Delta Airlines
Joseph Schaeper
PEST Analysis
and Industry
Analysis
History of Delta Airlines
 Since it was founded in 1924, Delta has grown to become
the world’s largest global airline.
 Target Market – Those traveling for business and those
traveling for family/vacation.
 Brands of Delta Airlines
 Delta Airlines
 Regional Elite
 Sky Team
About Delta Airlines
 Headquartered in Atlanta, GA
 Richard Anderson has been active CEO since September 2007.
 Delta has over 80,000 employees
 365 locations around the world
PEST Analysis of Delta Airlines
Political Factors
 Pricing regulations
 Wage legislation across the multiple countries Delta
operates out of.
 Increased security nationally and internationally.
Economic Factors
 Low economic growth rate
 Increasing and/or unpredictable fuel costs.
 Currency exchange risk
 Current economic recession
 Increased unemployment rate impacting all income classes
 Decrease in lower and middle class travel due to the economic
recession (unemployment, lower salaries, no overtime, etc.)
Social Factors
 Fewer airline related vacation spots
 Some doubt of the safety with air travel since the 9-11
attacks
 General airline travel has declined (driving instead of
flying)
Technological
 Decrease in travel agencies
 Internet airline ticket reservations
 Entry of websites such as Orbitz and Travelocity
 Use of technology to expedite the check-in process of air travel
 Increased demand for in-flight technology (in-flight internet,
movies, games, etc.)
 Newer, more ideal aircraft designs created by Boeing and Airbus
Factor
Trend
Evaluation
Impact
(1-low, 5-high)
Rank
Political
-Pricing regulations
-Wage legislation
-Increased security
-Threat
-Threat
-Threat
2
2
3
4
Economic
-Low economic growth rate
-Unpredictable fuel costs.
-Currency exchange risk
-Current economic recession
-Threat
-Threat
-Opportunity/Threat
-Opportunity/Threat
4
5
3
4
1
Social
-Unemployment rate
-Decrease in travel
-Safety Doubt
-Threat
-Threat
-Opportunity/Threat
3
4
1
3
-Opportunity/Threat
-Opportunity
-Opportunity/Threat
-Opportunity
-Opportunity
-Opportunity
1
3
3
1
4
4
2
Technological -Decrease in travel agencies
-Internet reservations
-Websites such as Orbitz
-Internet check-in
-Demand for in-flight
technology
-New aircraft designs
Industry Analysis
Industry Analysis
Porter’s Five Forces Model
Commercial Airline Industry
Buyers
Suppliers
Business Travelers
Boeing/Airbus
General Travelers
TUG Technologies
ASIG Fuel
Competitors
Substitutes
American Airlines
Train
United Airlines
Vehicles
US Airways
Boat
Power of Suppliers
Power
Degree of Power
Bargaining Power
Fuel Costs
High
Low
Aircraft
High
High
Number of Substitutes
Low
High
Power of Buyers
Power
Degree of Power
Bargaining Power
Business Travelers
High
Low
Casual Travelers
Low
Low
Power of Substitutes
Powers
Degree of Power
Automotive Transportation
High
Locomotive Transportation
Moderate
Transportation by Boat
Low
Intensity of Rivalry
Power
Degree of Power
Number of Competitors
High
Industry Growth
Opportunities
Low
Entry Barriers
High
Exit Barriers
Low
Barriers of Entry

Among the highest of any industry

Intricacies of employing thousands with various skills throughout their chosen
market

Deciding to buy or lease aircraft

Identifying profitable geographical markets

Purchasing a fleet could easily put a new company billions of dollars in debt

Consumer loyalty

Fuel costs (hedging fuel prices, speculating)

Historically known as a money losing industry
Conclusions of PEST Analysis and
Industry Analysis
 Economic and technological factors would be the areas
Delta would most need to worry about.
 The airline industry is not an attractive one when it comes
to starting a company or even investing in.
Competitor &
Market Analysis
Key Competitors
 American Airlines
 Headquartered out of Fort Worth, Texas
 A global leader in the commercial airlines industry.
Strengthened their global presence with a partnership with
Japan Airlines.
 Approximately 260 global destinations
Continued…
 United Continental Airlines
 Headquartered out of Chicago, Illinois
 Strengthened their global presence by merging United
Airlines and Continental Airlines together.
 Once acquisition is complete, will be the world’s largest
global airline.
Evaluation as Compared to
Competition
Delta Airlines
American Airlines
United/Continenta
l
Market Cap
$8.17 Billion
$2.19 Billion
$7.51 Billion
Growth (5 year
projected)
3%
3%
3%
Revenue
$31.76 Billion
$22.17 Billion
$23.23 Billion
Net Income
$593 Million
-$471 million
-$143.30 million
Generic Strategy
Differentiation
Differentiation
Differentiation
Stock Valuation Over Past 2 Years
Compared with American Airlines
Stock Valuation Over Past 2 Years
Compared with United/Continental
Strategic Business Groups in the
Airline Industry
 Extent of Geographic Coverage
 Airlines obtain the largest profit margin on international flights.
However, picking and choosing international destinations takes
much analysis.
 Extent of Branding
 Each airline persuades customers to become loyal to their brand via
frequent flyer cards, airport advertisement and marketing.
 Product/Service Quality
 Each airline attempts to differentiate themselves from others while
providing, what they believe to be, the most ideal and enjoyable
experience.
Product Scope
 The airline industry is unique when it comes to product
scope.
 Delta and their main competitors are all attempting to
characterize their product the same way; We offer the
safest and most enjoyable flying experience.
How Competitors Compete?
Factors
Airfare
Baggage Fees
On-Board Service
In-Flight Entertainment
Alliances
Number of Destinations
Examples/Additional Information
-Most common form of competition.
-Most important in the eyes of many consumers.
-Consumers becoming more aware of baggage fees.
-Too high of baggage fees results in nullification of price
advantage in airfare.
-Charging for food, drinks, pillows, blankets. Some
charge, some do not.
-Has recently become a large factor in choosing an airline
for long duration flights.
-Movie, personal TV, gaming, phone, etc.
-To avoid losing customers, airlines have formed
alliances.
Ex. Delta flies John to Paris. Air France flies John to
Madrid. Both companies make money.
-Servicing small market destinations equates to larger
planes going to larger market destinations.
Geographic Scope
Airline
Alliance Affiliation
Delta Airlines
Sky Team
American Airlines
One World
United/Continental Airlines
Star Alliance
In order to avoid losing business to customers whom desire travel
to a destination they do not fly to, airlines form alliances with
other airlines.
Servicing hundreds of destinations is what differentiates this
group of competitors with other airlines.
Airline
Number of Destinations
Delta Airlines
350+
American Airlines
260+
United/Continental Airlines
371
Why So Many Destination?
 Delta Airlines and their top two competitors offer
hundreds of destinations because that is their business
strategy
 Airlines such as JetBlue and Southwest Airlines only offer a
limited number of destinations
 Delta Airlines chooses to service those in small market
locations in addition to large market
 Has been proven to be a double-edged sword; half empty
small planes equate to a financial loss while those same
planes full equate to full larger planes (connection flights)
International Destinations
 International flights yield higher profit margins than
domestic flights
 Flight from Seattle to Washington is 2306 miles and costs
around $400
 Flight from Seattle to Tokyo is 4769 miles and costs $1800
 Airlines can charge more money per mile on these flights due
to the tedious conditions of the alternatives (Seattle to
Tokyo via boat would take several days)
Core Competencies
 The airlines have nearly identical core competencies.
 Everything they do can be easily mimicked by their
competition.
 In-flight entertainment
 Frequent flying miles
 In-flight comfort
 Convenient use of technology (iPhone boarding pass)
Market Size
Delta Airlines
All numbers courtesy of the Department of Transportation
Market Size
American Airlines
All numbers courtesy of the Department of Transportation
Market Size
United/Continental Airlines
All numbers courtesy of the Department of Transportation
Key Trends in the Aviation Market

Rapid growth of emerging markets

Greater market access for different airlines (will lead to greater competition)

Continuing growth of low-cost carriers

More megacities

Increased congestion at airports

Asia will account for 33% of the global market

Air travel will increase by roughly 4.8%

Passenger travel will increase by roughly 5.0% (fuller planes leads to higher
margins)
All factors are assuming an economic rebound from the current recession.
Target Market
 Target market for Delta, American and
United/Continental Airlines would be identical.
 Business travelers, vacation travelers, general travelers.
 Strengthen presence in Asia due to the high
growth of air travel.
Airline
Steps to strengthen Asian
presence
Delta Airlines
Acquired the Narita-Tokyo hub with
the merger of Northwest
American Airlines
Acquired Japan Airlines into the
One World alliance
United/Continental
Increased flights to and from cities
in Asia
Social Media
 Facebook
 Gets travelers excited
 Gives travel ideas
 Shows pictures of planes
 Allows travelers to discuss their experiences on each airline
 Company monitors comments to fix or improve a certain
aspect of the traveling experience
Social Media
 Youtube
 Allows potential customers to visually understand the
process of flying with Delta Airlines.
 Allows customers, and even employees, to submit video
diaries of their vacations for others to enjoy.
Conclusions of Competitor and
Market Analysis
 Delta Airlines Main Competitors
 American Airlines
 United/Continental Airlines
 Airlines use the same business strategies to attract and
retain customers
 Differentiation
 Branding
 Geographic Coverage
Conclusions of Competitor and
Market Analysis Continued

Competitors Compete With:





Airfare
Baggage Fees
On-board Service
In-flight Entertainment
Alliances
 Key Trends in the Airline Industry






Growth in emerging markets
Greater market Access
Growth of low-cost carriers
Increase in megacities
Growth in Asia
Air travel and passenger count increases
Internal Analysis,
SWOT, Generic
Strategy & Grand
Strategy
Delta Airlines Business Model
Hub and Spoke Model
Used by the major airlines (Delta, American and United/Continental)
•Taxi congestion at hub locations
•Increase in wait time
•Lower aircraft utilization time
•Allows airlines to maximize passenger
enplanements on each flight by offering
domestic and international connections
•Provides many more route options
•Maximizes revenue opportunities
Changes in Delta’s Business
Model
 Appointment of Richard Anderson as CEO
 Twenty-three years of aviation experience
 Former CEO of Northwest Airlines
 Richard Anderson took a risk by merging with his former airline,
Northwest Airlines, during the economic recession
 With the merger or Northwest Airlines, Delta expanded their
operations
 Additional hubs were gained which led to a more complex Hub and
Spoke Model.
 Detroit, Michigan
 Minneapolis, Minnesota
 Tokyo, Japan
Delta Airlines Performance
(visual)
“As of 1992, in fact-though
the picture would have
improved since then-the
money that had been made
since the dawn of aviation by
all of this country’s airline
companies was zero.
Absolutely zero.”
- Warren Buffet, 1999
Delta Airlines Performance
(by the numbers)
All numbers in
millions of dollars
Year Ending
2007
Year Ending
2008
Year Ending
2009
Year ending
2010
Total Revenue
$19,154.00
$22,697.00
$28,063.00
$31.755.00
Net Income
$1,612.00
$8,922.00
$1,237.00
$593.00
Change in total revenue between:
2007-2008: 18.5%
2008-2009: 23.6%
2009-2010: 13.2%
Delta Airlines Key Assets
 Cash & Equivalents
 Short Term Investments
 Property/Plant/Equipment
 Accumulated Depreciation
 Goodwill
 Net Intangibles
Delta Airlines SWOT Analysis
Strengths
High capacity usage
Weaknesses
High spoilage rate
No. 1 in Fortune Magazine’s list of world’s Aircraft, leased or purchased, requires
most admired airlines
high amount of capital
Diversity in upper management
Varying returns on investments
World’s largest global airline
Communication and monitoring a global
workforce
Turned profit for year ending 2010
Did not hedge fuel prices
Union free workforce (pilots excluded)
Quick changes are difficult to accomplish
Ability to segment the market
Hubs in harsh weather area
Industry difficulty to turn profit
Delta Airlines SWOT Analysis
Opportunities
Threats
Untapped domestic and international
destinations
Condition of domestic and global
economy
Technology advancements in aviation
Third-party online ticket sales
In-flight entertainment (customer pays)
Government regulations
Increase in airline alliances
Gas and oil fluctuations
Terrorism
BCG Matrix
Market
Growth Rate
Stars
Question Marks
High
“The worst sort of business is one
that grows rapidly, requires
significant capital to engender the
growth, and then earns little or no
money. Think Airlines.”
- Warren Buffet, 2008
Delta
Low Market Share: Delta
Airlines holds a small share of
the global airline industry.
Ranked #1 in total passenger
count.
Low
Cash Cows
Dogs
High
Low
Relative Market Share
Market Growth: As the
population increases and more
alliances are made, growth is
present.
Delta Airlines Competitive Scope
Scope
Delta’s Focus
Segment Scope
Focus on varying buyer types (Business
travelers, general travelers)
Geographic Scope
Focusing on different locations allows an
advantage for some airlines.
“The airline business is crazy. I’ve not
been enamored with the industry in
general. You can’t depend on anybody
and anything. It’s dog-eat-dog and one
thing or another from one minute to the
next. What I understand about it, I don’t
like what I see.”
- Robert Brooks, Hooters Air owner
Generic Strategy
 Differentiation: Delta Airlines, along with their
competitors, attempts to differentiate themselves from
their competition
 While not a low-cost carrier, still passing savings onto
customers
 Not as luxurious as some foreign airlines
 Has recently begun an advertising campaign letting
customers know about how Delta is “Building a better
airline”
Delta Airlines Grand Strategy
Market Penetration: Entering
into a new market, or
destination, can be very
rewarding and very costly
depending on how it goes.
Product Development: To
differentiate themselves,
Delta has installed in-flight
wireless internet on all of
their mainline aircraft.
Grand Strategy Matrix
Quadrant 2
Quadrant 1
Quadrant 3
Quadrant 4
Delta Airlines is positioned in
the first quadrant. This means
Delta has a higher than normal
competitive position among
their competitors in an
industry that has a good
growth rate.
Strategies for those in this
quadrant need to focus on
related diversification and
product development.
Conclusions of Internal Analysis, SWOT,
Generic Strategy & Grand Strategy
 Delta Airlines uses the Hub and Spoke business model
 Hubs in Atlanta, Detroit, Minneapolis, Cincinnati, Salt Lake City, New
York, Paris and Tokyo.
 Appointment of Richard Anderson led to a change in the Delta way
 Double digit increases in revenue, radical net income
 A “Question Mark” in the BCG matrix
 Focuses on Differentiation
 Has a competitive segment and geographic scope
 Quadrant 1 of the Grand Strategy Matrix