U.S. Domestic Airline Industry--

Delta AirlinesLacey Claymier, Kelsey Fox, Chasity Farber

Agenda• Introduction/History• Internal Analysis• External Analysis• Suggestions

U.S. Domestic Airline Industry• Focal Firm:

• Key Competitors:

Introduction of Delta Airlines

Source: Delta Flight Museum-Timeline

History• 1924- Huff Daland Dusters crop dusting operating was founded. This crop dusting operating is the root of

what Delta became. Founded in Macon, GA.• 1929-First passenger flight occurred over the route stretching from Dallas, Texas to Jackson, Mississippi.

The flight was composed of five passengers and one pilot. • 1930- Company renamed Delta Air Corporation• 1945- Official corporate name becomes Delta Air Lines, Inc. Delta is recognized by National Safety

Council for more than 300 million passenger miles and 10 years of flight without a passenger or crew fatality.

• 1953- Delta merges with Chicago and Southern Air Lines bringing Delta its first international routes to the Caribbean and Caracas.

• 1987-Western Airlines merges with Delta making Delta the fourth-largest U.S. carrier and fifth largest world carrier.

• 2008- Northwest Airlines merges with Delta, creating global airline with major passenger and cargo operations in every region of the world.

• 2010- Delta announces their largest product upgrade in a decade with plans to invest more than $2 billion through 2013 to improve customer experience. Some of these upgrades include installing new full-flat beds and personal in-seat video on all wide body aircrafts; adding more First Class cabins to Delta Connection regional jets, renovating Delta Sky Clubs; and adding more First Class seats on domestic mainline flights.

• 2013- Delta acquires a 49% stake in Virgin Atlantic, increasing access between New York-JFK and London-Heathrow and seamless connections to 64 other destinations across North America and the U.K.

Vision and Mission Statement

• We—Delta’s employees, customers and community partners—together form a force for positive local and global change dedicated to bettering standards of living and the environment where we and our customers live and work. We are Delta’s Force for Global Good.

Internal Analysis

Value Curve Analysis:Price Comparison

Airline Travel Time Connection Ticket Price

Delta 5:50am-7: 10 am NO $ 518.00

American 5:17am-9: 21am YES $ 259.00

Southwest 6:05am-12: 25 pm YES $ 205.00

United 7:37pm-12:44am YES $ 1,077.00

• Round Trip ticket price departing Wednesday, June 1st from Louisville, KY (SDF) to Atlanta, GA (ATL) returning June 3rd

• Main Cabin seating

Value Curve Analysis:Price ComparisonWhen comparing prices between our focal firm Delta and their key competitors you can clearly see a few things.1)Delta is not the least expensive, but is also not the most expensive.

• Southwest Airlines considers themselves a “discount airline” and American Airlines has smaller air craft carriers such as American Eagle that can offer smaller plane sizes and therefore less cost.

2)Delta Airlines offers the online non-stop flight route from Louisville to Atlanta. • This is a luxury, I think, some would be willing to pay a bit more. • Not having a layover in another airport while you are waiting for

your connecting flight saves Delta customers hours in travel time and allows them to enjoy their trip outside of an airport.

Value Curve Analysis:Timeliness

Value Curve Analysis:Timeliness• For timeliness of flights, I compared round trip flight

times for a flight from Louisville, KY (SDF) to Atlanta, GA (ATL) and Louisville, KY (SDF) to Raleigh, North Carolina (RDU). I chose the fastest selection for each airline, regardless of ticket price for this example.

• Delta is significantly faster than all other competitors. For the first flight SDF to ATL, Delta is the only airline that offered a direct flight.

Value Curve Analysis:Airline Reward Program

Miles Earned and Miles needed are based on the same flight information from price comparison flight. SDF to ATL on June 1st-June 3rd

Value Curve Analysis:Airline Reward Program

Delta Airlines-SkyMilesPROS:• Miles can be earned and used with more than 20

participating airlines• Miles do not expire• Elite members receive unlimited complimentary

upgradesCONS:• Limited seating available for award travelCan earn points on….• Air Travel• Credit Card• Hotel StaysCan Use Points on….• Cabin Upgrades• Booking Flights

United Airlines-Mileage PlusPROS:• United and its partner airlines fly to more than 1,100

destinations worldwide• You can earn and redeem miles an more than 35

participating airlines• Rewards can be used for flights, hotels, train fares, and

moreCONS:• The program rules are complex• The number of seats available for award travel are

limited• Miles expire after 18 months of account inactivityCan Earn Points on…• Air travel• Credit Card• Hotel StaysCan Use Points on…• Hotel stays• Cabin Upgrades• Booking Flights

Value Curve Analysis:Airline Reward Program

American Airlines--AAdvantagePROS:• Can earn miles with more than 1,000 partner

companies• Rewards can be used for both air travel and hotel stays• Miles can be collected and redeemed on all

AAdvantage affiliate oneworld carriersCONS:• Miles can only be earned for one program per trip• Mileage credit for American and AAdvantage-affiliated

partners will be forfeited if your account is inactive for 18 months

• Can only earn miles for one seat per flightCan earn points on…• air travel• credit cards• hotel staysCan use points on…• Hotel stays• cabin upgrades• booking flights

Southwest-Rapid RewardPROS:• No blackout dates• Rapid Reward Points can be earned on flights and hotels• Miles can be used for any available seat on any Southwest

flightCONS:• Southwest’s only flights outside the U.S. are to Mexico

and the Caribbean• The number of points needed to redeem a free flight varies

widely• Points and cash cannot be combined to cover flight costs.• Points expireCan Earn Points on…• Air travel• Credit Card• Hotel StaysCan Use Points on…• Hotel stays• Booking Flights•  

Value Curve Analysis:Service Rating

Source: J.D. Power

Value Curve Analysis:Service Rating• The service rating is based on how passengers rate the variety of

in-flight entertainment available, variety of food and beverage, availability of in-flight services and quality of in-flight services provided.

• This survey, conducted by JDPower Gives ratings starting with Among the Best, Better than Most, About Average, and The Rest.

• Delta was the only airline to improve their score, all other airlines scores declined.

• J.D. Power cited Delta’s investment in customer-facing technology as a key reason for the improvement in scores.

Value Curve Analysis:Destinations

Airline Destinations Countries

Delta 325 65

Southwest 97 7

American 163 49

United 186 73

Value Curve Analysis:Destinations• Delta is composed of more than 40 affiliated airlines and

travels to more than 325 destinations in 60 countries.• Delta started international flights in 1953 when they

merged with Chicago and Southern Air Lines. • While United travels to more countries, they do not travel

to as many destinations as Delta.

Value Curve Analysis: Summary

Value Curve Analysis: Summary• Overall, there is room for improvement with Delta but they are

excelling in other areas. • The main downfall for Delta is the price and their reward program. • Delta is not a discount airline. • American Airlines offers American Eagle, their smaller aircrafts that they

can offer at a lower price and Southwest is considered all around a discount airline.

• While Delta may not offer as many ways to earn reward miles, their miles do not expire.• Delta’s mile program is designed to reward frequent fliers and that is

what it does. • Individuals that travel often with Delta, are able to earn many miles and

are rewarded with more miles when they upgrade their seating.

Strategic Positioning Analysis

Strategic Positioning AnalysisAmerican Airlines: Broad Cost Leadership/Product Differentiation.• American has formed alliances with many different travel agencies, hotels,

and rental car companies. They also compete strategically with price. Since they have smaller aircrafts they can offer lower costs.

Delta Airlines: Broad Product Differentiation.• Delta not only offers global travel arrangements they also offer Cargo planes

to transport goods. United Airlines: Broad Product Differentiation. • United operates much like Delta. They also offer global travel arrangements

and also offer Cargo planes to transport goods. Southwest: Focused Cost Leadership.• Southwest is considered a discount airline. They do not offer as many

destinations, but offer super low costing flights.

VRI Resource Analysis

Resources Possess VRI Resources Description

Human Resources YES 80,000+ employees worldwide with on-going on and off sight education

Weather Resources YES Delta has 25 meteorologists on staff, the largest of any airline.

VRI Resource AnalysisVRI Framework, is the tool used to analyze a firm’s internal resources and capabilities to find out if they can be a source of sustained competitive advantage.

1. The first question of the framework asks if a resource adds value by enabling a firm to exploit opportunities or defend against threats If the answer is yes, than a resource is considered valuable

2. The R stands for Rare. Resources that can only be acquired by one or very few companies are considered rare. Rare and Valuable resources grant temporary competitive advantage

3. The I stands for Costly to imitate. A resource is costly to imitate if other organizations that doesn’t have it can’t imitate, buy or substitute it at a reasonable price.

4. A firm that has valuable, rare and costly to imitate resources can achieve sustained competitive advantage (but not necessarily will).

To identify valuable, rare and costly to imitate resources: There are two types of resources: tangible, and intangible. Tangible assets are physical things like land, building and machinery (companies can easily buy them in the market so tangible assets are rarely the source of competitive advantage). However, intangible assets such as brand reputation, trademarks, unique training system or unique way of performing tasks, is not as easy to acquire and offer the benefits of sustain competitive advantage. Therefore, to find valuable, rare and costly to imitate resources you should first look at the companies intangible assets.

We chose two unique VRI’s for Delta’s aircraft industry; Human Resources and Weather Resources

Human Resources:Delta-SkyTeam• Nearly 80,000 employees worldwide• 12+ different jobs available• 660 safety representatives

• 13,121 pilots• On sight training• Higher education-off sight

Human Resources:Delta-SkyTeam• We chose human resource as an important VRI resource, because employees are

tangible however their skills, work ethic, and knowledge is intangible, allowing them to have a competitive advantage over their competition.

• According to the Delta Sky-Team website, During the past year, Delta was named domestic “Airline of the Year” by the readers of Travel Weekly magazine and the “Top Tech-Friendly U.S. Airlines” by PCWorld magazine. With an industry-leading global network, Delta SkyTeam members and partners offer tremendous service to nearly 350 destinations in 65 countries on 6 continents. With that being said, Delta’s human resources is very important. Employees must obtain to on sight and off sight training before being employed for all 12+ jobs offered by Delta. Higher education is also a must. It is important the Delta has the best skilled workers on their SkyTeam making education an ongoing thing and most important

Weather Resources

• 25 meteorologists keep eyes on sky • Larger than any other airline

• An average of 5,000 daily departures; weather permitting• 100% guarantee or money back for flights

delayed/cancelled due to weather conditions

Weather Resources• Another VRI resource that separate’s Delta from their competitors is their large-

scale of meteorologist.

• Delta has 25 meteorologists- the largest number any airline has. Weather is a huge indicator on flight status and even customer and employee safety. To make sure all customers and employees are safe they have meteorologists on-sight 24/7. These meteorologist have a lengthy list of duties other than just “watching the weather.” It is most important that they report bad weather to not only the flight intendants, but also all employees of Delta AS SOON AS POSSIBLE. They also must keep significant updates on weather indicators and changes 24/7. When it comes to the weather resources and meteorologist, you also have to look back at the human resources, making sure their meteorologist are just as educated as their other staff- if not more educated, because safety is most important in the aircraft industry – and weather is a huge indicator on whether or not the staff and customers are safe.

Value Chain Analysis

Value Chain Analysis

Value Chain Analysis• Delta Airlines internalizes in-bound activities, operations, out-bound activities, and

marketing. • Delta has recently started to internalize where they purchase their fuel. They are the first

in this industry to do so. • Southwest, like many other airline companies, purchase their fuel from outsourced countries

such as Africa. • Monroe Energy, a wholly-owned subsidiary of Delta, acquired an oil refinery in Trainer,

Pennsylvania, south of Philadelphia• Delta has recently started to purchase their fuel from Philadelphia, along with crude oil from

North and South Dakota. • By insourcing their fuel, Delta expects to reduce its fuel expense by $300 million annually.

• Service is outsourced for most airlines, including Delta. • These services are mostly customer support call centers located in India. • It is hard to hire a large number of US people at US salaries and benefits to answer the many

in coming calls quickly and efficiently.• Marketing is also outsourced for Southwest.

• This includes technology. They do this so that customers can stay connected no matter where they are in the world.

External Environment

Return on Assets

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ROA

AmericanDeltaContinentalSouthwest

Return on Assets• Return on Assets Ratio gives us an idea at how well a company is doing at

using its assets to create a profit. • In 2011, AMR, the parent company of American Airlines filed Chapter 11

bankruptcy. In 2013, an $11 billion merger took place combining AMR and US Airways. The new acquisition operates under the name American Airlines and is now the world’s largest airline.

• In 2012, Delta generated a net profit of $1.6 billion, despite more than $1 billion in higher operating expenses.

• In 2013, Delta began insourcing their fuel and the initial costs of this endeavor caused a decrease in net profit.

• Lower fuel costs in 2013 allowed all airline companies to see an increase in revenue, most significant rise was Delta. In 2014, Delta started a joint-venture with Virgin Airlines, thus resulting in the steep decrease.

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Stock Prices

AmericanDeltaUnited Continental Southwest

Stock Prices• The economic recession that began in 2008 caused a

decline in stock prices for all companies shown. • Historical Stock Price data for American Airlines is only

available beginning in 2014, as that is when the AMR and US Airways combined to become American Airlines.

Five Forces Analysis:Threat of Potential Entrants--WEAK

2011 2012 2013 2014 20150

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Fixed Asset Ratio

American AirlinesDeltaContinentalSouthwest

Five Forces Analysis:Threat of Potential Entrants--WEAK

• Fixed Asset Turnover Ratio gives us an of how efficiently a company is using fixed assets to turn a profit.

• The reason for the steady decline for American Airlines is because of the merger that occurred after the parent company AMR, filed bankruptcy in 2013.

• Delta has a slight decrease between 2013 and 2014 because of the start of a joint venture with Virgin Airlines

Five Forces Analysis:Threat of Internal Rivalry• CR4 = 68.8%• Threat of Internal Rivalry = Moderate Competition

20.00%

18.60%

16.40%

13.80%

31.20%

Market Share of Key Firms in the U.S. Domestic Airlines Industry

American AirlinesDelta United ContinentalSouthwestOther

Five-Forces Analysis:Threat of Suppliers--WEAK

Five-Forces Analysis:Threat of Suppliers--WEAK• The major suppliers for the Airline industry are airplane

manufacturers. The top two manufacturers in the world currently are Boeing and Airbus.

• The airplanes are very standardized, differentiation mainly comes from different amenities chosen.

• Switching suppliers is not easy to do. Most firms have long term contracts they must adhere.

Five-Forces Analysis:Threat of Buyers--STRONG

Five-Forces Analysis:Threat of Buyers--STRONG• There are two types of buyers for the Airline Industry:

Individual Buyers/Flyers and Travel Agencies and Online Portals.

• Switching costs between firms is very low. Most buyers choose whichever airline has the lowest price.

• Bargaining power of buyers is strong.

Five-Forces Analysis:Threat of Substitutes--Moderate

Five-Forces Analysis:Threat of Substitutes--Moderate

• Substitutes for the Airline Industry include car, bus, train, or boat.

• Planes are the fastest form of transportation available.

Five-Forces Analysis: Summary—The U.S. Domestic Airline Industry is profitable.

Industry Lifecycle Analysis

Industry Lifecycle Analysis

• The economic recession that began in 2008 caused a decrease in revenue in the U.S. Domestic Airline Industry that started to recover in late 2009.

• The U.S. Domestic Airline Industry is currently in the maturity stage.

Environmental Forecasting• Political

• Highly regulated- passenger safety is key• More competition among other airlines

• Passengers want more amenities and lower prices

• Aviation taxes• Economic

• 911 attacks• Recession

• Fluctuation in price of oil because of Iraq war and 2008 recession• High fuel price, labor demands, high

maintenance and operating costs• Increasing EOS• Globalization

• Sociocultural• More economically minded passengers• Less business class

• Skype• Reluctance to fly

• 911, fear of flying• Technology

• Limited to aircraft• Tickets and distribution

• Social media• E-commerce to sell tickets

• Ecological• Climate change

• Passengers are more “green”• “green flying”

• Legal• Stricter regulations

• More lawsuits, increasing strategies• Safety issues, delays

Industry BCG Matrix

Industry BCG Matrix • In 1981, there was a strike by the airline traffic controllers and posed a temporary

setback to the growth. Major competitors who had dominated the market in the mid 20th century, began to collapse and disappear. By the late 1990s, surviving airlines returned to record profitability.

• From 2001- 2005, fuel cost increases, decreases in business travel, and the aftermath of 9/11 caused higher operating costs and declining customers.

• The airline industry now has many opportunities for growth (expanding air travels, new airplane designs, increase in international visitors) and the threat of new entrants is very low.

• In the future, there is the prospect of more opportunities (expanding to new destinations, offering new products) but there is also the potential for more airlines to expand their flight routes and take opportunities from those aircrafts that are prospering now.

• The U.S. Domestic Airline Industry is profitable.

Suggestions:Strategic Positioning

Suggestions:Strategic Positioning• Delta is performing really well with a broad product

differentiation strategy. • They are currently making changes that will make the gap

between United and Delta even further apart:• Delta has recently internalized their fuel and believes that this

change is going to allow cost savings to their customers in the future. A predicted $300 billion in annual savings is predicted.

• Delta is currently working on upgrading their aircrafts to make them more spacious and comfortable, as well as, upgrading technologies.

Strategic Fit

Visionand

Mission

Delta is upgrading their aircrafts to provide more comfortable flights and advanced technology. Their

extensive human resources help to provide the best service possible as

well as the safest flights.

The Economy is improving and more people are

traveling. Customers are looking to enjoy the whole experience and are willing to pay more for comforts

and safety. 

Broad Product Differentiation

Internal Environment

Strategic Decision

External Environment

Strategic Fit

• External Environment: As the economy is improving, the airline industry is becoming more profitable. • People are willing to pay more:• Inflight-experience- customers want to their entire experience

to be a vacation, starting with traveling. • Safety- after the Malaysia Airlines flight 370 went missing in

2015, safety is extremely important and customers are willing to pay more for the safest flights.

• Business traveling- When customers are flying for business, timeliness of the flight is more important than the price.

Strategic Fit• Internal Environment:• Delta is upgrading their aircrafts to provide more

comfortable flights and advanced technology. • Their extensive human resources help to provide the best

service possible as well as the safest flights.• 2014- 99.2% completion factor, on-time flights 84.2%• 80,000 plus members of the SkyTeam, with continued safety

training as well as service training. • 25 meteorologists on staff, the largest of any other airline

Strategic Fit

• Vision and Mission:• Delta strives to better the standards. • By upgrading aircrafts for both comforts and safety

technology, they are setting themselves a bar above the rest.

Corporate Level Strategy

Corporate Level StrategyWhen looking at the value curve analysis, Delta’s main area for improvement when compared to their competitors is their SkyMiles program. • In 2015, Delta revamped their SkyMiles program, they listened

to customer complaints and found solutions:• More milage/$1 spent

• When paying for a Delta ticket with an approved SkyMiles credit card, earn 2 more miles/$1 spent.

Flight from SDF-ATL—Miles EarnedFlights Flown prior to January 1, 2015

Flights flown on and after January 1, 2015

1,000 miles 2,590 miles

Corporate Level Strategy

• Delta also formed alliances with several partners:• Hotels– Hilton (1 mile/$1); Marriott (2-1 miles/$1 spent);

Hyatt (500 miles/stay) • Car Rentals- Hertz, Enterprise, Alamo (500miles/rental)

Corporate Level Strategy

• Another way that Delta could improve their SkyMiles program, and reach more customers is through alliances with regional airlines. • Delta Connection started offering flights to Atlanta and

Detroit from Evansville Regional Airport in 2001.• Delta Connection Carriers are some of Delta’s flight

partners made up of :• ExpressJet, Compass, GoJet Airlines, Endeavor Air, Shuttle

America, and SkyWest• Delta Connection Carriers allow members to earn SkyMiles

Global Level Strategy

Africa, Middle East, and India Europe

33 Europe, Middle East, and Africa Destinations

Global Strategy

Asia Pacific17 Destinations

Latin America and the Caribbean49 Destinations

Global Level Strategy

• Delta began operating their first international flights in 1953.

• They are now operating in 65 countries and 6 continents with 365 destinations.

• From the maps, you can see the locations where Delta Airlines, and their flight partners, travel to globally.