Delta Airlines Presentation

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Delta Airlines : 

Delta Airlines Todd Beals, Matt Tucker, Mary Vick

SWOT Analysis : 

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 model (lobby re-design, self-service kiosks)

SWOT Cont’d : 

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 : 

SWOT Cont’d Opportunities: 1. Regional Jet Coverage (Compete with Southwest, Jet Blue, & AirTran) 2. On-line reservation services (40% of Worldspan L.P., 18% of Orbitz LLC) 3. Customer service initiatives (self-service kiosks, e-ticketing)

SWOT Cont’d : 

SWOT Cont’d Threats: 1. Various increased costs post-Sept. 11th (security, taxation, terrorism-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.)

Long-term Sustainable Competitive Advantage : 

Long-term Sustainable Competitive Advantage Delta is achieving LTSCA by: A largely non-union workforce Airline industry-leading airport model Worldwide route system Innovative entertainment system

Main Issues and Problems : 

Main Issues and Problems Rising Operational Costs Labor Cost Taxes and security fees Labor-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 Customer Service Poor Morale

Porter’s Five Forces : 

Porter’s Five Forces Delta Airlines Current Competitors American, United, Northwest, Continental, Southwest, USAir, America West, Alaska, ATA, JetBlue, AirTran, Spirit, Frontier, Others Potential Entrants TED, Pinnacle Airlines Buyer’s Bargaining Power Ability to secure discount fares by advance purchases and deeply discounted fares available through the internet Substitute Products Automobiles, railroads, and buses Supplier’s Bargaining Power Labor Union negotiating power, fuel contracts, travel agent commission rate structure, meal service

Hall’s Competitiveness Model : 

Hall’s Competitiveness Model

Cost Saving Strategy : 

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 : 

Forward Integration Orbitz & Worldspan (on-line reservations) Delta has partial ownership in both Discounts: 3-5% discount for purchasing via internet (e-ticketing) 2% discount for check-in using self service kiosks Double SkyMiles promotion (6-12 months) Delta saves $25 per e-ticket issued vs. paper

Labor-Management Relations : 

Labor-Management Relations Investment in employees Training seminars (semi-annually) Specialized job training (40 hours/year) Executive compromises Cap on executive compensation & pensions Bonuses based solely on performance

Delta’s High Labor Cost : 

Delta’s High Labor Cost

Labor Concessions : 

Labor Concessions Proposal: 20% wage cut for all pilots No wage increases next 5 years Incentives: 3% increase above industry (2008-2013) 3% increase in Profit-sharing package Signing bonus of 100 shares of company stock $1,000 Delayed Retirement bonus Two seats on BOD for pilot’s union (10 currently)

Market Penetration : 

Market Penetration Regional market coverage increase via Comair, Song, and ASA Break-even load factors: Regional jets = 50% Large jets = 63% A major hub-and-spoke airline such as Delta has costs that can be 150% higher than those of a carrier that only flies from one city to the next

Increase Customer Loyalty: : 

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 executives with open and honest criticism, feedback and compliments

Increase Customer Loyalty: : 

Increase Customer Loyalty: A La Carte Food Service Order from a menu when booking flights online Collaboration with theme-restaurant giants such as Hard Rock Reduce fees & penalties $100 to change a ticket $25-80 for overweight bag $80 for oversized bag $40 for extra bag

Employee Ownership Culture : 

Employee Ownership Culture Re-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 : 

Technologically Innovative Delta hopes smart tags will help it track baggage and cut costs.Credit: The Associated Press RFID Tags Allow for non-contact reading effective in environments where bar code labels can’t survive Further improve baggage handling, provide real-time baggage updates, and provide better, faster and friendlier service

Technologically Innovative : 

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. In-flight Entertainment:- Seat-back video in all classes- Pay-per-view movies (AVOD) - Interactive video games - Live TVTelecommunications:- Server technology; MP3’s- High Speed via satellite- Wireless Access for laptops- In-seat power outlets Technologically Innovative

Customer-Centric : 

Customer-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 Expanded Concourses

Customer-Centric : 

Customer-Centric More Kid-Friendly: Free 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: : 

3 Pronged ‘Hybrid’ Strategy: Technologically Advanced Customer-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? : 

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 service and lower fares Pilot contract negotiations could fail

Slide 25: 

Declining Loyalty 79% of US Consumers less likely to make future purchases online after receiving poor service

Slide 26: 

Delta Air Lines board member Gerald Grinstein (left) will become CEO Jan. 1, replacing current CEO and Chairman Leo Mullin (right). 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. New Leadership Could Fail

Slide 27: 

Stock Continues To Decline Lost $446 Million in 2003 - Bankruptcy ?

THANK YOU ! : 

THANK YOU !

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