Description
This is a presentation explaining the problems at delat airlines.
PROBLEMS AT DELTA AIRLINES
HISTORY
? 1924 - Started as aerial crop dusting company in Georgia (USA) ? 1929 - Diversified passenger airline service ? 1955 - Pioneered Hub and Spoke Flight System ? 1978 - Commenced Trans - Atlantic service ? 1984 - Delta Connections - Tie up with regional airlines ? 1991 - Acquired Pan American Airways – Was largest acquisition in airline history ? 2003 - Launched low cost subsidiary „SONG?
PROBLEMS AT DELTA AIRLINES
? Accumulation of loss - $ 5.6 billion since 2001 ? Posted losses of $ 2 billion in 1st and 2nd Quarter of 2004 – biggest in Delta?s history ? Rapidly depleting cash reserves ? Moving towards debt trap
? ? Total debt liability as on 2nd quarter of 2004 is $ 20 billion. Outstanding debt repayment by early 2005 is $ 1.2 billion
? Heading towards bankruptcy ? Downgraded Credit Rating
QUARTERLY PROFIT/LOSS
500
0
-500
-1000
1 2 3 4
-1500
-2000 2000 2001 2002 2003 2004
Causative Factors
• External
9/11 WTC TERRORIST ATTACK
50 45 40 35 30 25 20 15 10 5 0 2002 2003 2004 Fuel Prices (in $/barrel)
RISING FUEL PRICES
Causative Factors
Competition from low cost airlines
Market Share 1995
5
Market Share 2004
30
95
70
Low Cost
Conventional
Low Cost
Conventional
Causative Factors
Internal
? High cost of Labor
– Highest pilot salaries in industry – Lowest pilot flying time per month – High percent of operational costs 43%
? Operational Inefficiency
– Complexity of fleet mix – High training and maintenance cost
? Burdensome Legacy Costs
– Old and inefficient operational process (hub and spoke model) – Pension and retirement plans
? Cultural Shortcomings
– Rigid and bureaucratic culture – Relations with agents and partners
PROBING QUESTIONS
• IS MORE INVESTMENT NEEDED IN “SONG”? • HOW TO IMPROVE OPERATIONAL EFFICIENCY AND CUT DOWN COSTS?
• • • • • • • • • • • • • • • • • • • • • • • • • •
Delta should fly between Hubs and Song Flies on the spokes Loyalty Programs with Employees according to retirement age Relaunch FFP Cut down Salary and pension benefits Stock based options on performance Agency visit and promote company through road shows Decentralizing and salary based units Reduce complexity of fleet Recruit top mgmt from outside the industry Pay pilots on per hour basis E-Brokers and E-ticketing – 24X7 availability Reduce spokes with less occupancy Song targeted to leisure travelers and Delta for Business. Reschedule timings of song to suit travelers Fuel Hedging Flight synchronization – Wait time reduced Outsource maintenance activity Reduce retirement benefits Phase out hub and spoke model to point to point. Improve Credit Rating Catchy advertisements Do not go for bankruptcy as it would hamper image Increase notice period before retirement New pilots to be inducted on Contract basis Lease financing Dilute the powers of the pilot union
THE WAY OUT
• Open to negotiations with pilots in respect to wage cuts • Generate faith that pension schemes won?t be scrapped • Inculcating flexible work culture • Fixed contribution to participatory pension plan • Reduction of complexity of fleet
THE WAY OUT
• Rejuvenate commission policy with travel agents • Gradually phasing out Hub and Spoke model • Reduction in labor costs to match industry standards of 28% • Simplicity in operations • „Depeaking? to make better use of aircraft and crews
Delta Solution
• Updating & upgrading customer products and services • Redesigning Atlanta hub • Dehubbing Dallas operation and redeployment of resources • Addition of destinations and non-stop flights • Growing low-cost subsidiary “Song” • Reducing fleet complexity • Downsizing manpower • Creating employment reward program
REFERENCES
• Business Strategy ICFAI (February 2005) • http://www.delta.com • http://en.wikipedia.org/wiki/Delta_Air_Lines
doc_149893447.ppt
This is a presentation explaining the problems at delat airlines.
PROBLEMS AT DELTA AIRLINES
HISTORY
? 1924 - Started as aerial crop dusting company in Georgia (USA) ? 1929 - Diversified passenger airline service ? 1955 - Pioneered Hub and Spoke Flight System ? 1978 - Commenced Trans - Atlantic service ? 1984 - Delta Connections - Tie up with regional airlines ? 1991 - Acquired Pan American Airways – Was largest acquisition in airline history ? 2003 - Launched low cost subsidiary „SONG?
PROBLEMS AT DELTA AIRLINES
? Accumulation of loss - $ 5.6 billion since 2001 ? Posted losses of $ 2 billion in 1st and 2nd Quarter of 2004 – biggest in Delta?s history ? Rapidly depleting cash reserves ? Moving towards debt trap
? ? Total debt liability as on 2nd quarter of 2004 is $ 20 billion. Outstanding debt repayment by early 2005 is $ 1.2 billion
? Heading towards bankruptcy ? Downgraded Credit Rating
QUARTERLY PROFIT/LOSS
500
0
-500
-1000
1 2 3 4
-1500
-2000 2000 2001 2002 2003 2004
Causative Factors
• External
9/11 WTC TERRORIST ATTACK
50 45 40 35 30 25 20 15 10 5 0 2002 2003 2004 Fuel Prices (in $/barrel)
RISING FUEL PRICES
Causative Factors
Competition from low cost airlines
Market Share 1995
5
Market Share 2004
30
95
70
Low Cost
Conventional
Low Cost
Conventional
Causative Factors
Internal
? High cost of Labor
– Highest pilot salaries in industry – Lowest pilot flying time per month – High percent of operational costs 43%
? Operational Inefficiency
– Complexity of fleet mix – High training and maintenance cost
? Burdensome Legacy Costs
– Old and inefficient operational process (hub and spoke model) – Pension and retirement plans
? Cultural Shortcomings
– Rigid and bureaucratic culture – Relations with agents and partners
PROBING QUESTIONS
• IS MORE INVESTMENT NEEDED IN “SONG”? • HOW TO IMPROVE OPERATIONAL EFFICIENCY AND CUT DOWN COSTS?
• • • • • • • • • • • • • • • • • • • • • • • • • •
Delta should fly between Hubs and Song Flies on the spokes Loyalty Programs with Employees according to retirement age Relaunch FFP Cut down Salary and pension benefits Stock based options on performance Agency visit and promote company through road shows Decentralizing and salary based units Reduce complexity of fleet Recruit top mgmt from outside the industry Pay pilots on per hour basis E-Brokers and E-ticketing – 24X7 availability Reduce spokes with less occupancy Song targeted to leisure travelers and Delta for Business. Reschedule timings of song to suit travelers Fuel Hedging Flight synchronization – Wait time reduced Outsource maintenance activity Reduce retirement benefits Phase out hub and spoke model to point to point. Improve Credit Rating Catchy advertisements Do not go for bankruptcy as it would hamper image Increase notice period before retirement New pilots to be inducted on Contract basis Lease financing Dilute the powers of the pilot union
THE WAY OUT
• Open to negotiations with pilots in respect to wage cuts • Generate faith that pension schemes won?t be scrapped • Inculcating flexible work culture • Fixed contribution to participatory pension plan • Reduction of complexity of fleet
THE WAY OUT
• Rejuvenate commission policy with travel agents • Gradually phasing out Hub and Spoke model • Reduction in labor costs to match industry standards of 28% • Simplicity in operations • „Depeaking? to make better use of aircraft and crews
Delta Solution
• Updating & upgrading customer products and services • Redesigning Atlanta hub • Dehubbing Dallas operation and redeployment of resources • Addition of destinations and non-stop flights • Growing low-cost subsidiary “Song” • Reducing fleet complexity • Downsizing manpower • Creating employment reward program
REFERENCES
• Business Strategy ICFAI (February 2005) • http://www.delta.com • http://en.wikipedia.org/wiki/Delta_Air_Lines
doc_149893447.ppt