Date post: | 19-Oct-2014 |
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Business |
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Pratt Institute | DM 672 | Business Strategy
- Analysis- Leadership- Culture- Outlook- Business Model- Strategy- Customer Interface- Recommendations
AGENDA
COMMERCIAL AVIATION IN U.S.
Helps Drive
- $1.142 trillion in economic activity- $346.4 billion in earnings- 10.2 million jobs
Contributes
- $692 billion/year to U.S. GDP- 5.2% of U.S. GDP
Traffic
- 40,000+ daily commercial departures- 2 million US passengers daily
Pratt Institute | DM 672 | Business Strategy
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.
KEY FACTS
HQ in Atlanta, GAFounded 192852,386 Employees$22,697 Sales (in millions)$3.6 billion merger with NWAWorld’s largest airline (by traffic)
COMPETITION
AmericanUnitedContinentalUS AirwaysSouthwestAmerica WestJet BlueATA
“Welcome Change. Welcome the new Delta.”
British AirwaysChina SouthernAir FranceAeroMexicoAeroflotVirginSingapore AirlinesSAS
Pratt Institute | DM 672 | Business Strategy PROFILE
- 9/11
- Fuel Costs
- Chapter 11
- Executive Management
- Delta/NWA merger (Oct. 2008)
- Capacity Cuts
COMMERCIAL AVIATION IN U.S.
Helps Drive
- $1.142 trillion in economic activity
- $346.4 billion in earnings
- 10.2 million jobs
Contributes
- $692 billion/year to U.S. GDP
- 5.2% of U.S. GDP
Source: FAA October 2008
Pratt Institute | DM 672 | Business Strategy
INDUSTRY FORCES
Threat of New EntrantsPower of SuppliersPower of BuyersAvailability of SubstitutesCompetitive Rivalry
OTHER FACTORS
LaborFuel CostWeatherEconomy9/11Regulation
OVERVIEW
Industry Airline Revenue Growth(adjusted for inflation)
Source: EIU/IATA Economic Briefing 2008
Pratt Institute | DM 672 | Business Strategy
OUT OF BUSINESS (2008)
MAXJetBig SkyAlohaATASkybusEosChampionAir MidwestVintage Props & JetsGemini Air CargoExpressJet
Chapter 11
FrontierSun CountryPrimaris
OVERVIEW
U.S. Airline Revenue Growth
Source: ATA Industry Review 2009
Source: ATA Industry Review 2009
Pratt Institute | DM 672 | Business Strategy FINANCIALS
Top Expenses 2008
1. Fuel (23.7%)
2. Impairment of intangible assets
3. Salaries
4. Carrier Arrangements
5. Depreciation
6. Aircraft Maintenance
NET Income Comparison for 2008
Continental $ (585 million)
American $ (2 billion)
US Airways $ (2.2 billion)
Delta $ (8.9 billion)
2007 2008
12,758 15,1374,170 4,446
482 6861,744 2,428
19,154$ 22,697$
4,189 4,8024,686 7,3461,164 1,266
996 1,1533,152 3,616
725 839983 1,169933 1,030
0 7,2960 1,131
15 1,363
16,843$ 31,011$
1,612$ (8,922)$
Passenger MainlinePassenger Regional affiliates
CargoOther
Total Revenue
Revenue
ExpensesSalariesFuelDepreciation
Contract Service
Contract Carrier Arrangements
Landing FeesAircract Mantenance
Passenger CommissionImpairment of intangible assets
Restructuring Charge
Other operating
Operating Expense
Net Income Source: WSJ DAL Financial Reports
Income Statement (in millions)
Pratt Institute | DM 672 | Business Strategy
2006 20072,784 3,168
936 1,092
192 273
18,115 10,127
227 12,104
279 2,953
2,911 2,706
19,622$ 32,423$
936 1,045
1,797 1,982
500 320
405 734
8,012 9,000
0 3,867
709 3,632
20,856 1,730
33,215$ 22,310$
(13,593)$ 10,113$
Cash/Investments
Assets
Liabilities
Accounts Receivable
Maintenance
Flight Equipment
Goodwill
Leasehold Rights
Other
Total Assets
Accounts Payable
Air Traffic LiabilitiesTaxes Payable
Accrued Salaries
Debt
Pension & retirement
Deferred Revenue
Other
Total Liabilities
Total Equity
FINANCIALS
OBSERVATIONS
- 530% increase in Goodwill?
- Did Chapter 11 absolve pension?
- $20 billion “liabilities subject to
compromise”?
...This amount represents the debtors'
estimate of known or potential pre-
petition claims to be resolved in
connection with the Chapter 11 cases.
Source: WSJ DAL Financial Reports
Balance Sheet (in millions)
Pratt Institute | DM 672 | Business Strategy
STRENGTHS- World’s largest mega carrier
- Innovative business strategies (Song, Delta re-branding)
- Acquisition of Northwest Airlines
- SkyTeam alliance
- Industry-leading airport model (lobby re-design, self-service kiosks)
WEAKNESSES- Capacity cuts (20% capacity reduction)
- Employee cuts (2,000 job cuts)
- Low on-time rating
- Air transportation safety
- Operational costs
- Susceptibility to labor-related disruptions (employee strikes)
- Technology dependence for operations
- No clear mission & vision
- Differentiation
S.W.O.T.
“Although airlines will seek to recover
the higher cost through...fare hikes and
higher fees, this will prove increasingly
difficult in a weak U.S. economy.”
- S&P, May 22, 2008
“Airlines have no choice but to pass on
the cost of fuel...and when passengers
do begin to push back in significant
numbers the airlines have no choice
but to slash capacity.”
- Rick Seaney, WSJ 2008
Pratt Institute | DM 672 | Business Strategy
OPPORTUNITIES- Invest in new technologies
- New Presidential Administration
- Fuel alternatives
- Reduce operational costs
- New sources of operating revenue
- Enhance the customer experience
- Renegotiate lease agreements (2012-Atlanta HQ HUB)
THREATS- Video Conferencing Technology
- Fluctuating Fuel Costs & Supply Chain risks
- Unionized Labor Strikes (17% of workforce is unionized)
- Disruptions/interruptions of service at hub airports
- Profit losses and adverse publicity from any aircraft accident incidents
- Government Regulation CO2 Emissions
- Global Economic Recession
- Customer reaction to new policies (baggage & food) S.W.O.T.
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
Pratt Institute | DM 672 | Business Strategy
Now what!?
HORIZON
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
Pratt Institute | DM 672 | Business Strategy REVIEW
U.S. Airline Revenue Growth
Source: ATA Industry Review 2009
Industry Airline Revenue Growth(adjusted for inflation)
Source: EIU/IATA Economic Briefing 2008
- Chapter 11- NWA Merger- Fuel Hedging- Personnel Costs- Poor Economy- Cutting Capacity & Jobs- New Revenue Streams
Pratt Institute | DM 672 | Business Strategy REVIEW
Top Expenses 2008
1. Fuel (23.7%)2. Impaired intangible assets (23.5%)
3. Salaries (15%)4. Carrier Arrangements (11.7%)5. Depreciation (4%)6. Aircraft Maintenance (3.8%)
NET Income Comparison for 2008
Continental $ (585 million)American $ (2 billion)US Airways $ (2.2 billion)
Delta $ (8.9 billion)
2007 2008
12,758 15,1374,170 4,446
482 6861,744 2,428
19,154$ 22,697$
4,189 4,8024,686 7,3461,164 1,266
996 1,1533,152 3,616
725 839983 1,169933 1,030
0 7,2960 1,131
15 1,363
16,843$ 31,011$
1,612$ (8,922)$
Passenger MainlinePassenger Regional affiliates
CargoOther
Total Revenue
Revenue
ExpensesSalariesFuelDepreciation
Contract Service
Contract Carrier Arrangements
Landing FeesAircract Mantenance
Passenger CommissionImpairment of intangible assets
Restructuring Charge
Other operating
Operating Expense
Net Income Source: WSJ DAL Financial Reports
Income Statement (in millions)
Pratt Institute | DM 672 | Business Strategy
STRENGTHS- Acquisition of Northwest Airlines- World’s largest mega carrier & flight network
- Pacific & Atlantic Ocean flight routes- Employees- SkyTeam & SkyMiles alliance- Airport model- Brand & History
S.W.O.T.
WEAKNESSES- Low on-time rating- Operating costs
- Susceptibility to service disruptions- Technology dependence for operations- Differentiation- Merger consolidation
OPPORTUNITIES- Reduce operational costs & capacity - Streamline operations & supply chain
- New value-for-money strategies- Enhance the customer experience- Customer retention initiatives- Invest in new technologies- Renegotiate lease & labor agreements
THREATS- Alternatives- Competition
- Increased regulation- Market environment- Economy- Fuel costs- Crashes/Terrorism
Pratt Institute | DM 672 | Business Strategy
Pratt Institute | DM 672 | Business Strategy LEADERSHIP
The Huff Daland Dusters founded
(pre-Delta)
1924
Begins operating as Delta Air Lines
1934
Chicago and Southern Air Lines merger
1953
W.T. Beebe becomes Chairman and CEO
1971
1928
Merger: Huff Daland Dusters + Delta
Airlines. Renamed Delta Air Service
1945
Official corporate name becomes Delta Air
Lines, Inc.
1966
Delta founder C.E. Woolman dies. Charles H. Dolson named CEO
1978
The Airline Deregulation Act
passes
Source: Delta website - Delta Through the Decades
Pratt Institute | DM 672 | Business Strategy LEADERSHIP
Delta celebrates its 50th year of service
1979
Western Airlines merges-becomes 4th
largest US carrier
1987
Leo F. Mullin is named President and CEO
1997
Delta declares Bankruptcy. Richard H.
Anderson becomes CEO
2006
1981
Delta launches Frequent Flyer
Program
1991
Pan Am Merger
2001
U.S. airspace closed for two days after terrorist attacks on
Sept. 11th
2008
Merger with NWA
Source: Delta website - Delta Through the Decades
Pratt Institute | DM 672 | Business Strategy
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)
CULTURE
Pratt Institute | DM 672 | Business Strategy OUTLOOK
Industry Airline Revenue Growth(PROJECTIONS)
- Profitability in 2009 due to:
1. Lower fuel costs
2. Capacity Discipline
3. Merger synergies
- Reduction of Domestic Capacity
- Delta and NW Traffic updates
Text
"They're definitely taking capacity down probably more than what people thought they would be doing,"Helane Becker, airline analyst at Jesup & Lamont Securities
Facts & Updates
-6
-10
-2
2
6
10
-4
-8
0
4
8
2010 20122008 2009
Ch
ang
e in
% o
f C
on
sum
erS
pen
din
g f
or
Air
line
Ind
ust
ry
YEAR
2011 2013
Pratt Institute | DM 672 | Business Strategy OUTLOOK
Industry Airline Revenue Growth(PROJECTIONS)
Text
US Personal Consumption expenditures for US airlines are expected to grow at an annual compounded rate of 5.9% between 2008 and 2013.
Consumer Spending on airline travel Growth Slows and Flattens.
-6
-10
-2
2
6
10
-4
-8
0
4
8
2010 20122008 2009
Ch
ang
e in
% o
f C
on
sum
erS
pen
din
g f
or
Air
line
Ind
ust
ry
YEAR
2011 2013
Pratt Institute | DM 672 | Business Strategy OUTLOOK
INVESTMENT OUTLOOK
Text
US Personal Consumption
expenditures for US airlines
are expected to grow at an
annual compounded rate of
5.9% between 2008 and
2013.
Consumer Spending on airline
travel Growth Slows and
Flattens. 3.0
CHINA EASTERN
CHINA SOUTHERN
TAMDELTA
AMERICAN US AIRWAYS
CONTINENTAL
UNITED
2.04.0
HOLD BUYSELL
14
12
16
18
NU
MB
ER
OF
IRP
s
20
22
3.5 2.5
Source: WSJ DAL Financial Reports FEB. 2009
Pratt Institute | DM 672 | Business Strategy MARKET FORCES
CUSTOMERNEEDS
FUEL
ECONOMY
REGULATION
ENVIRONMENT
LABOR
COMPETITION
TECHNOLOGICALCHANGE
Pratt Institute | DM 672 | Business Strategy
CUSTOMERNEEDS
FUELECONOMYREGULATIONENVIRONMENTLABOR COMPETITION TECHNOLOGICALCHANGE
VALUE CHAIN
Operations DevelopementOutbound
Logistics
Marketing
& Sales
Inbound
LogisticsServiceProcurementSuppliers Customers
Lower Demand
& Spending
Excess Capacity
& Supply
Turbulent Market Forces
Pratt Institute | DM 672 | Business Strategy BUSINESS MODEL
Network & Operations(Behind the scenes) (Perception)
Market & Customers
Capturing Value
Model created by Alexander Osterwalder, Arvetica
Air Transportation
Cargo
Entertainment
Food
SkyMiles
Training & Consulting
Advertising
Content
Delta.com
Internet
Phone
Terminal
Partner Airline
In-flight Service
Passengers(Vacation, Transfer, Business, Elite)
Travel Agents
e-commerce
Advertisers
Fuel
Distribution
Labor
Airports
Content
Support
Maintenance
Planes
Logistics
Operations
Development
Brand Management
Sales & Marketing
Strategy
IT
Service
Producers, Suppliers, Partners, Employees
PARTNER NETWORK
Service (CSR), Employees, Sales, PR
CUSTOMER RELATIONS
Costs
$31 billion $22.7 billion
-$8.9 billion
Margin(HR, R&D, Finance, Development, Purchasing, HUBS, etc.) (Revenue - Costs)
Revenue(Passengers, Baggage, Entertainment, Food, Advertising)
CUSTOMERSCHANNELSVALUE PROPSITIONACTIVITIESRESOURCES
Creating Value
Pratt Institute | DM 672 | Business Strategy BUSINESS MODEL
Network & Operations(Behind the scenes) (Perception)
Market & Customers
Capturing Value
Model created by Alexander Osterwalder, Arvetica
Air Transportation
Cargo
Entertainment
Food
SkyMiles
Training & Consulting
Advertising
Content
Delta.com
Internet
Phone
Terminal
Partner Airline
In-flight Service
Passengers(Vacation, Transfer, Business, Elite)
Travel Agents
e-commerce
Advertisers
Fuel
Distribution
Labor
Airports
Content
Support
Maintenance
Planes
Logistics
Operations
Development
Brand Management
Sales & Marketing
Strategy
IT
Service
Producers, Suppliers, Partners, Employees
PARTNER NETWORK
Service (CSR), Employees, Sales, PR
CUSTOMER RELATIONS
Costs
$31 billion $22.7 billion
-$8.9 billion
Margin(HR, R&D, Finance, Development, Purchasing, HUBS, etc.) (Revenue - Costs)
Revenue(Passengers, Baggage, Entertainment, Food, Advertising)
CUSTOMERSCHANNELSVALUE PROPSITIONACTIVITIESRESOURCES
Creating Value
Air Transportation
Cargo
Entertainment
Food
SkyMiles
Training & Consulting
Advertising
Content
Fuel
Distribution
Labor
Airports
Content
Support
Maintenance
Planes
Logistics
Operations
Development
Brand Management
Sales & Marketing
Strategy
IT
Service
Producers, Suppliers, Partners, Employees
PARTNER NETWORK
VALUE PROPSITIONACTIVITIESRESOURCES
Pratt Institute | DM 672 | Business Strategy BUSINESS MODEL
Network & Operations(Behind the scenes) (Perception)
Market & Customers
Capturing Value
Model created by Alexander Osterwalder, Arvetica
Air Transportation
Cargo
Entertainment
Food
SkyMiles
Training & Consulting
Advertising
Content
Delta.com
Internet
Phone
Terminal
Partner Airline
In-flight Service
Passengers(Vacation, Transfer, Business, Elite)
Travel Agents
e-commerce
Advertisers
Fuel
Distribution
Labor
Airports
Content
Support
Maintenance
Planes
Logistics
Operations
Development
Brand Management
Sales & Marketing
Strategy
IT
Service
Producers, Suppliers, Partners, Employees
PARTNER NETWORK
Service (CSR), Employees, Sales, PR
CUSTOMER RELATIONS
Costs
$31 billion $22.7 billion
-$8.9 billion
Margin(HR, R&D, Finance, Development, Purchasing, HUBS, etc.) (Revenue - Costs)
Revenue(Passengers, Baggage, Entertainment, Food, Advertising)
CUSTOMERSCHANNELSVALUE PROPSITIONACTIVITIESRESOURCES
Creating Value
Air TransportationCargo
EntertainmentFood
SkyMilesTraining & Consulting
AdvertisingContent
Delta.comInternetPhone
TerminalPartner Airline
In-flight Service
Passengers(Vacation, Transfer, Business, Elite)
Travel Agentse-commerceAdvertisers
Service (CSR), Employees, Sales, PR
CUSTOMER RELATIONS
CUSTOMERSCHANNELSVALUE PROPSITION
Pratt Institute | DM 672 | Business Strategy STRATEGY
Delta Air Lines Overview
HUBS
- Cincinnati- Atlanta- JFK- Salt Lake City- *Minneapolis
Customer Retention
- SkyMiles- SkyTeam- Crown Room Club
Subsidiaries
- Comair- Compass Airlines- Delta Shuttle- Delta AirElite- Mesaba Airlines- Northwest Airlines (3 business’)
Destinations
- 461 destinations in 96 countries- More than any other U.S. airline- Delta has 1,534 flights per day- Delta Connection: 2,533 daily- Delta + Alliance: 6,795 daily
- Inconsistent Message
- Does not speak to the customer experience
“Welcome Change, Welcome the new Delta” Approach
- Multiple agencies do work for them over the years
- The Merger is a new opportunity
Marketing
Pratt Institute | DM 672 | Business Strategy CUSTOMERS
baggageclaim
planningtrip
reservation airportarrival
check-in securitycheck-in
boarding
customer experience mapping
DeltaAwareness
DeltaAwarenessContinues
de-boardingservice airportdeparture
follow-up& memory
Pratt Institute | DM 672 | Business Strategy CUSTOMERS
United
ContinentalDelta
Southwest
BritishAirways
US Airways
American
JetBlue
VirginAtlantic
Pratt Institute | DM 672 | Business Strategy RECOMMENDATIONS
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
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
Maximize value by Charging for a better Customer Experience
Pratt Institute | DM 672 | Business Strategy RECOMMENDATIONS
TechnologyContent, Access, & Information
Games, Movies, Messaging, &
WiFi....
Pratt Institute | DM 672 | Business Strategy RECOMMENDATIONS
AdvertisingConnect Advertisers to Customers
John Smithage 40
race whitegeography NYCstatus Married
children 2
Pratt Institute | DM 672 | Business Strategy RECOMMENDATIONS
ServiceYour sales force in the sky...
...can I interest you in a glass of wine?
Pratt Institute | DM 672 | Business Strategy RECOMMENDATIONS
TechnologyRFID baggage tracking
Industry could save $650 million
to $1 billion annually
Pratt Institute | DM 672 | Business Strategy RECOMMENDATIONS
WASTE
more than 2 million plastic cups daily
Pratt Institute | DM 672 | Business Strategy RECOMMENDATIONS
ExperienceSimulation & Visualization
Pratt Institute | DM 672 | Business Strategy RECOMMENDATIONS
ExperienceVisualization
Pratt Institute | DM 672 | Business Strategy RECOMMENDATIONS
ExperienceVisualization
Pratt Institute | DM 672 | Business Strategy RECOMMENDATIONS
RE-Imagine your Business Model
...Charge for EVERYTHING
Pratt Institute | DM 672 | Business Strategy
RE-Imagine your Business Model
...Skydiving anyone?Q&A