective MarComm
- Maintain & revitalize marketing & customer retention initiatives
- New & enhanced value proposition opportunities
- Charge for EVERYTHING
Pratt Institute | DM 672 | Business Strategy RECOMMENDATIONS
29. Ideas...
- Enhance the customer experience
- Technology (RFID & ICT)
- Sell more Advertising (Captive audience who you know all about)
- Trade content for passenger feedback, information, & marketing
- Monitor passenger content interaction & improve offerings
- Sales training for Flight-Attendants (the new sales force in the sky)
- Investigate alternative food, beverage, & service models
- Recycling and waste reduction
Pratt Institute | DM 672 | Business Strategy RECOMMENDATIONS
30. Maximize value by
Charging for a better
Customer Experience
Pratt Institute | DM 672 | Business Strategy RECOMMENDATIONS
31. Technology
Content, Access, & Information
Games, Movies,
Messaging, &
WiFi....
Pratt Institute | DM 672 | Business Strategy RECOMMENDATIONS
32. Advertising
Connect Advertisers to Customers
John Smith
age 40
race white
geography NYC
status Married
children 2
Pratt Institute | DM 672 | Business Strategy RECOMMENDATIONS
33. Service
Your sales force in the sky...
...can I interest you in
a glass of wine?
Pratt Institute | DM 672 | Business Strategy RECOMMENDATIONS
34. Technology
RFID baggage tracking
Industry could
save $650 million
to $1 billion
annually
Pratt Institute | DM 672 | Business Strategy RECOMMENDATIONS
35. WASTE
more than 2 million
plastic cups daily
Pratt Institute | DM 672 | Business Strategy RECOMMENDATIONS
36. Experience
Simulation & Visualization
Pratt Institute | DM 672 | Business Strategy RECOMMENDATIONS
37. Experience
Visualization
Pratt Institute | DM 672 | Business Strategy RECOMMENDATIONS
38. Experience
Visualization
Pratt Institute | DM 672 | Business Strategy RECOMMENDATIONS
39. RE-Imagine your Business Model
...Charge for EVERYTHING
Pratt Institute | DM 672 | Business Strategy RECOMMENDATIONS
40. RE-Imagine your Business Model
...Skydiving anyone?
Pratt Institute | DM 672 | Business Strategy Q&A