BACKGROUND

Delta Airlines is an innovative, creative company and a well-established and respected airline.

It is also the oldest and largest air passenger carrier in the world as at September 2009, after

acquiring NorthWest Airlines. Since its inception in 1928 Delta has built a reputation of offering

consistent superior customer service to its passengers. For four decades, Delta held the

reputation of being the most consistently profitable airline, however with the US Federal Airline

Deregulation Act of 1978, coupled with the recession of early 1980s saw the Airline suffering its

first financial loss in the early 1980s.

The company however managed to turn the defeat around and was again profitable well into the

1990s. Delta constantly faced challenges - economic downturns, competition from low cost

carriers (domestic) and other international airlines competing for US international travellers. By

the time Delta entered the 21st century it was faced with new challenges; such as the crippling of

the airline industry in 2001 - a direct result of the terrorist attacks of September 11th, the

constantly rising fuel prices, and the economic downturn in 2009. Delta eventually filed for

bankruptcy in 2005, when it was no longer able to meet its financial obligations.

Industry analysts typify the airline industry as unattractive, unstable and cyclical in nature. Delta

operates in an intensely competitive environment, which is still struggling to recover from the

most recent recession. Efforts to compete with low cost carriers have not met with expectations.

A pioneer of the hub and spoke model which it uses to map its destinations, Delta’s competitive

edge is being the airline of choice for international travel. Through strategic alliances with other

international and domestic airlines, Delta offers more options to travellers in choosing airlines to

take them to their destinations. Currently Delta airline flies to over 60 countries and is the only

airline to fly to all six [fully populated] continents.

The challenges facing Delta have significantly impacted the organization’s financial stability.

Despite the many financial obstacles, Delta’s cash flow has remained positive. While it is on

the road to recovery, the company must find creative ways to stimulate growth in a struggling

airline industry [and by extension the economy] if it is to maintain strong financial health, and

remain viable.

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HISTORY

In 1928 C. E. Woolman and a group of investors from Monroe, Louisiana developed a passion

for passenger air travel. Formerly Huff Deland Dusters an aerial Crop Dusting Company,

Woolman purchased the Crop Dusting Company and renamed it Delta Air Services.

In 1934 the company was awarded a mail contract from the US Post Office, and Delta flew its

first passengers on August 5, 1934 from Atlanta to Dallas. The company ‘took off’ and in 1941

relocated its head office from Louisiana to Atlanta in order to access the facilities of the city and

the Atlanta Airport as well as to tap into the growing market of business travellers. The

company began expanding, overtime acquiring struggling Airlines like Chicago and Southern

Airways in 1953 and Northeastern Airlines 1972, thus adding more routes.

Delta’s growth continued well into the late 1970s; by 1978 the company ranked 5th in the

industry transporting some 3.3 million passengers, earning revenues of approximately US$2

billion dollars. However the Federal Airlines Deregulations Act of 1978 had a game changing

impact on the Airlines industry, especially legacy carriers like Delta. This era saw the

emergence of new Low Cost Carriers (LCC), resulting in a more competitive environment. The

company continued on its growth path and in 1990 Delta held the no. 3 position, moving 67.2

million passengers with total revenue earnings of US$8.5 billion. When Pan Am folded in 1991,

Delta assumed ownership of the once iconic air line acquiring routes in the Central America and

the Caribbean regions. Delta was now transformed from a regional carrier to a competitive

Global carrier. The results were also evident in its profit margins, which ultimately earned the

company a reputation as the most consistently profitable one in the industry. Delta also earned

the reputation of the best paying airline in the industry. Delta’s employee rewards system

resulted in a motivated and dedicated workforce and a high staff retention rate.

Notwithstanding, Delta Airlines had its share of challenges over the years. The problems of the

late 1980s and early 1990s – the recession, rising fuel prices and the war in the Middle East

severely affected the airline industry. Although the airline industry at that time was described as

unstable and unpredictable, the early 1990s saw the emergence of smaller low cost airlines,

expanding the airline industry, and resulting in an intensely competitive environment. In 1996,

Delta Express was launched to compete against these airlines. A financial failure, Delta Express 2

operated until 2003 when it was divested and replaced by Song, a unique low-cost subsidiary

airline, which has also been divested. The terrorist attacks of September 2001 affected the

already struggling US Airline industry, as all the major airlines suffered huge financial losses.

Delta operated under bankruptcy provisions for two years (2005 – 2007). During this period, it

returned to having a positive cash flow. Its purchase of Northwest Airlines in 2008 has resulted

in a more favourable financial position, as the Airline recuperates from its financial demise.

Currently Delta Airlines operates an extensive domestic and international air carrier serving over

160 million persons each year, in markets in North America, South America, Europe, Asia,

Africa, the Middle East, the Caribbean and Australia. In 2001, Delta formed a global airline

alliance called SkyTeam with Air France, Areomexico, and Korean Air. To date SkyTeam is the

second largest air alliance in the world and have 13 members and growing. Delta’s strong

employee relations, focusing on its core business (air-transportation), its commitment to

providing superior service and employing prudent financial strategies, are the pillars on which

Delta Air Lines Incorporated grew and developed.

Over the years Delta’s CEOs have been ‘home grown’, promoted through the ranks. Richard

Anderson, the current CEO was however recruited from United Health Group having had

previous experience with Continental Airlines and Northwest Airlines.

Delta in Jamaica

Delta directly employs six persons in Jamaica. Five persons are stationed at the Montego Bay

Sangster’s International Airport– three in the areas of passenger service, and two in marketing.

One individual in the area of passenger service is stationed at the Norman Manley International

Airport (Kingston). Additional staff is provided on a needs basis by AJAS. Delta operates up to

10 flights daily from the Sangster’s International airport, and one from Norman Manley

International Airport (D. Harold, telephone interview October 25, 2010).

On June 30, 1997 Delta and Air Jamaica signed a letter of intent to pursue cooperation in

marketing and other services, including a codesharing agreement (Air Jamaica, 1997). All

agreements have since been rescinded.

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COMPETITIVE ANALYSIS

SWOT ANALYSIS OF DELTA

Strengths

Reputation: SkyTrax, the world's largest Airline and Airport review site ranks Delta a 3 star

airline. The 3 Star ranking signifies a "satisfactory" standard of core product across most travel

categories.

Within this decade, a study was conducted by Harris Interactive of airline reputations, By

measuring the attitudes of over 20,000 consumers, the Airline Reputation Quotient (RQ) study

rated domestic and foreign airlines on issues ranging from safety and trust to customer service

and food. Delta was graded with an RQ of 70, bettered only by one airline in the United States

and nine airlines worldwide (Hucko 2000).

Geographical Coverage: Delta is the only US airline that flies to all continents, excluding

Antartica. They are a founding member of Skyteam, the world’s second largest airline alliance

that provides flights and easy connections for their customers.

Workforce: In September 2009, Delta was the recipient of the "Better Way" award offered by

the Air Transport Association (ATA) in association with the Federal Aviation Administration

(FAA). The award recognizes government and airline industry employees who work together to

advance the inspection and testing of aircraft structure, components, or systems.

In July 2010, U.S. airlines reduced overall workforce 2.3% from a year earlier, according to the

U.S. Department of Transportation. Delta was the only airline of seven network carriers to

increase its staff complement (4). The Atlanta company has had few labor problems compared

with most major airlines — the last strike was a mechanic's walkout in 1947.

Entrepreurial Orientation: Joining with other major airlines in the industry to form a global

alliance called, SkyTeam. The SkyTeam alliance results in cost savings by sharing cargo and

passenger terminal facilities, integrating frequent-flyer programs, consolidating sales,

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maintenance and administrative operation, combining information technologies, and engaging in

joint procurement where feasible (Corridore, 2003, p. 7).

Innovation effectiveness: Delta contionuously incorporates and upgrades technology to enhance

customer experience. For example, in 2008 Delta installed the Aircell mobile broadband

network, Gogo. This enabled their customers traveling with Wi-Fi enabled devices, such as

laptops, smartphones and PDAs, to access the Internet.

Weakness

Customer Satisfaction: Delta has been consistently slipping in customer satisfaction ratings. In

the J.D. Power and Associates 2010 North America Airline Satisfaction Study, Delta was ranked

4th of 7 traditional airlines, slipping from third. The recent merger with NorthWest airlines has

not helped, as NorthWest had significantly low customer service ratings (Yamanouchi 2010).

Financial Stability: Delta filed for bankruptcy protection in 2005, having $20.5 billion in debt.

They have since exited bankruptcy, but still have a significant debt to contend with. For the past

2 years, Delta has been operating at a loss, of up to $8.9 billion.

Pricing: Delta’s pricing structure has struggled against low cost carriers such as SouthWest,

JetBlue and Spirit Airlines. They have some of the highest fares in the US airline industry.

Opportunities & Threats

Political and Legal environment:

Airline union rules: Unions can now be certified if they win a majority of votes cast.

Before, they could only be certified if they won the votes of the majority of workers.

Delta is currently a nonunionized airline, one of only a few. This will change the way

Delta relates to its staff. (Threat)

Passenger laws: Proposed laws to penalize airlines who bump passengers. Also, to

allow passengers to cancel or change reservations within 24 hours without a charge.

Airlines would have to refund baggage fees if the passenger arrived without luggage.

(Threat)

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Deregulation: Allows easy entry of competitors into the airline industry. (Threat)

Fuel Pricing: The Obama administration is proposing laws to develop a consistent fuel

pricing mechanism (Hunt 2010). (Opportunity)

Economic environment:

Emerging Markets: Markets in emerging economies, mainly BRIC nations (Brazil,

Russia, India & China), are expected to sustain growth over the next 20 years. Their

economies and demographic developments are realized by air travel. (Opportunity)

Recovery from the recession: The International Air Transport Association (IATA) has

tripled its projections for 2010, anticipation a profit of $8.9 billion up from $2.5 billion

(ZIR 2010). (Opportunity)

Oil Price Volatility: While oil prices over the past two years have not reached the

dizzying $147 per gallon heights of 2007, prices are expected to rise slowly in 2011 as

global economic growth leads to higher global oil demand. (Threat)

Social and Cultural environment:

Public acceptance of low fare concept: With a reduction in disposable income

worldwide, low cost airlines have gained in popularity. (Threat).

Customer Awareness: Public has increased the use of the internet to shop around, with a

premium on safety. (Opportunity)

Technological environment:

Emerging technologies. This allowed Delta to be the first U.S. airline to provide

onboard Wi-Fi for domestic mainline fleet. Also allows them to offer flat seat bed and on

demand digital experience (Delta 2010). (Opportunity)

Unducted Fan driven aircraft: Aircraft technology being touted to result in planes

vastly improved in fuel effieciency. (Opportunity)

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Natural environment:

Alternative energy sources: Airlines are castigated for their contribution to global

warming, despite data suggesting they contribute just 2%-3% of Carbon Dioxide

emission worldwide. Nevertheless, Deltas main fleet suppliers, Boeing and Airbus, are

developing 787 and A380 airplanes that run on fuel from algae and other bio fuel sources

(Hamilton 2007). (Opportunity)

Competitive:

Short haul travel: On short routes (less than 600 miles), Delta competes not only with

other airlines, but automobiles, buses and railroads. Reduction in disposable income

made more persons opt for longer but cheaper travel. (Threat)

Low Cost Carriers (LCC): LCCs enjoyed huge cost advantages over legacy carriers like

Delta. LCCs offers stripped down, no frills travel, the interest being to get the traveller

from point A to point B. This, in recent years, is an increasingly popular travel option.

This is the model used by SouthWest, Jet Blue, Spirit among others. (Threat)

Other Legacy Carriers: Traditional airlines constantly seek to improve, merge or join

airline alliances. Chief amongst these are the One World alliance airlines, headed by

American Airlines.

Porters Five Forces

New entrants in the industry: This is a strong possibility in the industry, with the 1978

deregulation of the industry and access to bank loans allowing for easy entry, in an already

competitive field. Even with the current weak state of the airline industry, it has remained very

‘hot’ with numerous startup airlines emerging worldwide.

Threat of Substitutes: Only a threat on the domestic front. There are no real substitutes for

planes in international travel. Buses, private motor vehicles and trains offer a low cost alternative

to flying. The tradeoff is the time to travel.

Bargaining power of suppliers: Only two companies, Boeing and Airbus, supply aircrafts to

Delta and most of the other airlines. Most airlines use the same model planes. This is an

oligopoly, but there is no sign of collusion between the actors.

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Bargaining power of customers: This is surprisingly weak. The high costs of switching from

one airline to another makes this not a popular option. Options to purchase tickets on the airlines

website or in advance can result in lower prices.

Competitive Rivaly: This is very strong amongst airlines. There is hardly any segmentation in

the airline industry. The low cost carriers go after everyone, and markets everywhere. This has

resulted in airlines cutting fares to remain competitive.

Only airlines that can adapt and change will survive in the airline industry. The industry is

marked by intense competition. Delta is achieving a competitive advantage in terms of its reach.

It is virtually unmatched in the number of gates it flies to worldwide. Its employee model,

whereby only its pilots are unionized, allows for staffing flexibility. Delta is known to be one of

the highest paying airlines, which helps to keep staff motivated.

Delta has continued to be innovative in its efforts to halt the slide in its customer satisfaction

ratings. With the power of the prospects, wherein their reviews have a wide reach, Delta had

been innovative in its approach. The flat seat bed and the development of the world's most

sophisticated single-aisle in-flight entertainment system, represents efforts to put smiles on their

customers faces.

While Delta has been making a loss, the loss is attributable to debt repayment. Delta’s cash flow

has been positive for the past two years. This suggests that the company is on its way to

profitability.

Delta over the years has attempted to meet the advent of the LCC head on. In 1996, Delta

introduced Delta Express on the low cost model. This offshoot was abandoned in 2003, and

replaced by Delta Song, a direct competitor to JetBlue and SouthWest. Song folded after three

years. None of the attempts at a low fare subsidiary was financially successful. Indeed, it served

to detract from, rather than contribute to Delta’s success and reputation.

Delta continues to spend time and money in researching the low cost market to find the right fit

for the company. The LCCs are Deltas biggest threat and highlights a major weakness. By

including features that an LCC cannot match on their flights and continuing to find ways in

successfully re-enter that industry space, Delta is turning those threats into opportunities.

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CORPORATE LEVEL STRATEGY – The Marketing Plan

The Delta Mission Statement: Since the founding of Delta Air Lines, our company has stood for

safe and reliable air transportation, distinctive customer service, and hospitality from the heart.

Our vision is for Delta to build on its traditions and always to meet our customers' expectations

while taking service to even higher levels of excellence. We are a leader in a business we know

best-airline transportation. We intend to be an even greater company and will focus our time,

attention, and investment on building that leadership. We are dedicated to being the best airline

in the eyes of our customers. We will provide value and distinctive products to our customers, a

superior return for investors and challenging and rewarding work for Delta people in an

environment that respects and values their contributions.

Delta employs a four pronged corporate strategy:

1. Differentiation

2. Customer Satisfaction and Rewards

3. Employee Retention and Rewards

4. Marketing and Promotion

Differentiation:

Despite the negative publicity generated by falling into bankruptcy, Delta has persevered. One

reason is the strength of the Delta brand that sets it apart in the industry. This is primarily built

on its extensive flight service. When United and US Airway attempted aggressive takeovers,

they asserted that the new company would take on the Delta name. It was also one of the

conditionalites of the NorthWest merger. Delta branded its low cost carrier Song in order to

protect the equity of its brand (Kotler, and Keller.2009. p. 257), as it did not want to associate the

name Delta with the entity in the event that it failed. Maintaining the integrity of the Delta brand

was a part of the reason for divesting the Delta Express and Song brands, which served to water

down the Delta name.

Through acquisitions and mergers, starting in the 1950s, Delta has the widest gate span of any

airline. Merging with Chicago Airlines and Southern Air Lines in 1953, Western Airlines in

1987 and in 2008 with NorthWest, have seen Delta’s fleet capacity superior to all. Additionally,

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Delta’s purchase of virtually all of Pan Am transatlantic flight in 1991 ensured that for over

twenty years, Delta has a very strong claim to being the world’s foremost global airline.

Customer Satisfaction and Rewards (The Product):

Delta is committed to keeping its customers happy by finding innovative ways to enhance their

flying experience. Its reward programs are amongst the best in the industry. In the "Best of

Business Travel Awards" from Business Traveler Magazine (January 2008), Delta was again

recognized in three categories: Best Frequent Flyer Program, Best Airport Lounges and Best

Airline Web Site.

The foundation of Delta's differentiation is its customer service throughout the travel experience,

premium in-flight offerings and rewards programs for frequent flyers. The airline is looking to

become one of the top three ranked airlines for customer service, on-time performance, baggage

handling and cancelled flights as part of its turnaround plan.

NorthWest Airlines was consistently low in customer satisfaction, and this affected Delta ratings

immediately after the 2008 merger. Delta has since been able to get back to ratings it enjoyed

prior to the merger.

Employee Retention and Rewards:

The airline industry is highly labor-intensive, and it is vital for Delta to keep its workforce

motivated and satisfied. Pilots are the only unionized group. They represent 17% of Deltas more

than 75,000 members of staff. Indeed, Delta staff in 2008, voted to reject overtures from the

Association of Flight Attendants (AFA). This prompted the AFA to unsuccessfully charge Delta

with ‘harassment and intimidation’.

Compensation and benefits to all categories of workers have always been top of the industry. A

part of Deltas strategy has always been to offer fantastic benefits, including health benefits,

401(k) plans and free travel. The company strives towards providing job security and a

“promote from within” policy. As a result, Delta’s staff is among the most loyal anywhere.

During the period of bankruptcy, Delta team members took a voluntary pay reduction, and

mounted a ‘Save our Delta’ campaign. In 1982, they presented the company a brand new Boeing

767, named ‘The Spirit of Delta’.

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Marketing and Promotion:

Marketing Strategy - Target markets and Pricing:

Delta attempts to provide services to significant parts of the freight, business and leisure

segments. Each segment is unique in terms of its requirements. The business segment requires

high flight frequency, high seat accessibility and a vast gate network and interconnectivity.

Through its SkyTeam association, the second largest air alliance in the world, Delta’s business

customers has access to 15,089 daily flights to 791 destinations worldwide in 162 countries.

Delta itself already flies to more gates than any other airline in the world. This segment

commands higher prices.

The leisure market is the weakest link in the Delta marketing chain, as it is very price sensitive.

Delta’s pricing mechanism is even higher than most legacy airlines, one reason why it is so

susceptible to the LCCs. This segment produces very low yields for the industry and is very

seasonal. Delta recognizes however that this is potentially the largest segment of the total airline

market, and its growth potential is the best of all segments.

For its Freight segment, Delta is currently the world’s No. 1 airline, flying cargo to 64 countries

across six continents. It has re-engineered its containers to ‘envirotainers’. It provides specialty

cargo product services - live animal, human remains, perishables, dangerous goods and high

value firearms. Again, Delta’s pricing are at the high end of the industry.

A key part of Deltas marketing strategy is its Frequent Flyer Program. It has been recognized as

one of the industry’s best. Their program, SkyMiles, was recognized for excellence among

frequent travel programs and received The Freddie Award. InsideFlyer magazine honored Delta

Air for "helping to start and shape the world of loyalty programs throughout the past 25 years."

This is a big hit with Delta’s primary customer base, the business travelers.

Promotions:

Delta has been very intuitive in how it carries out its promotions. They have minimized the

traditional marketing media. The airline is aware that today’s digital travellers must be reached

through different avenues than the traditional TV and billboard advertising. Delta utilizes

various social networking sites, such as Facebook, pop-sites like YouTube and other internet

medium to press home the Delta message and channel users to its Delta.com website.

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Through their various slogans throughout the years, Delta has reached out to travellers with a personal touch:

Much more space (advertising of Delta business class leg room)

Delta gets you there

You'll love the way we fly

Delta is ready when you are

Delta is my airline

In Jamaica and other smaller markets, marketing takes place through collaborative marketing

with hotels, travel agencies and tour companies. They seek creative ways to package room and

flight deals with partners in the travel industry. (D. Harold 2010)

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STRUCTURE AND CONTROLS

Structure:

In order to remain viable and profitable Delta Airlines and made several transitions in its

management structure. In its formative years the structure at Delta Airlines was described by the

management team and industry analysts as conservative. This is consistent with a simple

management structure, where elaborate administrative and formal reporting structures are

noticeably absent. Usually key decisions are made solely by the CEO. The core functions are

usually carried out by individuals who are interchangeable. There are no role differentiations,

and hence results in individuals carrying out multiple functions. The end results are that

organisations can quickly adapt to and respond to environmental demands.

Currently Delta Airlines employs the machine bureaucracy structure, where work processes is

standardized and streamlined. This requires the involvement and full participation of the

company’s legal and finance teams in management decision making policies. (Organisation

configuration of Mintzberg). Delta’s Board of Directors is handpicked by its shareholders, and

includes leaders of other reputable companies. The board is supported by four key committees,

namely finance, corporate governance, auditing, and personnel and compensation. All categories

of workers are represented on the Board of Directors, including a representative for Delta’s only

unionised workers – its pilots. Delta reputedly has the best and most committed workforce, and

offering the highest compensation package across the board, resulting in a strong

management/employee relationship.

Controls:

The airline industry is characterised as cyclical and unstable and as such requires that airline

management teams find a balance between prudent management practices to ensure that its

resource employees receive fair benefits, and adequate return on investment for its shareholders,

while at the same time driving cost cutting initiatives, to achieve optimal financial results. In

order to ensure that it attains its planned objectives, Delta has stringent financial control methods

in place. In order to determine its position in relation to its objectives, Delta Airlines employs

several measures.

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Financial Control:

1. Delta uses several financial ratios, balance sheet as well as information provided by

industry analysts to determine whether or not planned objectives are met. Some of the

ratios reviewed are:

Quick Ratios

Currant Ratios

Net Sales/Total Assets

Current Debt/Equity

Long Term Debt/Equity

Total Assets/Equity

Net Income/Net Sales

In addition sales and market share analysis are also compared by Delta for strategic

business decision making.

2. Profitability Control is another financial control measure used by Delta Airlines.

Profitability is reviewed by looking at each expense as a percentage of revenue.

In addition the company reviews the revenue environment, in terms of Passenger/Cargo

and further by region. Expenses are reviewed in the same format as revenues.

Strategic Control:

In order to determine if the company has maximised on the available growth opportunities in

terms of markets and products, the company consistently examines the airline environment by

conducting primary and secondary market audits. The financial statements also presents a

financial picture of these activities in terms of revenue earned versus revenue spent for any

undertaking.

Passenger satisfaction is measured by reviewing customer surveys conducted by industry

analysts.

Controls exist to determine whether or not the planned objectives are being met and taking

corrective measures where necessary, to ensure that organisations are able to keep steady pace

with the environment in which it operates.

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Kotler and Keller - 2009 posits that a company’s strategic fit will erode because the market

environment changes faster than the company’s seven Ss – (strategy, structure and system which

make up the hardware of the business, and style, skills, staff and shared values are the software.)

(Kotler &Keller, 2009 p. 56)

Systems – Delta has strong airline routes through its pioneering of the hub and spoke model.

Currently Delta operates five hubs, four major hubs and one secondary hub. Delta Airlines

competes on a technological advantage in that it consistently upgrades its technology in order to

match the needs of its customers. Examples are the internet check-in, expanded gate information

and virtual check-in on its Delta.com website.

The structure that exists at Delta facilitates the flow of information from front line staff to

managers which aids in the decision making process. That is, employees are encouraged at Delta

Airlines to contribute to the decision making process.

It has already been established that Delta Airlines has the staff and skills to deliver the corporate

strategies. Delta employees are hired at entry level positions and move through the ranks to

become managers. Employees are also encouraged to participate in cross functional jobs,

allowing them to have a broad view of the business. The company promotes from within, hence

employees are motivated to develop themselves for future job promotions. Evidently Delta

Airlines management and employees also have shared values based on the structure and the

coherent relationship that exists.

The control measures employed by Delta are mostly financial. In an industry that is

characterised as financially unstable, financial control measures serves its purpose. However, it

would be prudent if Delta does its own marketing research to access first hand information on the

needs and demands of the market. Specifically, the leisure market is the weakest segment that

Delta operates in. Delta has had two failed attempts at competing in this market, which could be

due to ineffective control measure (the lack of marketing research information), in that regard.

Notwithstanding, the financial controls are a crucial analytical tool as it guides the company to

effective and efficient decision making, and helps to determine corrective actions. Control

methods present an opportunity for managers to identify changes within the market it operates in 15

and to make the adaptation as quickly as possible in order to survive. Delta has had it fair share

of challenges over the years. Despite the negative publicity received with regards to its falling

customer service and having to file for bankruptcy in 2005, Delta seems to have the right

controls in place. In addition, its ability to adapt to such a dynamic and constantly changing

industry speaks volumes, as it has always managed to rebound in the end.

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FINANCIAL ANALYSIS

We examined Delta’s balance sheet, cash flow and income statement in order to arrive at

financial performance of the company. Data was pulled from the financial documents for three

years (2007-2009). The emphasis is placed on the net income, return on asset ratio and debt to

equity ratio. These figures will give a clear analysis of Delta’s performance for the three years.

Net Income: This is the profits or losses reflected in a company’s balance sheet at the end of the

year. It measures the company’s financial performance within a given year.

Based on the data presented in fig 1, Delta experienced a $1.2 million net loss in 2009. This is as

a result of a significant weakness in the airline environment due to the global recession.

Although Delta experienced a loss in 2009 this was a significant improvement compared to the

loss in 2008.

Fig. 1

Return on Assets (ROA): This measures the overall effectiveness of management in generating

returns to common stockholders with its available assets. During 2007 the ROA (fig. 2) for

Delta was positive which indicates that Delta had a good return of their assets and is indicative of

the company making money. This put Delta in the top position in 2007, when compared to

competitors. The years 2008 and 2009 were not very good for Delta as they experienced a

significant loss on returns in 2008.

Delta managed to grow some return in 2009, but was not enough to have taken them out of the

negative, even though they did much better than year 2008.

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Fig. 2

Debt to Equity: This is used to measure financial leverage of a company. A high ratio indicates

that the company is able to finance its growth with debt. Delta has shown a steady increase in its

debt to equity from 2007-2009, as reflected in the chart above and have managed to maintain the

number 1 position from 2008-2009. This has benefited their shareholders greatly as well as to

increase their earnings.

While Delta has managed to maintain a steady growth in revenue for the 3 years (2007-2009), it

showed that the company experienced a significant loss in Net Income for 2008. The purchase

of Northwest Airlines could have contributed to this significant loss. Notwithstanding, Delta

managed to maintain a positive cash flow for the period, which still have them maintaining their

grounds in the industry.

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PROJECTIONS FOR THE AIRLINE INDUSTY (2010-2029)

Commercial aviation has weathered many downturns in the past. Yet recovery has always

followed quickly as the industry reliably returned to its long-term growth rate of approximately 5

percent per year. Airlines are working relentlessly to reduce costs by replacing older, fuel-

hungry airplanes and finding more efficient ways to operate.

Passenger Traffic: Encouraging near-term indicators as the global economy recovers. Global

passenger traffic is forecasted to grow 6% in 2010 and an average 5.3% per year until 2029.

Air Cargo: After two years of decline, air cargo traffic is recovering. Air cargo traffic growth

turned positive in November 2009 after 18 straight months of decline, and is expected to return

its 2007 peak. This is set to grow at 5.9% over the next 20 years.

Profits: Global airline financial performance is expected to improve to the breakeven point this

year, following a $10 billion net loss in 2009. Asia-Pacific airlines are expected to lead the

world in profits, followed by North American airlines.

GDP growth rate: Global gross domestic product (GDP), the key indicator of worldwide

economic activity, is the greatest driver for growth in air travel. This is expected to grow an

average of 3.2% per year for the next 20 years.

Regional Projections

Region Air Traffic Growth GDP

Asia Pacific 6.8% 4.6%

Europe 4.4% 1.2%

North America 2.8% Domestic 4.9%

International

3.7%

Middle East 7.1% 4%

Latin America 6.9% 4%

Commonwealth of

Independent States (CIS)

4.8% 3.3%

Africa 5.5% 4.4%

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RECOMMENDATIONS

From our analysis, Delta is the airline best positioned to take advantage of the projected growth

in world airline travel, based on its extensive fleet and worldwide coverage. It also has a

significant presence in those regions poised for the largest growth. There are, however, a few

changes that we recommend.

Capacity Reallocation: The domestic market in the United States is dominated by LCCs, how

Delta has twice challenged unsuccessfully. As the Growth by Regional Flow table (Appendix A)

shows, the growth rate in that market in expected to be the second lowest in the world over the

next twenty years. Meantime, Delta’s cash cow, the international market, is poised for greater

growth.

We recommend Delta should access the individual domestic routes in the United States, with a

view to cutting all underperforming ones. Delta’s current domestic/international capacity mix is

70/30. We recommend that this is altered to 60/40 within the next three years. Constant surveys

of the market, the actual growth compared to the projections, will determine if this ratio should

be further reduced. Marketing efforts need to concentrate on the Asia/Pacific, Latin America and

Middle East regions. Appendix C shows that the LCC model has not taken off in Asia, with less

than 8% market share. It is however air marked for rapid growth, and Delta needs to be aware of

this market if it plans to reenter the LCC market.

As part of the capacity reallocation, Delta should look at the United States cities where it has its

hubs. We recommend Delta close at least one of its hubs, starting with its Cincinnati hub which

is central to its New York, Atlanta, Minneapolis/St. Paul and Michigan hubs. They should look

at the feasibility of establishing at least one hub in China, considering the growth of that region

and its emergence as the world’s number two economy.

Fleet Change: Delta’s fleet is on average 14 years old. With new fuel efficient technology being

developed and customer-centric features becoming more commonplace, Delta would be prudent

in acquiring or leasing new airplanes. Certainly the MD-88, MD-9 and DC-9 models used for

some domestic flights must be retired.

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As a part of the capacity reallocation strategy recommended, Delta should reduce its inventory of

single aisle planes such as the A319, 320 and the CRJ models and increase its double aisle model

used on international flights.

This should commence with the next year.

Customer Relations: While Delta’s employees are totally committed to the company, this

dedication has not fully translated to customer satisfaction. Delta must take steps to halt the

sliding customer satisfaction scores. Offering the employees shares in the company, along with

customer service training, should help.

A staff relations program must be immediately designed and implemented.

They must continue to be innovative in their offering to customers. Recently, Delta introduced

an enhanced Sky Club dining experience at their New York hub. They offered made to order

meals through a full service café and bar. The café also offered an extensive wine and beer

selection. This concept should be expanded to hubs in Cincinnati, Detroit, Memphis,

Minneapolis-St. Paul, New York-JFK, Salt Lake City, Paris-Charles de Gaulle, Amsterdam and

Tokyo-Narita over the next two years.

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CONCLUSION

The environment in which airlines have been operating since 2001 has been tumultuous. One

financial disaster after another has been a feature of the decade for airlines. Delta was dragged to

the pits of the crisis but has risen and recovered better than any legacy airline.

Delta has always been a leader in innovative flight experiences. It pioneered kiosk check-in

which is now industry standard. Features aimed at making flying with Delta an experience helps

to offset its relatively high prices.

The projections for growth make this an exciting time for airlines. How they position themselves

will determine their chances of survival, in an era where capacity management is extremely tight

and cost cutting occurs almost daily. Fuel and labour costs are causes for concern for Delta, but

these are industry wide factors and may actually benefit Delta. With Delta’s capitalization, these

factors may drive some of delta’s competitors out of business. The coming years should see

Delta continue to soar above the rest.

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