Delta Airlines: Route Structure and Product Alternatives

History: Economic, Structural, and Competitive Characteristics 

Delta is the major airline operators in the United States, operating more than 5400 flights daily together with its subsidiaries (Gay, 2016). Delta was founded in 1924 by C.E Woolman as an agricultural commercial agriculture flying company in Macon, Georgia as Huff Dalands. The airline began its service to Atlanta in 1930 but was suspended from passenger service because it lacked mail contract. The passenger service resumed in 1934 after the airline received an airmail route. The airline started regularly scheduled cargo services in 1946, and totaled 644 available seats in 1947 and won a National Safety Award for having a zero fatality rate after a 1.5 billion passenger miles. 

Delta Airlines had its first international route in 1953, after Chicago and Southern Air Lines merged, and then pioneered using a hub and spoke system in 1955. Northeast Air Line merged with Delta in 1972, and became the major New York and Boston carrier, and began operating Boeing 727. The airline pioneered offering own air express service in 1975 (Gay, 2016) . 

The airline began trans-Atlantic services in 1978, after passing of the airline deregulation act. Delta marked 50-years of service in 1979 and pioneered boarding a million customers in one city in a single month. The airline fiercely increased services and routes and applied technology to develop a computer reservation system in 1980 and established a Frequent Flyer Program in 1981. Delta experienced a financial crisis in 1982, and employees raised money to buy the first Boeing 767. The airline became the 5 th largest global carrier and the 4 th in the United States after it merged with Western Airlines in 1987. The first company’s trans-Pacific service also began in 1987 and opened operations in Asia in 1988. 

Delta became a global carrier in the 1990s and began offering MD-11 jet services in the United States. The airline formed the World-span travel information system by combining with the Northwest and TWA combine reservation systems. Delta also participated in the Civil Reserve Air Fleet, carrying military and passenger cargo from 1990 to 1991 during the Desert Storm/Desert Shield. 

The Boeing 727, labeled the “The Spirit of Delta” was dedicated and painted in an Olympic color scheme in 1995, and became the first United States’ airline to ban smoking voluntarily in flights. Delta also unveiled another MD-11 jet in 1996 to transport the Olympic Flame to Los Angeles from Greece and Athens for Olympic Games in 1996. Customers would purchase tickets and make reservations through the airline’s website. Delta also began subsidized fare airline express services from Orlando. Delta forged the first international cargo alliance with SwissCargo in 1998 and pioneered automatic defibrillators installation aircraft boards. The airline also launched SkyTeam, as a global alliance in 2000 to partner with Korean, Aero-Mexico, and France air (Gay, 2016) . 

Delta Airline suffered economically in 2001, after the United States’ 2-days airspace closure because of the September 11 th terrorist attacks. The airline had another chance in 2001 to carry Olympic Flame for the 2002 Olympic Torch Relay to Salt Lake City. The airline brought to its customers through technological advancement using expanded gate information systems, kiosks at check-ins, and virtual check-ins on delta.com. The airline launched a unique low-cost subsidiary airline, Song® in 2003 and also became the first airline to introduce new models for passenger check-in such as new strategies to improve traffic flow, lobby redesign, lobby assist agents, and expanded kiosk use. The airline implemented the largest domestic code-share alliance with Northwest and Continental in 2003, and also became the first airline in the United States to provide prerecorded audio flight information at the gate. 

The airline had the most destinations in 2006, with 41 destinations and 124 nonstop routes. The airline created a global network with major operations in 2008 by acquiring Northwest airline. Delta focused on improving the consumer experience in 2010 and announced a product upgrade through 2013 by investing more than $2 billion (Gay, 2016) . The plan included adding first-class seat capacity on domestic mainline flights, installation of new personal and full-flat beds, and renovation and the addition of new Delta Sky Clubs. The airline currently operates more than 5400 flights on a daily basis, serving an extensive international and domestic network that includes 319 destinations in 54 countries globally. 

Route Structure and Product Alternatives 

Delta Airways is one of the major airlines in the United States flying to 318 destinations on the six continents. Delta airline operates in two segments such as Airlines and refinery. The company has other businesses such as aircraft maintenance, private jet operations, repair and overhaul, vocation wholesale operations, and staffing and other services. The airline segment is responsible for passenger and cargo services, both domestically and internationally, and also includes repair and maintenance of third party aircraft served by Delta. 

The airline on daily basis operates 764 aircraft with an approximate 4804 flights. Delta Airways carrier’s route network is mainly on hubs system, international gateways, and airports where the airline operate (McKenna, 2018) . The key operating hubs are located in Atlanta, Amsterdam, Detroit, Salt Lake City, Cincinnati, and Minneapolis-St. Paul, among others. Delta airlines have hugely invested in export facilities, technology, and worldwide products and services to improve customer experience ( Bush, 2016) . 

The refinery segment, on the other hand, deals with the production and refining of jet fuel. The segment focuses on providing jet fuel to all aircraft in Delta Airways at convenient amounts than outsourcing and sells the jet fuel to third parties at a profit. The refinery segments are found in Pennsylvania and Philadelphia, where the assets and the refinery are located. 

Cost and Benefit 

The operating revenue for Delta Airways airline segment was $ 37,773 for 2013. The operating income was $ 3516, interest expense $ 698, and depreciation and amortization $ 1641. The total assets at the end of the period were $ 51080, and capital expenditure of $ 2516. In 12017, Delta’s operating revenue was $10.2 billion, up by 8.3% when compared by 2016, while the total unit sales increased by 4.4%. The passenger revenue increased by $527 million, revenue passenger revenue increased by 4.2% and the cargo revenue increased 14.4% because of the high volumes and yields (DAL, 2018). 

The operating revenue for the refinery segment in 2013 was $ 7003, operating income $ 116, and depreciation and amortization of $17. The total assets at the end of the period were $1172 and a capital expenditure of $ 52 (Bush, 2016) . The intersegment sales to airline segment ware $1156 with a $5238 exchanged products and $ 495 sales of refined products and third parties. The consolidated operating revenue was $ 37773, operating income $3400, interest expenses $698, depreciation and amortization $1658, total assets $52252, and capital expenditures $2568 (Bush, 2016) . 

Achieving Product Differentiation 

Delta Airlines achieve product differentiation by focusing on customer relations and amenities. The organization utilized the belief that Delta is a family and incorporates consumers as part of it. Delta Airlines builds customer satisfaction by utilizing the most efficient and innovative technology and luxurious amenities to ensure consistency in high commercial airline services. 

The customers are provided with the best amenities possible, and the organization keeps prices low and comparable to other airline providers. The goals of Delta Airways are to make their customers comfortable, keep their employees happy, and make the world a better place. The organization achieves product differentiation by focusing on quality and satisfaction, rather than being a cost in the bottom-line company. 

Airline Departments 

The airline departments at Delta Airlines are responsible for planning, development, execution, and flight operations. The departments are made up of operational, maintenance, and sales and marketing. 

Operations Department 

The operations department is entitled to operate the airline's fleet of aircraft in a safe and efficient way. The department is involved in scheduling the aircraft and flight crews as well as developing and administering rules and regulations necessary to meet the operation requirements of the Federal Aviation Administration and maintain safety. The department is also responsible for training flight crews, and establishing operating procedures to ensure flight safety (Jobs, 2018). 

Maintenance Department 

The maintenance department is responsible for keeping planes in excellent condition. The maintenance programs ensure passenger comfort, keep aircraft in a safe and working condition, and preserve the airlines’ valuable assets. Large spare parts supply is stocked in the airline’s hub for routine maintenance. Maintenance stations at airports perform extensive operations. 

Sales and Marketing 

The sales and marketing department is responsible for scheduling, pricing, reservation and customer service, advertising, and ticket and cargo sales among others (Jobs, 2018) . The department advertises schedules and fares using sophisticated computer reservation systems to travel agents and monitor competitor’s fares and schedules as well. The airline prices frequently change in response to demand and supply and variation in competitor’s prices. 

Reservation and Ticketing 

The department provides electronic ticketing services to domestic and international air travel. The electronic ticketing is essential in allowing the airline in the documentation of sales and tracking of transportation usage. The department monitors the check-in procedures to enhance customer satisfaction (Jobs, 2018) . 

Staff Personnel 

The staff personnel department includes specialists in various departments such as accounting, law, public relations, and finance. The personnel is responsible for supporting the operations of the line personnel to ensure airline efficiency and profit maximization. The staff personnel falls into categories such as public relation and planning, legal, medical, finance and property, personnel, and information services (Jobs, 2018) . 

Delta Airlines’ Cost Structure 

Delta Airline operating expenses are dominated by fuel costs and salaries and profit sharing agreement policies. The company has lower fuel costs those other airlines because of its refinery segment. However, it still suffers from the sudden volatility in crude prices. The company has more than 78000 full-time employees. The airline industry is hugely unionized, but Delta airlines are not. Labor unions have a high bargaining power and high costs are involved by strikes disrupting operations. Delta Airlines also spends on depreciation and amortization, restructuring charges, aircraft maintenance, and landing fees. 

The nature of fixed, variable, and controllable costs 

The fixed costs include insurance such as single limit liability and hull and hangar rental. The cost is also inclusive of miscellaneous overhead such as weather services, recurrent training, refurbishing, asset modernization, and computerized maintenance management programs. Depreciation is also a component of fixed costs in the airline industry. 

The variable cost in Delta airlines exists in aircraft maintenance. The cost of maintaining new aircraft is generally lower compared to old ones. The variable cost varies depending on aircraft usage and include all the operating cost elements, except insurance, rentals, and depreciation. Variable cost categories include fuel and oil, maintenance cost such as engine restoration and maintenance labor, and crew salaries. 

All costs vary over time, and strategic decisions are taken to determine which costs may be controllable. Such strategies include aggressive renegotiation of contracts and hedging instruments, outsourcing, and changing accounting policies. Controllable costs are realized after staff replacement to increase efficiency and working overtime. The costs are also controlled by allocating the indirect route, flying through routes and airports more economically, and avoiding unprofitable routes ( Horder, 2013). 

Obtaining Sustainable Competitive Cost Advantages 

Delta Airlines consistently outperforms competitors through best-in-class service, in-flight perks, and reward programs (Norman, 2017) . The company ensures customer satisfaction and reward strategies through product differentiation throughout the travel experience. The company strives to deliver a superior customer experience in all categories such as check-in, boarding, aircraft conditions, flight crew, and overall cost. 

The company employs an employee retention and reward strategy. The company has a record of high employee morale and loyalty. The company’s employees are kept motivated and satisfied because the airline industry is highly labor-intensive. The company’s employee retaining strategy involves compensating personnel above average and keeping communication open, as compared to competitor's union-run airlines. 

Delta Airlines also obtains a competitive advantage over other carriers through marketing and promotion strategies (Norman, 2017) . The company has invested extensively in the internet marketing and builds employee’s own grassroots campaign by launching websites that feature petitions and other means of consumer engagement. The airline realized the use of TV and billboard advertising is outdated and opted to use more innovative channels with rich information to reach today's digital consumers. 

Revenue Management Method 

Delta airlines manage revenue using a crosses revenue management system. The strategy incorporates the use of market-based pricing instead of basing the cost on pricing. Supply and demand are balanced by price by the company attracting price-sensitive consumers to off-peak days and charging peak-day consumers more. The company earns profits from perishable opportunities and products using innovative pricing strategies and using price to fill its empty seats from competitor's flights. Price differentiation in Delta airlines is used to rectify capital shortages from the seasonal demand peaks. 

Delta airlines relate to other airlines in revenue management by establishing a plan for competitive fares and regulations limiting dilution and revenue management and maximizing revenue for those fares. The company ensures accountability by use of sophisticated statistical metrics highlighting analyst value-add. Delta airlines also provide ongoing revenue management improvement through research and development. 

Reference 

Bush, E. (2016). Delta Air Lines: A Financial Analysis and Corresponding Recommendations for Delta Air Lines, Inc (Doctoral dissertation, The University of Mississippi). 

DELTA AIR LINES INC (DAL) 10K Annual Reports & 10Q SEC Filings. (2018). Retrieved from https://www.last10k.com/sec-filings/dal 

Gay, C. (2016). Timeline of the airline. Retrieved from https://news.delta.com/timeline-airline 

Horder, P. (2013). Airline operating costs. Managing aircraft maintenance costs conference, Brussels . 

Jobs, A. (2018). Structure of the Airline Industry. Retrieved from https://www.avjobs.com/history/structure-of-the-airline-industry.asp 

McKenna, E. (2018). Delta Airlines: A Strategic Analysis. 

Norman, S. (2017). Delta Airlines, Inc. (DAL). Retrieved from https://tippie.uiowa.edu/sites/tippie.uiowa.edu/files/documents/krause_delta