Delta Air Lines Business Problem Statement — page 1

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‟

Delta Air Lines Business Problem Statement — page 3

PROBLEMS AT DELTA AIRLINES



Accumulation of loss - $ 5.6 billion since 2001



Posted losses of $ 2 billion in 1

and 2

Quarter of

2004 – biggest in Delta‟s history



Rapidly depleting cash reserves



Moving towards debt trap



Total debt liability as on 2

quarter of 2004 is $ 20 billion.



Outstanding debt repayment by early 2005 is $ 1.2 billion



Heading towards bankruptcy



Downgraded Credit Rating

Delta Air Lines Business Problem Statement — page 4

QUARTERLY PROFIT/LOSS

-2000

-1500

-1000

-500

500

2000

2001

2002

2003

2004

Delta Air Lines Business Problem Statement — page 5

Causative Factors

2002

2003

2004

Fuel Prices

(in $/barrel)

•

External

9/11 WTC TERRORIST ATTACK

RISING FUEL PRICES

Delta Air Lines Business Problem Statement — page 6

Causative Factors

Market Share 2004

Low Cost

Conventional

Competition from low cost airlines

Market Share 1995

Low Cost

Conventional

Delta Air Lines Business Problem Statement — page 7

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

Delta Air Lines Business Problem Statement

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