Delta Case

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. 1

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, 4

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)

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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) 5

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

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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)

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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)

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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).

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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)

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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)

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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‘. 10

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. 11

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)

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Delta gets you there

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You'll love the way we fly

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Delta is ready when you are

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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. 14

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.

(Millions USD) Total Revenue Operating Income Net Income Cash Flow

2007 19,154 1,096 1,612 614

2008 22,697 (8,314) (8,922) 1,607

2009 28,063 (324) (1,237) 352

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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Ratios Return on Assets Quick Ratio Current Ratio Net Sales/Total Assets Total Liabilities/Total Sales Total Debt/Equity Total Assets/Equity Net Income/Net Sales

2007 0.05 0.73 0.76 0.59 0.68 0.88 3.21 -7.78

2008 -0.2 0.64 0.67 0.5 0.98 20.9 -0.71 -0.96

2009 -0.03 0.76 0.79 0.64 0.99 70.76 -0.90 0.14

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, fuelhungry 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%

3.7%

International Middle East

7.1%

4%

Latin America

6.9%

4%

Commonwealth of

4.8%

3.3%

5.5%

4.4%

Independent States (CIS) Africa

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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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