Delta Airlines’ Strategic Analysis

Company Overview

Business Overview

Delta Air Lines Inc. provides air transportation services both in the US and internationally, operating in two segments: Airline and Refinery. The company’s key locations are situated in core hubs, including Atlanta, Minneapolis-St. Paul, Detroit, and Salt Lake City. As for the international networks, Delta Air Lines’ key destinations include Amsterdam, London-Heathrow, Mexico City, Paris-Charles de Gaulle, and Seoul-Incheon. The key distribution channels include the official website, Fly Delta application, and online travel agencies.

Delta Air Lines is a US-based company that has been taking the leading position in the aviation industry in terms of revenues, fleet, and brand awareness. The competition in the industry is fierce, and the key competitors are JetBlue, American Airlines, United Airlines, Virgin America, AirTran Holding, and Continental Airlines. The company had the highest revenues (more than $35 billion) and profits before taxes (more than $5 billion) in the industry before the COVID-19 pandemic (Delta Air Lines, 2021). Delta’s fleet is estimated at 1,100 units (Yahoo Finance, 2021). The company’s market capitalisation is currently $25.43 billion (Yahoo Finance, 2021).

Strategic Overview

The company’s vision is to be the world’s most trusted airline, while its mission statement is:

We—Delta’s employees, customers, and community partners together form a force for positive local and global change, dedicated to bettering standards of living and the environment where we and our customers live and work” (Comparably, no date, para. 1).

The company’s values include honesty, integrity, respect, perseverance, and servant leadership (Comparably, no date). The company has no explicit mission statement.

External Analysis

PESTLE Analysis

PESTLE analysis is a frequently used frame that helps to analyse the external environment. The framework analyses political, economic, social, technological, legal, and environmental factors affecting an industry or a company. The primary benefit of the technique is that it provides strategic managers with a list of environmental influences that can be either a threat or an opportunity for the development of a company (Dalirazar and Sabzi, 2020). The present section aims at utilising the PESTLE framework to analyse Delta’s external environment.

Political Environment

As a global company that has thousands of destinations around the globe, Delta is affected by the stability of political connections between countries. For instance, the US-China trade war has a negative impact on two economies and decreases the number of connections between countries, which negatively affects the aviation industry (Liu and Woo, 2018). At the same time, the company is affected by international regulations that restrict travelling between countries. For instance, a recent ban of Sputnik V as a travel vaccine, along with several other vaccines, can negatively affect the international traffic of passengers (Ardila, 2021). Such a turn of events can negatively affect the company’s revenues.

Economic Environment

One of the central threats affecting Delta is the COVID-19 pandemic, as it reduces global demand for Disney’s key products (Delta Air Lines, 2021). At the same time, the rapid economic growth of developing countries and the economic rebound after the crisis are favourable factors affecting Delta (Wang, Jiang, and Zhan, 2019). Thus, there are both opportunities and threats from the economic environment.

Social Environment

The growing use of information technology is an opportunity for Delta, as it can be used for sales and marketing to increase the company’s revenues (Delta Air Lines, 2021). However, the growing concern for environmental sustainability may negatively affect the aviation industry, as Delta is one of the world’s largest fossil fuel consumers (Delta Air Lines, 2021).

Technological Environment

The fact that the company is making significant investments in fuel efficient aircrafts is an opportunity (Lupsha, 2020). Improved fuel efficiency is expected to reduce social tension and improve the profitability of the company. Additionally, as it was mentioned earlier, the growing use of information technology can help the company to utilise ne marketing and sales channels.

Legal Environment

The company operates in a strict legal environment such as FAA regulations, which is associated with significant expenditures, which is a threat (Delta Air Lines, 2021). At the same time, in 2020, the company received a grant through the CARES Act payroll support program, which is an opportunity to cover its employee costs (Delta Air Lines, 2021).

Environmental Factors

The company is pressured to reduce the environmental impact through regulations and social opinion, which is a significant threat to the company (Delta Air Lines, 2021).

Porter’s Five Forces

Porter’s Five Forces is another commonly used method to assess the company’s external environment. The analysis is provided in Table 1 below.

Table 1. Porter’s Five Forces.

Force Strength Details
Competitive rivalry Strong Delta operates in a highly competitive environment (Delta Air Lines, 2021). The company’s major competitors are JetBlue, American Airlines, United Airlines, Virgin America, AirTran Holding, and Continental Airlines.
Threat of substitution Medium The are several possible substitutions for domestic and international travelling, such as buses, trains, ships, and personal vehicles. While these methods can compete with air travel in terms of price and availability, they cannot do so in terms of speed.
Threat of new entrants Low Entering the aviation industry requires significant capital investments in assets and brand development as well as time to become competitive.
Bargaining power of buyers High Customers have numerous available travelling options. Additionally, customers can select one of Delta’s competitors.
Bargaining power of suppliers Medium The company is dependent on its suppliers of aircraft parts, fuel, and airports. However, Delta is a high-value customer for all the suppliers.

Internal Analysis

Strategy Review

Strategy review was conducted using the marketing capabilities model. The summary of findings is provided in Table 2 below.

Element S or W Insight
Market sensing and learning S

W

The company understand the growing demand for fuel efficiency and invests in R&D accordingly (Lupsha, 2021). Additionally, the company sensed the changes due to the COVID-19 pandemic and minimised costs due to careful aircraft management (Baldanza, 2021).
The company does not offer many low-cost opportunities even though the demand for cheap travelling is rising due to the pandemic.
Market targeting S The company targets corporate travel, which is a high-margin segment with low price sensitivity (Alumni, 2015).
Brand Positioning S The company positions the company as a trusted consumer brand rather than a transport expert, which allows it to find new revenue paths (Sumers, 2018)
CRM S Delta puts its customers first and differentiates its approach to customers (Delta Air Lines, 2021).
New Product Development S The company is currently working on using a new fuel-efficient fleet (Lupsha, 2021). Additionally, Delta focuses on providing a wide range of services in the future instead of transportation only (Baldanza, 2021).

The analysis revealed that the Delta has numerous strengths in terms of strategy. The company’s primary strength is its brand positioning and customer relations. However, the fact that Delta does not provide any low-cost options during the pandemic may be considered a weakness.

Functional Review

The functional review was conducted using the 7P framework. The results are provided in Table 3 below.

Table 3. Functional Review.

Product
  • Offers similar products to the competitors;
  • The company offers five different experiences: Delta One TM, First Class, Delta Comfort+ TM, Main Cabin and Basic Economy (MBA Skool, 2021).
Price
  • Highly diversified pricing strategy (Alumni, 2015)
Place
  • Delta has hubs in the majority of countries worldwide (Delta Air Lines, 2021)
  • The company has numerous joint ventures and strategic alliances that help to distribute the products (MBA Skool, 2021)
Promotion
  • The company uses advertisements on TV, radio, and online (MBA Skool, 2021);
  • The company effectively uses its loyalty program as a major promotion method (Delta Air Lines, 2021)
People
  • Delta is viewed as one of the top employers due to its effective relationships with its employees (Baldanza, 2021).
Process
  • The company puts emphasis on maintenance of the old fleet instead of racing for newer aircrafts (Baldanza, 2021);
  • Delta provides first-class customer service (Delta Air Lines, 2021).
Physical evidence
  • Clean and well-equipped aircrafts;
  • Business atmosphere.

The analysis revealed that the company’s key advantage is its people, global reach, and diversification of pricing and experiences.

Financial Analysis

The COVID-19 pandemic a had negative impact on the financial performance of the company. In particular, the company had to declare a $12.4 billion net loss (Delta Air Lines, 2021). Additionally, Delta had to increase its level of financial leverage to attract funds for covering its current expenses (Delta Air Lines, 2021). The summary of financial performance in selected data and ratio is provided in Table 3 below.

Table 3. Delta’s financial performance.

Selected Financial Data
2020 2019 2018
Total Revenue 17,095 47,007 44,438
Net Income -12,385 4,767 3,935
Total Assets 71,996 64,532 60,266
Total Labilities 70,462 49,174 46,579
Current Assets 17,404 8,249 6,340
Current Liabilities 15,927 20,204 18,578
Ratios
Net Profit Margin -0.72 0.10 0.09
Asset Turnover Ratio 0.24 0.73 0.74
Debt-to-Assets Ratio 0.98 0.76 0.77
Current Ratio 1.09 0.41 0.34

The ratio analysis demonstrates that the pandemic negatively affected Delta’s profitability (82% change), reduced asset use efficiency (49% change), and increased the level of financial leverage (22% change). However, the company’s liquidity increased significantly, as the company was forced to increase its current assets to pay off the current portions of debt. Before the pandemic, the company’s performance was relatively stable in all aspects.

Strategic Implications of the Analyses

The analysis of the company revealed that the company benefits from a wide variety of strengths, which help it to take the leading position in the industry. In particular, the company benefits from market sensing, adequate targeting, CRM, new product development, pricing, locations and destinations, customer centricity, and distribution. These strengths can be exploited to improve the company’s strategic position and increase profits. At the same time, Delta Air Lines has several significant weaknesses that cause key strategic issues. In particular, the analysis identified two significant problems that need to be addressed in the nearest future:

  1. The company suffered from significant financial problems due to the COVID-19 pandemic. The company had negative profitability in 2020, and the trend is expected to continue in 2021 (Yahoo Finance, 2021). As a result, Delta had to take on additional debt, which made the company susceptible to risks (Delta Air Lines, 2021). Therefore, the company needs to optimise its financial performance to ensure the sustainability and trust of the shareholders.
  2. Delta Air Lines needs to address the growing tension from society and the government to increase its fuel efficiency to decrease the level of environmental impact. Currently, the company uses a comparatively old fleet with average fuel efficiency (Baldanza. 2021). This strategy can negatively affect investor relationships and future growth.

Potential Alternatives and Strategy Recommendations

Potential Alternatives

Alternatives to Issue 1

Two possible approaches to resolving the issue of financial underperformance of the company were identified:

Alternative 1A

What: The company can engage in earnings management to improve the financial performance of the company to regain the trust of the shareholders.

How: Delta airline needs to assess possible alternatives of earnings management possibilities and employ the needed accounting judgement and real actions to improve financial performance.

Who: The process is to be conducted by the top accounting specialists in Delta.

When: This alternative needs to be implemented before the end of the reporting period.

Where: The alternative should be implemented in all departments of the company.

Alternative 1B

What: Delta Air Lines can start lobbying laws to gain financial support from the government in terms of payroll subsidies, tax holidays, or interest-free loans.

How: The company needs to hire an outside company that will research all the relevant laws and issues and influence the right people in the government.

Who: Lobbyists from outside companies will be implementing the alternative.

When: This alternative needs to be implemented before the end of the reporting period.

Where: The alternative should be implemented in the US government and state governments.

Alternatives to Issue 2

Two possible ways of resolving the problem associated with increased pressure due to environmental concerns.

Alternative 2A

What: The company can take immediate action to renew the current fleet to increase fuel efficiency and decrease environmental impact.

How: The company can issue additional equity or debt, sell old aeroplanes, and buy the latest jets with high fuel efficiency

Who: The process will be conducted by the company’s top managers.

When: This alternative needs to be implemented as soon as possible to decrease the tension.

Where: The alternative should be implemented in all geographical locations.

Alternative 2B

What: The company can develop more fuel-efficient aircrafts and upgrade the current fleet when a breakthrough is achieved.

How: Delta needs to manage its funds to allocate more funds to research and development.

Who: Top members of the R&D team will be developing new engines or jets.

When: This alternative needs to be implemented at the earliest convenience.

Where: The central R&D department is to start the development of the new aircraft.

Recommendations

Alternative Selection

For the first issue, the company should seek Alternative 1A. Earnings management is a crucial practice that can help the company to meet shareholders’ expectations, manage the share prices, and convey private information. Real actions can help to improve the actual financial performance of the company by revising the asset use strategy or by decreasing costs. Accounting judgement can help to manipulate some figures in the annual report to make it look as the company was profitable, which will improve relationships with investors. Even though using accounting judgement may be associated with some risk of loss of trust, as it may be viewed as fraudulent, the risks appear to be minimal. While Alternative 1B is safer, it does not offer drastic improvement, and success is not guaranteed.

For the second issue, the company should follow Alternative 2B. Alternative 2A is associated with a more significant investment than Alternative 2B. Since Delta had to increase the level of its financial leverage due to the pandemic, it is unable to issue additional debt or equity without affecting the financial performance and trust of the shareholders. Additionally, following Alternative 2A would mean worsening Issue 1. Alternative 2B has a greater potential for success, as the company will be using the results of its own research rather than using the current technology. This will help Delta gain additional competitive, which is crucial in the highly competitive aviation industry.

Implementation Strategy

Assets Management

Delta needs to revise its current use of assets to sell underused or inefficient assets. This may include selling some fleet and subsidiaries. The selling of assets is expected to increase revenues, which will boost the company’s profitability and asset use efficiency. The increased revenues can be used to pay off some of the long-term debt to decrease the level of financial leverage. This will have a positive impact on the investors, and the share prices may start to grow. Additionally, the company can use accounting judgement to alter the losses due to impairment of goodwill. This will also help to demonstrate lower costs.

Investment in R&D

The company should invest some of the money from the sold assets into R&D to develop fuel-efficient aircrafts or engines. The best talents in the industry should be found and hired to ensure the success of the research.

Changes in Promotion

Delta Airlines will need to change its approach to promotion to feature sustainability as the key feature. Even though no actual changes in operations will be made immediately, the company will need to feature its investment in R&D and gradual transition to environmental sustainability. The company vision will need to change to include a message about environmental sustainability. Green may also need to be added to the corporate colour. Changes in the promotion can help to ensure short-term public and governmental trust.

Funding

If the funds from selling off assets will not be enough, the company may consider issuing equity. The improved financial performance and the new focus on environmental sustainability are expected to attract new investors, which will raise the stock price. Issuing new equity will help to control share price. Moreover, the investors will not be concerned with issuing new shares, as the share price will remain relatively stable due to improved financial performance.

Reference List

Alumni, S. (2015) Delta Airlines: Flying high in a competitive industry. Web.

Ardila, E. (2021) Sputnik V and other banned travel vaccines. Web.

Baldanza, B. (2021) Five reasons why Delta Airlines outperforms its three largest competitors. Web.

Comparably (no date) Delta Air Lines mission, vision & values. Web.

Dalirazar, S. and Sabzi, Z. (2020) ‘Strategic analysis of barriers and solutions to development of sustainable buildings using PESTLE technique’, International Journal of Construction Management, pp. 1-30. Web.

Delta Air Lines (2021) Annual report 2020. Web.

Liu, T., and Woo, W. T. (2018) ‘Understanding the US-China trade war’, China Economic Journal, 11(3), pp. 319-340.

Lupsha, J. (2020) Delta invests $1B in fighting climate change, including fuel-efficient planes. Web.

MBA Skool (2021) Delta Airlines Marketing Strategy & Marketing Mix (4Ps). Web.

Summers, B. (2018). Delta Air Lines Doesn’t Want to Be Pigeonholed as a Transport Company. Web.

Tran, Y. (2019) Challenges the airline industry faces at present (Doctoral dissertation). Web.

Wang, Q., Jiang, R., and Zhan, L. (2019) ‘Is decoupling economic growth from fuel consumption possible in developing countries? – A comparison of China and India’, Journal of Cleaner Production, 229, pp. 806-817.

Yahoo Finance (2021). Delta Air Lines Co. Web.

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