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.
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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
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
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.
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.
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.
Geographic Scope 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.
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)
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.
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
Delta Airlines Business Model Hub and Spoke Model Used by the major airlines (Delta, American and United/Continental) Cons Pros • 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
BCG Matrix “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 Market Growth Rate Stars Question Marks High Delta Low Market Share: Delta Airlines holds a small share of the global airline industry. Ranked #1 in total passenger count. Market Growth: As the population increases and more alliances are made, growth is present. Low Dogs Cash Cows Low High Relative Market Share
Delta Airlines Competitive Scope “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.
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