Delta Airlines Presentation

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Delta Airlines Todd Beals, Matt Tucker, Mary Vick SWOT Analysis Strengths: 1. 3rd Largest Mega Carrier 2. Innovative Strategic Business Moves Song SkyTeam Alliance Comair and Atlantic Southeast Airlines 3. Industry-leading airport Industrymodel (lobby re-design, reselfself-service kiosks) SWOT Cont d Weaknesses: 1. Labor expense (highest in industry, approx. 40% of operating expense) 2. Market share, yields, & load factor (all decreased significantly since Sept. 11th) 3. Stock price (down 66% since Sept. 2001) SWOT Cont d Opportunities: 1. Regional Jet Coverage (Compete with Southwest, Jet Blue, & AirTran) 2. On-line reservation Onservices (40% of Worldspan L.P., 18% of Orbitz LLC) 3. Customer service initiatives (self-service (selfkiosks, e-ticketing) e- SWOT Cont d Threats: 1. Various increased costs post-Sept. 11th post(security, taxation, terrorismterrorism-risk insurance) 2. Global Airline Industry Losses ($13 billion in 2002, $18 billion in 2001) 3. Variety of Competitors (national & regional airlines, automobiles, bus, etc.) LongLong-term Sustainable Competitive Advantage Delta is achieving LTSCA by: A largely non-union workforce nonAirline industry-leading airport model industryWorldwide route system Innovative entertainment system Main Issues and Problems Rising Operational Costs Labor Cost Taxes and security fees LaborLabor-Management Mistrust Large Executive Perks Declining Profits and Market Share Resulting from 9/11, war in Iraq, and SARS Low-cost carriers stealing market share Low- Customer Service Poor Morale Porter s Five Forces Supplier¶s Bargaining Power Labor Union negotiating power, fuel contracts, travel agent commission rate structure, meal service Buyer¶s Bargaining Power Ability to secure discount fares by advance purchases and deeply discounted fares available through the internet Current Competitors American, United, Northwest, Continental, Southwest, USAir, America West, Alaska, ATA, JetBlue, AirTran, Spirit, Frontier, Others Delta Airlines Potential Entrants Substitute Products Automobiles, railroads, and buses TED, Pinnacle Airlines Hall s Competitiveness Model 20 American 18 16 United Delta US Airways Northwest Delta Share 14 12 Alaska Continental United Continental American Southwest Southwest Frontier Northwest 10 8 6 US Airways Jet Blue America West 4 America West Alaska ATA 2 Jet Blue ATA Frontier 0 25 30 35 40 45 50 55 60 65 Operating Expenses per Available Seat-Mile (Relative Cost) Cost Saving Strategy Fuel Hedging Program - Rising fuel costs, deferred fleet additions, older less fuel efficient fleet - Reduced fuel costs by $26 million (pretax) in 3rd qtr of 2003 - Only 53% of fuel requirements - 4th qtr , forecast 47%...should be more around 75% with incremental increases following Forward Integration Orbitz & Worldspan (on-line reservations) (onDelta has partial ownership in both Discounts: 3-5% discount for purchasing via internet (e(eticketing) 2% discount for check-in using self service kiosks checkDouble SkyMiles promotion (6-12 months) (6- Delta saves $25 per e-ticket issued vs. epaper LaborLabor-Management Relations Investment in employees Training seminars (semi-annually) (semiSpecialized job training (40 hours/year) Executive compromises Cap on executive compensation & pensions Bonuses based solely on performance Delta s High Labor Cost Airline Pilot Wage Comparison $300 Hourly Wage $250 $200 $150 $100 $50 $0 Delta Southwest Airline AirTran JetBlue Series1 Labor Concessions Proposal: 20% wage cut for all pilots No wage increases next 5 years Incentives: 3% increase above industry (2008-2013) (20083% increase in Profit-sharing package ProfitSigning bonus of 100 shares of company stock $1,000 Delayed Retirement bonus Two seats on BOD for pilot s union (10 currently) Market Penetration Regional market coverage increase via Comair, Song, and ASA BreakBreak-even load factors: Regional jets = 50% Large jets = 63% A major hub-and-spoke airline such as Delta has hub-andcosts that can be 150% higher than those of a carrier that only flies from one city to the next Increase Customer Loyalty: Delta Needs to Set itself apart ‡ V.I.P. seating in every row Sensitive to Special Needs - Special seats for obese travelers Free chocolates & cocktails Form Advisory Council Broad cross-section of customers providing crossexecutives with open and honest criticism, feedback and compliments Increase Customer Loyalty: A La Carte Food Service Order from a menu when booking flights online Collaboration with theme-restaurant themegiants such as Hard Rock Reduce fees & penalties $100 to change a ticket $25$25-80 for overweight bag $80 for oversized bag $40 for extra bag Employee Ownership Culture ReRe-institute Profit sharing program 2% of the company's profits Stock option plan 10% OTC discount for all employees People take better care of things they own Special care ultimately passed on to the customer Technologically Innovative RFID Tags Allow for non-contact reading noneffective in environments where bar code labels can t survive Further improve baggage handling, provide realreal-time baggage updates, and provide better, faster and friendlier service Delta hopes smart tags will help it track baggage and cut costs. Credit: The Associated Press Technologically Innovative In-flight Entertainment: InSeat-back video in all classes SeatPay-perPay-per-view movies (AVOD) Interactive video games Live TV Telecommunications: Song employee Stacy Geagan tests a seat-back touch screen. The airline plans to have live TV, video games and music available on all its 36 planes by early spring. - Server technology; MP3 s High Speed via satellite Wireless Access for laptops In-seat power outlets In- CustomerCustomer-Centric ZONE" System Speeds up the boarding process; rather than boarding back rows first, passengers sitting in window seats board first, followed by the middle seats, then aisle seats. Better Gate Displays Convenient kiosk check-in checkExpanded Concourses CustomerCustomer-Centric More Kid-Friendly: KidFree headphones, Children s movies Children s music station, Free playing cards Coloring game booklet with crayons Bring front line employees out more to assist, allowing flyers to get through the lines quicker 3 Pronged Hybrid Strategy: Technologically Advanced CustomerCustomer-Centric Approach Consistency Critical to final consumer s perception - one good flight does not make a good airline - nor does the latest seating or entertainment technology in isolation necessarily make a good airline. What Could Go Wrong? Overweight people could get offended Technology advantages can be copied People become even more price sensitive and don t care about added value or extra amenities Unable to win over budget-minded fliers with offers of better budgetservice and lower fares Pilot contract negotiations could fail Declining Loyalty 79% of US Consumers less likely to make future purchases online after receiving poor service New Leadership Could Fail ‡ New Leadership Needs to encourage the hearts of the workers, inspire a shared vision and establish new rules, otherwise nothing major will really change. Not able to keep employees "in high spirits and motivated" It s possible that the new chairman and CEO were selected merely as interim leaders while the board seeks other candidates. This would be detrimental if the public perceived them as temporary leaders. Delta Air Lines board member Gerald Grinstein (left) will become CEO Jan. 1, replacing current CEO and Chairman Leo Mullin (right). Stock Continues To Decline - Lost $446 Million in 2003 - Bankruptcy ? THANK YOU !