Delta Airlines Essay, Research Paper
Delta Airlines
Who would have thought that a major airline of today could contribute it’s success to Boll
Weevil insects that decimated the cotton fields of the south. Some say there would not have been
a Delta Airlines at all if it were not for the Boll Weevil infestation of the early 1920’s. Even the
name came from the Mississippi Delta where the Boll Weevil’s plagued many cotton fields.
According to the book Delta Airlines by Jones, C.E. Woolman was the assistant district agent
working for the U.S. Department of agriculture’s bureau of Entomology laboratory in Tullulah,
Louisiana. Woolman was an agricultural engineering graduate from the University of Illinois and
could be categorized as an aviation enthusiast. Along with Dr. B.R. Coad, Woolman developed a
promising weapon against the insect but needed a more efficient means to spread it across a vast
area. Congress gave the researchers a small grant that allowed them to acquire two ex-US Army
Curtiss Jenny Aircraft. However, it was not until 1923 that things started to happen for the two
researchers. A man by the name of George Post, a New York Businessman from Huff-Daland
Airplanes, Inc. was flying south when he was forced to land because of mechanical problems
with his airplane. He landed in Tullulah and discovered Coad and Woolman’s experimental
dusting operation. He considered this to be a commercial opportunity he could not pass up. After
convincing management, the Huff-Daland Dusters started at Macon, Georgia, in 1924. However,
there was not much success so the operation moved to Monroe Louisiana. From Monroe, the
business quickly grew but it was only seasonal so Wollman decided to diversify and set up
operations in Peru. It was while in Peru that Woolman and his company secured South American
airmail rights to fly between Peru and Ecuador. This was when Woolman first appreciated the
possible value of a passenger service in 1927. When back in Monroe, Woolman secured some
private financing from private businessmen and started his own Aviation Company. Delta’s first
aircraft were three five passenger Travel Air 4000s. On March 15, 1940, Delta added it’s third
crewmember, the Stewardess, to its air service on the DC-2 Aircraft. In 1941, Delta moved its
general offices and overhaul base from Monroe to Atlanta. Through the years Delta merged with
Northwestern and Western Airlines to become one of the largest airlines in the world. Up until
deregulation, Delta Airlines was one of the most profitable and successful airlines around.
Today, at the center of the Delta operation, is its fleet of aircraft and the chart below, according
to their 1999 annual report, illustrates it.
Delta’s Fleet at June 30, 1999
Leased
Aircraft Type Average Age Owned Capital Operating Total
B-727-200 21.9 110 10 120
B-737-200 14.6 1 45 8 54
B-737-300 12.6 3 23 26
B-737-800 0.6 7 7
B-757-200 9.6 59 41 100
B-767-200 16.1 15 15
B-767-300 9.4 4 24 28
B-767-300ER 4.1 43 8 51
B-777-200 0.3 2 2
L-1011-1 19.9 13 13
L-1011-250 16.7 6 6
L-1011-500 18.4 11 11
MD-11 5.4 8 7 15
MD88 9.0 63 57 120
MD90 3.6 1616 16
Totals 12.3 358 48 178 584
Delta’s point to point carrier known as Delta Express was launched on October 1, 1996. Delta
Express offers its customers nonstop, low fare, high value service between Northeast and
Midwest cities and destinations in Florida. Passengers on Delta Express are provided with
advanced seat selection and earn SkyMiles on each flight. Delta’s Express fleet size and type is
37 B-737-200 and there are plans to increase to 41 B-737-200 aircraft during Fiscal Year 2000.
Delta Express has 168 daily flights between 17 Northeast and Midwest cities to five Florida
cities (Fort Lauderdale, Fort Myers, Orlando, Tampa, and West Palm Beach). They also claim
that their on-time arrival rate is 86 percent. Delta also has a specialty product that provides its
business customers who travel between Washington DC, New York and Boston. It is simply
known as the Delta Shuttle. It owns 58 percent of the Northeast Corridor Market Share and it has
carried over 14 Million passengers since September 1991. It operated 25,000 flights in fiscal year
1999 and they claim a 97 percent on-time departure rate. The Delta Shuttle fleet consist of 16
specially designed B-727-200 aircraft which offer all leather seats and more leg room than any of
its competitors (Annual Report, 1999, pg. 20). At the center of Delta’s regional fleet is Atlantic
Southeast Airlines (ASA). ASA became a wholly owned subsidiary of Delta on May 11, 1999.
According to Delta this acquisition of ASA enables both airlines to allocate aircraft more
efficiently across their respective route system. ASA is Atlanta’s largest regional airline with
service to 44 markets, furthermore the Dallas/Fort Worth hub serves 17 markets and they have an
average of 2,500 employees working for them. As of August 1, 1999 ASA provided Canadair
Regional Jet service to 32 cities from Atlanta. Some of their recent additions include Austin,
Daytona Beach, Houston Hobby, Long Island, Melbourne Florida, Montgomery Alabama, San
Antonio, Des Moines Fort Wayne, and Toledo Ohio. ASA operates 3 different types of aircraft
and they break down as follows:
Aircraft Average Leased
Type Age Owned Capital Operating Total
EMB-120 10.0 56 1 57
ATR-72 5.7 4 8 12
CRJ-200 0.9 2 21 23
Total 7.2 62 30 92
Delta also has 4 other connection carriers and they are Comair out of Cincinnati, Skywest out of
Salt Lake City, Business Express (BEX) in Boston and Trans States Airlines (TSA) from New
York City. Delta is also worldwide partners with Aer Lingus, Aero Mexico, Austrian Airlines,
Finair, Korean Air, Malev (Hungarian Airlines), Sabena, Swissair, Air Portugal, and Trans
Brazil. Delta has five major hubs and the statistics breakdown as follows (Delta Airlines, Jones,
pg. 59):
Atlanta, Georgia
No of No of No of No of Nonstop Passengers
Gates employees daily flights destinations (end Dec ‘97)
97 27,926 620 120 23,894,884
Cincinnati, Ohio
No of No of No of No of Nonstop Passengers
Gates employees daily flights destinations (end Dec ‘97)
50 4,500 221 73 7,143,890
Dallas/Fort Worth, Texas
No of No of No of No of Nonstop Passengers
Gates employees daily flights destinations (end Dec ‘97)
27 4,984 131 41 5,018,540
John F. Kennedy, New York
No of No of No of No of Nonstop Passengers
Gates employees daily flights destinations (end Dec ‘97)
28 3,897 45 37 2,362,865
Salt Lake City, Utah
No of No of No of No of Nonstop Passengers
Gates employees daily flights destinations (end Dec ‘97)
32 4,379 168 49 7,241,631
Since the inception of Delta Airlines in 1935 they have been a main stay in modern commercial
aviation. Delta is a traditional style airline with a traditional hub and spoke system and prior to
deregulation in 1978 they showed five decades of profitability and were a powerhouse in the
Commercial airline industry. Their management philosophy has been to promote from within,
mentor their employees and developing a logical progression of advancement, to make Delta
Airlines a family atmosphere. From 1950, Delta Airlines has showed a 1/2 to 1- percent growth
per year and by 1977, Delta made up 10 percent of the entire industry. It also has grown from 12
million in value to over 1.4 billion in Assets. Its net income in 1950 was $815, 000 and has made
a profit every year and in 1977 it had made over 92 million dollars in profit for that year.
However, deregulation was just around the corner, which would change the very foundation of
this airline giant. Before deregulation, the airline industry was seeing phenomenal growth in both
domestic and international air transportation (Airline deregulation, pg. 5). Delta was no stranger
to this phenomenal growth however, with the implementation of deregulation, as many other
airlines, had to shift gears to stay competitive in a newly formed free market. Despite remarkable
advances under the regulatory scheme established in 1938 and broad public satisfaction with the
airline system, airline regulation gradually came under increasing criticism, particularly from
academic economist. This gained strong momentum in the mid 1970’s and between 1977 and
1979. A veritable revolution was accomplished in both domestic and international policy (Airline
Deregulation PG 8). The desire of free competition in this industry outweighed the need for tight
governmental control of entry, exit, pricing, and other competitive matters. Delta soon realized,
that it had to change the way it did business
With deregulation, the airline industry had to re-think the way it did business. One of the
immediate affects deregulation had on Delta was the pricing chaos. With the deregulation
pricing, the airlines had to increase their staffing to keep up with the fairs changing on a daily
basis. Delta hired an additional 147 employees to keep track of these frequent fare changes,
increasing its tariff department staff, five times the number of personnel needed before
deregulation. The Wall Street Journal reported that on a typical day, the tariff department
compares at least 5,000 industry-pricing changes against Delta’s 70,000 fares. These changes in
fares to compete for filled seats resulted in record airline losses for the first quarter and are
blamed on unrestricted deep discounted fares that generated little traffic. (Aviation Week July
26, 1982 P. 34). Delta Airlines was not able to escape the affects of deregulation and in 1983 lost
a substantial amount of money and from 1991-1993 it showed losses on average of a half a
billion dollars a year. Delta turned this around by what was called “Leadership 7.5″. Under its
Leadership 7.5 program, Delta’s goal was to cut its cost to fly one seat one mile for 7.5 cents. To
do this Delta had to cut operating cost by approximately two billion dollars per year. What this
meant in some respects, was a cut in the workforce of approximately 15,000 employees, or 15
percent of it’s workforce, quarterly dividend plunged from 17.5 cents to a nickel, and they
capped commissions on domestic tickets at $50 for a round trip ticket. They also identified that
over 50 percent of its domestic US-origin and destination traffic were traveling in markets where
there was competition and as a result the fares were lower. Also, they sought to gain access to
London through a code-share agreement with Virgin Atlantic, which came to fruition in 1995.
This strategy produced results because Delta was a profitable company again and the stock was
up 61 percent (USA Today February 1996). However, it seems that deregulation has caused
Delta Airlines to become more of a threat to job security for it employees than it has been in the
past. It has made Delta into a bottom line driven company verses the traditional company built
from years of company loyalty and promoting from within. As a result, Delta has had to bring in
outside financial minded leadership to include it’s present CEO, to make sure Delta still makes a
profit and can compete in competitive markets.
Delta’s selected its current president and CEO, Leo F. Mullin on August 15, 1997. He replaced
the retiring Ronald W. Allen who had been with Delta for 35 years. This was a surprise move
because Delta has historically promoted from within. He is a Harvard College and Harvard
business school graduate. Receiving a degree in engineering and applied physics, a degree in
applied mathematics and an MBA. From the book Delta Airlines by Jones, he was chosen
because of his past strategic planning expertise in highly competitive consumer business. Mullin
worked for Conrail in Philadelphia, then in a senior position at First Chicago Bank for 15 years,
and he served as Chairman and CEO of the American National Bank in the early 1990’s.
Recently he served as the vice-chairman of Unicom and its chief subsidiary, Common Wealth
Edison, the Chicago-area Utilities Company. He is also a member of the Air Transportation
Association of America (Delta Airlines, Jones, pg29). This in my opinion, was a smart move for
Delta in that they needed new direction and new ideas to chart a successful path through the
highly competitive deregulated airline industry.
Many people and experts think that deregulation has helped the industry and in an article from
the Heritage Foundation, it is hard to argue. It states that airline ticket prices are almost 40
percent lower today than in 1978. The average fare per passenger mile was about 9 percent lower
in 1994 than in 1979 at small community airports, 11 percent lower at medium-sized airports,
and 8 percent lower at large community airports. From 1939 to 1978 there were an average 6
fatal accidents per year. After deregulation 1978 – 1997 the average was only 3.5 fatal accidents
per year. Air carriers flew roughly 2.5 billion miles in 1978, but they logged more than twice that
amount last year, and flying approximately 5.7 billion miles in 1997. The airlines served
approximately 250 million passengers in 1978 and roughly 600 million in 1997. Delta has fared
equally well and compare with these statistics. However, there are a few skeptics and Delta is
one of the airlines that is accused of monopoly power and pricing.
In an article written by Robert Kuttner in 1999, he states that the results of deregulation are
mixed. He blames President Reagan’s administration for letting the Anti-trust enforcement to
collapse, which permitted large dominant airlines to crush upstart competitors. He goes on to say
that the revival of the dormant antitrust policy is the only program that has allowed competition
to even exist at all in the airline industry. Delta is used as an example in an article written by
Fred Allvine of Bizjournals.com. It states that Delta’s market share over the last decade has
increased from about 50 percent to 78 percent of the passengers flying through the Atlanta
Airport. This means that Delta can raise fares at will on a large portion of its flight. The article
goes on to say that Delta’s fares are 30 percent to 50 percent higher than in competitive markets.
It used an example of a recent round trip fare to Washington National airport was $856 but it was
only $352 to the nearby Dulles Airport. Eventhough, Delta has done this and increased its profits
250 percent since 1994 the high fares hurt air travel to Atlanta and the local economy. To combat
this the metro Atlanta Chamber of Commerce recently asked for bids to study how to increase
airline competition in Atlanta, eventhough the chamber realizes that Delta is its largest
employers and the high fares are good for Delta. This is an illustration of how one airline has
dealt with the deregulation act. Monopolizing markets with high fares and only cutting prices in
competitive markets, is the simple strategy of supply and demand.
Although Delta has monopolized some markets, it knows it cannot continue to over charge
passengers to make up for losses in competitive markets. Local economies will suffer and they
will be forced to bring in competition to lower fares and increase traffic to their cities. That
cannot last forever because it is not good for those local economies. Delta built a reputation of
quality customer service and presenting a professional atmosphere. In 1997 Delta became the
first Airline to carry 103 million passengers in one year and in 1999 they carried a record 106
million passengers. Furthermore, Delta and its worldwide partners operate 5,465 flights each day
to over 364 cities in 61 countries. Finally, from 1938 Delta’s Growth of certificated Domestic
route miles grew from 1,091 to over 50, 380, the largest in industry.
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