Delta Airlines Strategy
Delta Airlines
Board of Directors
Presentation
October 18, 2013
Consultants:
General Overview of Delta Airlines Strategy
DELTA’S CURRENT STRATEGY
COMPANY’S SANDBOX
High rivalry makes industry unattractive Profitability increasing, but still below cost of capital
Consolidation trend has reduced rivals helping profits
Trainer refinery acquisition: using vertical integration to address Delta’s largest expense
Metrics of improving flight completions, on-time arrival rate and decreasing mishandled bag to address customer satisfaction
RECOMMENDATIONS
• Trainer refinery: mitigate risks for success.
• Customer satisfaction: domestic differentiation strategy and international best in class strategy
Overview
Industry
Company
Strategy
Conclusions
Review
2
The Airline Industry: At a Glance
Across the Industry
• Slow, but positive, global GDP growth
• More financially-stable U.S. airline industry as merger integrations mature and restructured carriers emerge
• U.S. carriers maintain capacity restraint with growth less than GDP
• Inflationary pressures across all categories, with industry capacity discipline allowing for recovery of higher cost inputs
• Corporate travel demand remains solid with corporate travel spend to increase 5% for 2014
Overview
Industry
Company
Strategy
Conclusions
Review
3
Industry profitability improving, but returns still below WACC
Profits have been improving in the past three years… Overview
Industry
Company
…but the industry is still not having economic profits
Strategy
Conclusions
Review
4
Porter’s Five Forces: Airline Industry
Power of Suppliers: HIGH
Threats of Substitute: MEDIUM
• Powerful labor unions
• Aircraft and engine producers are both concentrated oligopolies
• Airports are local monopolies
• Airport services (handling, catering, cleaning) are also concentrated in a small number of firms, but low
Board of Directors
Presentation
October 18, 2013
Consultants:
General Overview of Delta Airlines Strategy
DELTA’S CURRENT STRATEGY
COMPANY’S SANDBOX
High rivalry makes industry unattractive Profitability increasing, but still below cost of capital
Consolidation trend has reduced rivals helping profits
Trainer refinery acquisition: using vertical integration to address Delta’s largest expense
Metrics of improving flight completions, on-time arrival rate and decreasing mishandled bag to address customer satisfaction
RECOMMENDATIONS
• Trainer refinery: mitigate risks for success.
• Customer satisfaction: domestic differentiation strategy and international best in class strategy
Overview
Industry
Company
Strategy
Conclusions
Review
2
The Airline Industry: At a Glance
Across the Industry
• Slow, but positive, global GDP growth
• More financially-stable U.S. airline industry as merger integrations mature and restructured carriers emerge
• U.S. carriers maintain capacity restraint with growth less than GDP
• Inflationary pressures across all categories, with industry capacity discipline allowing for recovery of higher cost inputs
• Corporate travel demand remains solid with corporate travel spend to increase 5% for 2014
Overview
Industry
Company
Strategy
Conclusions
Review
3
Industry profitability improving, but returns still below WACC
Profits have been improving in the past three years… Overview
Industry
Company
…but the industry is still not having economic profits
Strategy
Conclusions
Review
4
Porter’s Five Forces: Airline Industry
Power of Suppliers: HIGH
Threats of Substitute: MEDIUM
• Powerful labor unions
• Aircraft and engine producers are both concentrated oligopolies
• Airports are local monopolies
• Airport services (handling, catering, cleaning) are also concentrated in a small number of firms, but low