Design Strategy Delta Airlines

Srividya Krishna Prasad Index

Overview Research & Analysis Design ➔ About Delta ➔ Competitive Matrix ➔ Preliminary design concept ➔ ➔ PESTLE Client’s Need ➔ Ideal design ➔ Initiative for COVID ➔ Predispositions ➔ Triple bottom line ➔ Analysis from Framework ➔ Secondary Research - 4P ➔ Insights ➔ Strategic design - SWOT ➔ Strategic Balancing - Business Model Canvas

1 2 3 1 Overview ➔ About Delta ➔ Client’s Say ➔ Summary of what I know ➔ Analysis from Framework - 4P - SWOT - Business Model Canvas About Delta

➔ Delta Air Lines operates 878 commercial aircraft, making it the second largest airline fleet in the world.

➔ In the past, Delta purchased or leased older generation aircraft and it flies aircraft for 20–30 years, much longer than most other major airlines.

➔ This makes Delta's one of the oldest fleets of any United States airline, with an average fleet age of 14.9 years. “We should be prepared for a choppy, sluggish recovery even after the virus is contained, I estimate the recovery period could take two to three years.” Ed Bastian,“ CEO, Delta Airlines Delta’s Initiatives for COVID

➔ To align capacity with expected demand, Delta is reducing system capacity by 15 points versus its plan, with international capacity reduced by 20-25 percent, and domestic capacity reduced by 10-15 percent.

➔ Parking aircraft, and evaluating early retirements of older aircraft

➔ Delta also made cash flow decisions by deferring their capital expenditure, voluntary pension funding and share repurchases.

➔ In addition, the recent fuel price decline provides approximately $2 billion of full-year expense benefit. Analysis Framework - 4P

Product. Place.

Delta Air Lines provides scheduled air transportation and The company is headquartered and has its largest hub at cargo services for general passengers, professionals and Hartsfield-Jackson Atlanta International Airport in Atlanta, commercial customers. Georgia. Delta offers more than 13,000 daily flights, with 326 destinations in 59 countries.

Promotion. Price.

Operates a website at www.delta.com, which provides The airline, known for customer care and luxury, has maintained information on the Company’s services, schedule, its upper middle class and business travel customer base. While destinations and regulations. many airlines continue to cut costs to compete with emerging low-cost airlines, Delta is continuing the serve the upper-class The company also operates a direct sales team, which market where it thrives. can arrange bookings over the phone.

Operates its own kiosks across numerous airports worldwide, through which customers are able to access assistance.

Analysis Framework - SWOT

Strength Weakness ➔ Strategic merger of Northwest Airlines ➔ Overdependence on the North American market ➔ Strong Brand Equity and brand presence ➔ High debt obligations causing financial issues ➔ Strong hub in Atlanta ➔ It has near about 5000 flights every day ➔ Has a strong employee force of over 75,000 people A fleet size of over 700 caters to 250+ destinations

Opportunity Threats ➔ Buy more aircrafts under the current market ➔ Intense Competition ➔ Leverage on SkyMiles, Delta is the only airlines to ➔ Reputation damage as Delta was rated worst airline have no expiration date of the extra miles offered by USNews.com ➔ Capitalize on growing market for aircraft ➔ Raise in fuel prices maintenance, repair, and overhaul (MRO) ➔ Delta is well positioned to capitalize on growing US regional airline industry Key partner Key activities Value proposition Customer Customer relationship segments Code sharing partners, - Air transportation Being one of the 3 Company. is able to extend Dedicated. Assistance While many airlines - Cargo services major US carriers, its own services, selling continue to cut costs connecting flights for - Refinery : Production Delta's diverse fleet to compete with airlines such as Alaska of jet fuel, gasoline combined with their Airlines and WestJet and diesel. emerging low-cost extensive reach in the through its own sales airlines, Delta is domestic and channels continuing the serve international markets Joint Venture Partners, the upper-class provide customers with which the Company Key Resources Channels market where it with premium end to provides joint services, thrives. - Operates a website such as its deals with Air - Fleet of aircraft, end connectivity France - KLM - Alitalia, and - Operates a direct sales - Ground facilities, between major Virgin Atlantic; team - Oil refinery assets business hubs and - operates its own kiosks - Sales channels tier two cities alike.

Cost structure Revenue Streams Incurs costs in relation to the acquisition and maintenance of its aircraft,. the purchase and supply. of consumables – in particular jet - Passengers fuel, the operation and maintenance of its oil refining assets, its - Cargo implementation of sales and marketing programs, the maintenance - Other - aircraft maintenance, staffing etc., of its physical infrastructure and ground support facilities. 2 Research ➔ Competitive Matrix ➔ Secondary Research ➔ Insights Competitive Matrix

Southwest Airlines American Airlines United Airlines Delta

Segment Customers preferring Customers preferring Business / Leisure travelers Passengers preferring comfort/punctuality comfort/punctuality / Luxury seekers reliability, safety and comfort

Target Group Price sensitive customer Middle class/Upper Upper middle class / HNIs Frequent Business travelers, middle class Middle class/Upper middle class

Positioning Low cost American airline Premium American Premium airline with high Passenger Airline Airlines quality of service

USP Largest low cost carrier in Excellent quality of Largest airline holding World's Largest and America's United States onboard entertainment company in the world oldest operating Airline

Routes Domestic only and Domestic and Domestic and International Domestic only and International is limited to International (only europe) International is limited to north north american continent american continent and Europe PESTLE

Political.

➔ The company operates under the laws of the United States of America.

➔ Since Delta Air Lines is operating in hundreds of countries, they also have to adhere to all the laws and policies of those countries.

➔ Tax regulations and laws concerning business, operating conditions and pollution change all the time.

➔ Not all governments run the same as the United States and many have different sets of laws and taxes that businesses from around the world have to respect.

➔ By being aware of these international laws and tax regulations the company will be able avoid potential lawsuits and disputes run operations smoothly. PESTLE

Economic.

➔ Economic conditions will determine how much consumers are willing to spend depending on the current situations that are happening in the various regions. ➔ Association survey found 40% of recent travelers anticipated waiting at least six months after the virus is contained before flying again. ➔ This decreases the demand for air travel and consumers will try to use their own means of transport. ➔ The fuel price have drastically reduced giving Delta an advantage. ➔ As the economy slowly improves, consumers will have more money to spend on vacations and leisure travel. ➔ Other economic factors that Delta Air Lines needs to be on top of include the interest rates, exchange rates and expected inflation that the company will face operating in different regions around the world. PESTLE

Social.

➔ The entire society including businesses and people are benefited by the wide network of flights globally.

➔ Airliners face threats from wars, political instability and social unrest.

➔ Due to COVID 19, there is a social unrest all over the world. This led many consumers to cancel and develop a fear of traveling on planes.

➔ The consumer’s paranoia led to decreased revenue across the board for Delta airlines PESTLE

Technological.

➔ Delta Airlines has a well documented history of utilizing technology from the use of mainframe computers, early adoption of jet aircraft, and integrating Northwest’s and Delta’s online websites and booking system.

➔ Moreover, the use of mobile devices has grown across the world. Delta has always been steps ahead with using technology to accommodate the consumer experience when flying with their company.

➔ Passengers were able to use the Internet to book, change, cancel their flights with the click of a button

➔ Technology has added pace to people’s lives who can check and book tickets using their cell-phones. PESTLE

Environmental.

➔ The airlines industry is responsible for around 2% of the entire emissions globally.

➔ Sustainability is an important concern for the airlines companies just like the other businesses across the world.

➔ Delta also takes its environmental responsibility seriously and has made improvements across its operations both on the ground and in the air.

➔ Delta has started several initiatives across its operations to cut down on its CO2 emissions.

➔ Delta has managed their environmental impact better by achieving higher customer loyalty and also grown a larger customer base compared to competitors

➔ Delta has invested in environmental initiatives. PESTLE

Legal.

➔ There are several legal risks and the airlines have to do their best to remain compliant. In 2017, Delta signed a settlement agreement to protect workers that operate baggage handling vehicles.

➔ These settlement agreements are highly effective tools used to ensure that the Delta is addressing the hazards that could kill the workers. Predisposition

➔ The coronavirus pandemic is ushering in a new era of air travel : Higher fares, fewer routes, preflight health checks and less free food. ➔ Since air travel is going to have higher fares, people will start looking for lower cost transportation services. ➔ Delta Air Lines wants to reach and cater to consumers that were in the business class passenger segment. ➔ By only aiming marketing at business class passengers, Delta had the opportunity to cater leisure passengers ➔ Delta has oldest fleets of any United States airline, with an average fleet age of 14.9 years, this means that they do not replace the aircraft very often. ➔ Since the aircraft is not replaced on a regular basis, Delta spends more towards fuel compared to other operators. ➔ Cheap flights can be found for now as airlines compete for a handful of passengers Secondary Research

➔ Airlines have been slashing seat capacity by more than 70% since January, according to analytics firm Cirium.

➔ There’s no knowing when people will be willing to pack into enclosed cabin spaces again, though an International Air Transport. Association survey found 40% of recent travelers anticipated waiting at least six months after the virus is contained before flying again.

➔ Configurations are likely to change as carriers try to squeeze more money from customers. Some will upgrade premium cabins while their fleets are grounded, resulting in an even starker difference between higher-class sections and ever more spartan economy seating.

➔ The virus has led to a ballooning of remote video-conferencing, which could prompt a reassessment of the need to fly at all, according to UBS Group AG. Insights

A seismic shift is underway. Most operators plans to retire aircraft. People are anticipating to wait for at least six Delta Air Lines management thinks the carrier 1 months after the virus is contained before flying 2 has more aircraft than it needs for the recovery again. from the novel coronavirus pandemic

Cabins Post-Fever Main source of revenue

Configurations are likely to change : Airlines will Delta Air Lines generates their main source of revenue 3 upgrade premium cabins while their fleets are through scheduled air transportation and cargo grounded. 4 services for general passengers, professionals and commercial customers.

Ballooning of remote video-conferencing Time consuming health check-ups 5 The virus has led to prompt of re-assessing the 6 Travelers are going to be subject to tests like need of flying at the first place. temperature checks, or they may even need health certificates to fly. 3 Design

➔ Preliminary design concept ➔ Ideal design ➔ Strategic considerations ➔ Strategic design ➔ Triple bottom line Preliminary Concepts

Purchase more aircrafts Converting to Economic Configuration Since Delta's one of the oldest fleets of any United Convert the existing transatlantic routes to 1 States airline, it is the right time time to buy more 2 all economy configuration and fill in the low aircraft as there are available at lower rates. cost void that was created by the Norwegian air going under Provide more cargo services Since passenger demand is going to take time to 3 pick up, Delta could consider converting the flights into cargo planes with long range capacity ( which can target Asia) under current circumstance.

Ideal Design

To overcome seismic shift Since people are anticipating to wait for at least six months after the 1 virus is contained it would be good to plan towards keeping the middle seats empty, at least initially, to reassure customers about personal spacing. The cabin crew can have goggles, masks, gloves and protective gowns.

Purchase more aircrafts Since Delta's one of the oldest fleets of any United States airline, it is 2 the right time time to buy more aircraft as there are available at lower rates. Triple Bottom Line

People Profit Planet

By providing personal space to Cutting down the air fares to expand By buying new aircrafts, passengers and preventive measures the customer segment will provide Delta will be able to build a fleet that are 25% more for the employees would build a an additional source of revenue and sustainable than the existing positive emotion for people with Delta will be able to compete with fleet by using state-of-the-art respect to air travel. This enables budget friendly airlines and would A220 people to feel safer until the paranoia have competitive advantage over the fades away. Further purchasing more existing competitors. aircrafts would lead to increase in jobs which would be a great addition to the current situation. Strategic Design Goal Expanding the Cargo Services Since passenger demand is going to take time to pick up, Delta could convert the flights into cargo planes with long range capacity (which can target Asia) under current circumstance. How will this work?

Provide cargo services domestically Retaining older aircrafts Converting passenger aircrafts to Cargo Carriers and internationally

The purpose of buying newer aircrafts is to The purpose of buying newer aircrafts is to This would serve as a source of revenue until save fuel consumption. Since the fuel prices save fuel consumption. Since the fuel prices general passengers start their leisure travels. are already low, Delta airlines can retain the are already low, Delta airlines can retain the existing aircrafts. existing aircrafts. 1 2 3 So, how does it help?

➔ It creates a source of revenue for Delta to survive until general passengers are back to leisure/business air travel.

➔ Retaining older aircrafts saves money for Delta Airlines as they do not have to invest in huge amount to purchase newer aircraft.

➔ Since the fuel price is low and that is the most expensive resource when it comes to aircraft’s expenditure, Delta will be able to save some money. Strategic Design Goal Economic Configuration Since Delta Airlines has already grounded more than 25% of their aircrafts that belong to international routes, they can convert the existing transatlantic routes to economic configuration. How will this work?

Inclusive of widespread customer Business Class Economic Class segment

The current transatlantic routes are The transatlantic could be converted Being inclusive generates more passengers mostly configured for upper middle into Economic configurations for Delta Airlines. class or business class passengers.

1 2 3 So, how does it help?

➔ Since Delta’s customer segments are business and upper middle class travelers, having an economic configuration would generate more revenue by increasing the passengers.

➔ Norwegian air is one of the economic carrier and under the current situation Delta will have a competitive advantage. Strategic Balancing

➔ Even though it is a great time for Delta to upgrade or purchase new aircraft due to the recent price drop, it is essential to consider the situation for next few months ( about 6 months). People are paranoid to travel for at least about 6 months after the virus is contained.

➔ Considering passenger’s paranoia, even though Delta purchases new fleet, it will be unable to generate revenue through passengers.

➔ Hence, a more strategic way would be to take advantage of the price drop in jet fuel. As jet fuel is the most expensive resource for an aircraft, it would be better to run the existing aircrafts and save money spent on fuel.

➔ Adding to passengers paranoia, a more strategic way to continue the revenue flow would be through running cargo services. As it is hard to predict the outcome while the crisis is unfolding, running the cargo services would be a safe bet to generate revenue.

➔ Since Delta has already grounded their planes, it is the best time to convert them into economic configuration and strategically take advantage of the transatlantic route. Thank You! I loved designing the strategy!

Srividya Krishna Prasad