Value Chain Assessment Presentation Unit 5 Project John McGonegal GB 570 Managing the Value Chain Dr. Haenisch January 9, 2012

Delta Airlines Value Chain

Table of Contents Introduction Delta’s value chain analysis. Recommendations for waste reductions in value chain. Is Delta’s value chain effective? If Delta’s value chain is effective, then why is it? Recommendations for any potential changes. Summary

Delta Airlines History Delta Airlines has been in business for a very long time, with a successful track record of not only delivering passengers, but delivering freight as well. Rising fuel costs and decreased bookings have challenged Delta since 9/11/01. Delta has faced many challenges since 9/11/01, however has managed to retain its 3rd largest airline in the U.S. ranking. Delta’s value chain has directed them to many successes, while at the same time helping them to avoid many disasters. Delta has also made significant strides in becoming a well known international carrier.

Delta Airlines Value Chain “By developing a clear understanding of the demand chain processes that are involved in customer satisfaction and of the strategy decisions based upon this analysis, an optimal approach to both customer and stakeholder expectations can result.” (Walters & Rainbird, 2007). Delta has used many different methods to assess what their passenger base along with their potential passengers are looking for in an airline. Delta Airlines value chain has been very unique and opportunistic in identifying opportunities with their consumers, along with how they can lower their costs while still providing the same or better service.

Delta Airlines Value Chain “From December 1, 2010 until January 30, 2011 Delta has had an on time rating performance of 3.005 in comparison to Airtrans’s rating of 3.68 during the same time period. (Margolis, 2011). Delta had also been facing more complaints in flights being cancelled, baggage issues and overall customer complaints. Delta’s ratings had been dropping. The ratings scale was based on a total out of a possible 5. “A day of training can be beneficial, but for the culture to change, it must start at the core.” (Margolis, 2011). In order for Delta to overcome this they need to make sure that they are promoting the right behaviors to their employees.

Delta Airlines Innovations Delta Airlines value chain has also identified some areas that Delta may be able to fill a need for their passengers without adding a lot of additional costs. One of those innovations is codesharing. Codesharing is when an airlines offers flights to destinations that another airline will operate. This way, Delta can offer more destinations, without actually having to use more of their own resources. Delta came up with the concept of Codesharing. Codesharing is when, “for all bookings that one carrier markets and another airline operates the flights, the carriers split the revenues based on the terms of the agreement between the airlines.” (O’Neal, Jacob, Farmer, Martin, 2007).

Delta’s Value Chain Waste Delta Airlines value chain seems to have very little to no waste. Delta has been very effective in analyzing their passenger satisfaction, along with analyzing their market to see what changes need to be made in the customer service area. Delta’s value chain has also identified new areas of opportunity for them. Delta’s value chain identified that by using something like Codesharing, Delta could increase the amount of destinations without increasing their costs, in fact this would also improve their profit margin.

Delta’s Value Chain Effectiveness Delta Airlines value chain has been very effective. In maneuvering Delta through the challenges that they have faced, the value chain has been very effective. Delta’s challenges” 1. Raising fuel costs. 2. Reduced bookings for their flights. Delta has faced these challenges and still survived and remained a top airline in the U.S. whereas many airlines did not survive and ended up closing. Due to their challenges, “Delta airlines filed for Chapter 11 bankruptcy on September 15, 2005.” (Bateman and Westphal, 2011). Delta felt that they had no other choice but to file bankruptcy, mainly because of rising fuel costs.

Delta’s Value Chain Effectiveness Delta Airlines value chain was effective because it identified ways that Delta could do things to help them avoid their challenges. One of those ways, was codesharing, which was discussed earlier. Another way that Delta’s value chain identified for them to survive, was to merge with Northwest Airlines. Delta realized that the only way they would survive their challenges was to merge with another airline, Northwest Airlines. Even though Delta had cut their costs to a minimum, they realized they had to come up with another way to survive. They knew that even though they just came out of bankruptcy, they would not make it for more than a couple of years without merging with another airline. “Since the new airline will have a wide mix of aircraft, it can relocate its smaller aircraft to more rural locations.” (Kumar, 2008).

Delta’s Value Chain Effectiveness Delta’s value chain was very effective because it looked at its consumers, along with what it could do to cut costs but at the same time increase revenues. Delta’s value chain looked outside the box which gave them a competitive edge. By developing codesharing, then shortly after that purchasing Northwest Airlines, it helped them to survive and even continue to be in the top 3 airlines in the U.S. If Delta airlines would not have taken some risks in using codesharing and merging with Northwest Airlines, they would not have been around today. Merging with Northwest Airlines allowed Delta to pick up additional destinations, both domestic and international without adding any additional costs.

Delta Airlines Models These four models are the basic models that Delta used in order to attain their ranking in the top 3 airlines in the U.S. (Center for Information Systems Research, 2006).

Recommendations for Delta At this point, I do not have any recommendations for Delta Airlines. I do not have any recommendations for Delta Airlines because: They survived chapter 11 Bankruptcy in 2005. They survived a time when many airlines did not recover from bankruptcy. They merged with Northwest Airlines to help solve both airlines problems and become more profitable at the very beginning. They developed codesharing in order to give them more destinations with little additional cost. I do not have any recommendations for Delta Airlines because I feel that they have done a good job in obtaining their objectives. They have also managed to keep their competitive advantage over their competitors due to their value chain.

Summary Due to the fact that Delta airlines had a very good value chain, they were able to survive some of the worst of times and still come out on top. The value chain identified areas of opportunity that no other airlines had taken advantage of, which Delta took the risk and merged with Northwest Airlines.

Summary continued The merger made them more profitable the very first year. Without the merger, they would not have made it and the value chain had previously identified that. The value chain also helped them discover codesharing prior to them filing bankruptcy. This helped them achieve a little more profit during a time when they had cut all the costs they could possibly cut. Without Delta’s imaginitive value chain, they would not be the Delta Airlines they are today.

Reference Bateman, C.R. & Westphal, A.D. (2011). Investigating the presence of transfer pricing and its impact on U.S. airline mergers. Academy of Marketing Studies Journal. 15(1) Kumar, K. (2008). Delta-Northwest Airlines: A strategic merger. The ICFAI University Press. Margolis, S. (2011). Will training improve Delta Airlines customer service? Retrieved from: www.sheilamargolis.com/2011/12/06/will-training-improve-delta-airlines-customer-service.

Reference continued O’Neal, J.W., Jacob, M.S., Farmer, A.K. & Martin, K.G. (2007). Development of a codeshare flight-profitability system at delta airlines. Interfaces. 37(5). 436-444. Informs. Walters, D. & Rainbird M. (2007). Strategic operations management: a value chain approach. New York, NY. Palmgrave MacMillan.

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