DELTA AIRLINES: A SWOT ANALYSIS 2020
Delta is one of the leading airlines based in the United States with operations across the US and 50 more countries. Delta operates a hub and spoke model. The headquarters of Delta Airlines is in Atlanta, Georgia. In 2018, Delta carried more than 152 million passengers according to the department of transportation. However, Delta’s business is among the most profitable ones in the entire US airline industry. It enjoys strong profit margins and has also entered into joint ventures with several other international airline brands.
Delta has an industry-leading network of flight services which covers more than 300 destinations across 50 countries. The operating revenue of Delta grew to higher than $44 billion in 2018. Founded in 1952, Delta has grown into one of the industry-leading airline services of the world. The airline company offers more than 5000 daily departures as well as more than 15,000 affiliated daily departures. The US airline industry is marked by heavy competition. However, Delta has still achieved a strong competitive advantage which has helped it sustain its growth momentum with ease. The company has a large fleet of 871 operating aircraft.
|Company Name||Delta Airlines|
|Industry||US Aviation Industry|
|Net Revenue 2018||$44.44 billion|
|Net Income 2018||$3.94 billion|
|Leading Competitors||Southwest, American, United, JetBlue, Skywest, Alaska, Republic, Spirit, Frontier.|
Read more about Delta Airlines and its profitable business model in this SWOT analysis.
Leading position in the US and global airline industry:
Delta is one of the largest players in the global and the US airline industry. It is also one of the leading US airline brands with the strongest profit margins. As a leading player in the US airline industry, Delta has maintained a strong competitive position based on operational reliability as well as customer service and technology. According to the DoT data, in 2018 Delta Airlines carried more than 152 million passengers (enplaned passengers). Its large global network covers more than 350 destinations across 50 countries. While the US airline industry has grown highly competitive and the rise of the ULCCs has added to the price competition, Delta has proved itself one of the strongest and most reliable airline companies in the United States.
One of the leading competitive strengths of Delta is its large industry-leading fleet of 871 operating aircraft. As of 31 December 2018, Delta owned 675 aircraft and leased 196 aircraft. Apart from that the regional carriers also operate aircraft fleet on behalf of Delta airlines. Regional carriers together operate 445 aircraft on behalf of Delta. Skywest alone operated a fleet of 189 aircraft on behalf of Delta airlines as of December 31, 2018. Endeavor air also operated a fleet of 154 aircraft on behalf of Delta. Delta has also committed to buying more than 330 aircraft during the period from 2019 and 2021 onwards of which it will have completed the purchase of around 220 aircraft by 2021. (Annual Report, 2018).
As a leading player in the United States aviation industry, Delta enjoys one of the highest profit margins. Both Delta and Southwest are the leading players in this regard. Delta’s business model has proved highly profitable which means in the event of a price war, Delta’s business may remain largely unaffected. In 2017, Delta generated the highest passenger ticket revenue beating United and American Airlines. It was also leading the seat profit margin of 11%. Overall, the competitive position of Delta airlines in a highly challenging and competitive industry is quite strong.
To expand its international route network and serve its international customers better Delta has partnered with several international players. The international alliances of Delta airlines are a significant part of the company’s business since they offer the company access to more international markets and allow the company to market globally integrated airline services. The most important ones among the international alliances are its joint ventures with the other leading international airlines. Delta has entered into five joint ventures, each of which has won antitrust immunity from the US Department of transportation. The foreign companies with which Delta has entered into joint ventures include Virgin Atlantic, Air France, and KLM, Aeromexico, Virgin Australia, and Korean Airlines. Apart from that Delta also entered a joint venture with WestJet with respect to trans-border routes between the U.S. and Canada.
Large route network:-
Delta transports passengers and cargo around the world. Its large route network covers more than 300 destinations across 50 countries. The company has its headquarters in Atlanta, Georgia and offers more than 5000 daily departures as well as more than 15,000 daily departures including the premier Sky-Team Alliance. To expand its services and number of destinations around the world, the company has formed innovative alliances with several players globally which include Aeromexico, Air France-KLM, Alitalia, China Eastern, GOL, Korean Air, Virgin Atlantic, Virgin Australia, and WestJet. The company has brought more choices and competition to its customers worldwide. The operational model of Delta is centered around some key hubs including Amsterdam, Atlanta, Boston, Detroit, London-Heathrow, Los Angeles, Mexico City, Minneapolis/St. Paul, New York-JFK and LaGuardia, Paris-Charles de Gaulle, Salt Lake City, São Paulo, Seattle, Seoul-Incheon and Tokyo. With its joint venture partners, the company serves 661 destinations across 127 countries.
Strong brand image:
Delta has built a strong brand image based on operational reliability as well as customer service. Apart from that, the company has also built a strong reputation in terms of employee satisfaction. Apart from being recognized as the most admired airline for the ninth time in 2019, the company was also named one of the 50 most admired companies. In various other areas too, the company has built strong recognition including HR management and innovation. The company was named among Fast Company’s Most Innovative Companies Worldwide for two consecutive years. A strong brand image helps enhance credibility and sustain the market position. Delta has also received the honor of being named one of the best workplaces for women by Glassdoor. The company also invests in CSR and the communities where it operates to maintain a strong social image.
As airlines grow, they tend to accumulate a lot of long term debt. However, Delta has been careful in this regard. One main factor that has helped Delta avoid crippling debt is the abundant cash flow from operations. Major rating agencies have granted Delta the ‘investment grade’ label which is something that makes other airlines feel envious. Over the last 12 months, Delta generated $8.5 billion in cash flow from operations. According to the Chief Financial Officer of Delta Paul Jacobson, the investment-grade balance sheet of the company remains an important source of competitive advantage for it. In terms of adding leverage to its balance sheet, the company has remained careful as its financial debt to equity raion has remained in the safe zone of 20 to 30% over the past 5 years.
Over-reliant on the North American market:
Delta’s main playground is in the North American region. While the airline network serves destinations in other regions around the world too, the main focus of the company is the North American market. However, that also leaves Delta vulnerable to economic, political and social changes in the region. Expanding flights to other leading hubs in emerging economies and Europe could also help it gain market share but Delta is stuck mainly in North America.
Emerging Problems with Airbus A220 models:
Delta’s fleet has a significant number of A220s. While the company has steered clear of the Boeing 737 Max controversy, some problems have come to light with A220 engines. Recently, Swiss International Airlines was forced to ground its entire fleet of A220s which was because one of these planes had to make an emergency landing while on its way to Geneva. After problems were noticed with the A220 turbofan engines, FAA (Federal Aviation Administration) updated the inspection requirements for the planes. According to a 2019 Bloomberg article, the FAA has quoted that the affected engines must not be operated without initial and repetitive inspection of low-pressure compressor rotors and termed it an urgent safety issue. The malfunctions on Pratt & Whittney geared turbofan engines had caused several inflight shutdowns. Unless Delta forms an effective strategy to deal with the issue, problems could erupt as a surprise as in the Boeing 737 Max case. Despite the directions from the FAA regarding the operation and maintenance of A220s, this is a security risk and Delta would need to form its own strategy to avoid any disruption.
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Growing air travel demand:
While the US economy has performed well during 2018 and 19, the demand for air travel has also grown which is profitable for Delta and other leading airline services based in the United States. The United States is the leading market where Delta operates and the performance of the domestic economy has a direct impact on air travel demand. In 2018, the US airlines carried a record 889 million passengers, 20% higher than five years ago. The demand is expected to sustain in the coming years and will prove profitable for airlines including Delta. To sustain its growth momentum Delta focuses on operational efficiency as well as customer service. Booming air travel demand in the US has also been followed by reduced flight costs and increased investment in technologies that help airlines serve their customers better.
Digital technology has created several new opportunities for airline companies and marketing and customer service are two important areas where airline services like Delta can benefit the most from higher investment in digital technology. The company is investing more in digital technology to achieve its plan of digital transformation for higher customer satisfaction. In the longer term, Delta wants to build a stronger competitive advantage by investing in technology to support its operational efficiency and grow employee productivity. Apart from innovative customer service, the focus of Delta is to improve access to data at all touchpoints. Investing in digital technology will also help the company maximize customer satisfaction as well as drive higher customer and employee engagement.
The Millennial generation offers the largest growth opportunities for airline companies. The number of millennial air travelers is the highest of all the generations. According to Statista, millennials are the leading spenders on air travel of all generations in 2020 and they will continue to remain the largest customer segment till at least 2035. By 2025, there share in air travel expenditure will be more than 50% of the total. Delta needs to tailor its services and support to serve the millennial customers more efficiently. The share of Gen Z will also grow post-2025 but till 2030, the substantial focus of airline companies will remain on the millennial generation.
Growing competition in the airline industry is a leading threat before Delta Airlines. Some of the leading competitors of Delta include Southwest, American and United Airlines. The size of competition has also grown with the entry of ULCCs or Ultra-low-cost carriers. Apart from the price-related competition, companies are also competing in terms of operational efficiency and reliability as well as customer service. The focus of Delta is on both and the company is investing in digital technology to improve its level of service. However, increased competition is adding to operating costs of airline companies like Delta Airlines including costs of customer acquisition.
High level of regulation and tax burden:
The level of regulation of the airline industry is very high. Even after deregulation, the level of regulation and the tax-related burden is higher in the airline industry. These companies have repeatedly complained of aggressive regulation by the Department of Transportation and other regulatory agencies. Taxes are also higher in the airline industry. Delta’s financial position is strong but regulation and taxes can lead to higher operating costs as well as reduced profit margins.
Rising operating expenses:
The operating expenses of Delta have continued rising year on year which is due to several factors including higher costs of fuel and other raw material as well as labor. In 2018, fuel expenses became 23% of the company’s overall operating expenses compared to 19.2% in 2017. After 2014, the operating expenses of Delta Airlines had reduced but rose again fast. In 2018, Delta’s operating expenses reached $39.2 billion compared to $35.2 billion in 2017. Due to higher investment in technology, fuel, and labor, the operating expenses of Delta airlines are expected to get higher in the future.
Delta Annual Report 2018. (https://ir.delta.com/financials/default.aspx)
|CITE THIS ARTICLE|
|APA.||Pratap, A. (2020, January 19). A SWOT Analysis of Delta Airlines: Leading Strengths and Weaknesses. Retrieved from https://notesmatic.com/2020/01/a-swot-analysis-of-delta-airlines-leading-strengths-and-weaknesses/|
|MLA.||Pratap, Abhijeet. “A SWOT Analysis of Delta Airlines: Leading Strengths and Weaknesses.” Notesmatic, 19 Jan. 2020, notesmatic.com/2020/01/a-swot-analysis-of-delta-airlines-leading-strengths-and-weaknesses/.|