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June 17, 2014

Research: Delta Airline

Introduction
Delta Airline (DAL)
The airline industry has very strong growth rate. Whitelegg (20000) found that this industry is associated with a large number of economic and social benefits.
Anthonay & Perrewe (2010) stated that C.E. Woolman, an agriculture extension agent was the founder of Delta Airlines. Although he was not a banker, venture capitalist or war pilot like many other airline's founders, he started his industry with a different style. He had a mission to treat people in a good manner and with equality.
Inin 1928, Woolman managed to purchase the Huff-Daland Dusters business with the financial aids of a group of business men. It was renamed as Delta Air Services. The first root service was from Dallas, Texas to Jackson, Mississippi. The company changed its name to Delta Airlines in 1945.
This company pays the employees well and provide inspiring services to the customers. Delta airline is leading behind many other competitors on the basis of its good quality of services and the good relationship with its employees.
Mission statement
The mission statement provides the basic idea about the performance and interests of a company. The mission statement of Delta Ail Line 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."
Delta Air lines (DAL Head Quarters):
The Head quarter of DAL is present in Atlanta, Georgia with the biggest hub on Hartsfield-Jackson International Airport.
Business cycles:
Global Airline industry program, (2011) found that the business cycles have a great impact on the airline industry. The DAL got its Fame on the basis of its positive impact by providing direct employments, creation of opportunities throughout travelling and hospitality.
Finance department
Implications of finance as a resource within a business make financial decisions based on financial information evaluate the financial performance of a business (Glynis D Morris, Sonia McKay, Andrea Oates, 2009).
Resource analysis
Kevin Rose,  Garrett Bjornstad, &Chris Packard, (2008) described the resource analysis for Delta Airlines in these terms:

·         Tangible:
There are many capital expenditures for an airline industry which are not limited to the airplanes only. Delta’s fleet is composed of 54% of current fleets. In the year 2006 Delta suffered from an enormous amount of capital depreciation, which was cut by $6 billion dollars the following year in 2007.
·         Intangibles:
In 2007 goodwill and other intangible assets accounted for 46% of total assets of Delta Airlines. The major source of intangible assets was from mainline passenger services.
International networks:
Delta is the largest air lines offering transatlantic flights to its customers in Europe, India and Israel Data monitor (2007). By having largest network it makes delta more Desirable and attractive. 
Major stock holders:
The major stock holders’ funds of Delta Air lines as mentioned by Delta airline Inc., 2013 are:
Name
Shares 
Held
% Total
Shares Held
25,000,000
2.92
16,796,424
1.96
12,360,734
1.44
Vanguard Total Stock Mkt Idx
11,842,430
1.38
10,048,000
1.17
8,486,900
0.99
7,800,000
0.91
7,312,027
0.85
5,412,092
0.63
5,588,846
0.65
CREF Stock
5,074,718
0.59
4,683,200
0.55
4,417,800
0.52



Institutions:
The major stockholder institutions of Delta are listed below:
Name
Shares
Held
% Total
Shares Held
Wellington Management Company, LLP
54,081,556
6.31
Vanguard Group, Inc.
44,322,634
5.18
Capital World Investors
42,128,357
4.92
Lansdowne Partners Limited Partnership
34,943,783
4.08
WAYZATA INVESTMENT PARTNERS LLC
34,247,453
4.00
Janus Capital Management LLC
31,713,302
3.70
Fidelity Management and Research Company
22,781,340
2.66
Odey Asset Management Group Ltd
13,546,145
1.58
Winslow Capital Management, LLC
13,356,217
1.56

Major competitors
There are some direct factors that effect to the airline business which include the labor, fuel costs and events and even seasons. The Delta Air lines is in direct competition with mainly four major competitors which includes, United airlines, American airlines, Continental airlines, and Northwest Airlines. All of these competitors display some similar characteristics that drove them to directly participate in air travel (both domestic and international).
Buyer pressure
Overall Delta Airlines provides a weak to moderate bragging power to its passengers. There are many factors involved in this which include:
1.      The cost incurred for switching one’s ticket from one airline to other is comparatively high.
2.      Customers are not allowed to negotiate on its ticket prices, so the ticket prices are fixed.
However, other than the comfort the main thing every customer is looking for is the low rates. There are many websites designed to help buyers to view the current rates of airline tickets of each airline, and Delta has introduced a well economical ticket prices for the customers.
o   Market growth
According to Boeing (2008) Market growth is initiated with the introduction of any new idea to the firm or organization. Delta introduced the idea of separate Check ins in a completely different and inspiring way in 1999. The kiosk concept decreased the pressure on regular ticket counter lines. It also reduced the associated staffing costs. The kiosk e ticket is identified as a disruptive form of market change.
The introduction of frequent flier program was initiated by Delta so that the flights from existing customers increased due to the draw of free flyer after attaining a certain mileage. It is a form of non-Disruptive change (Goliath - Business Knowledge on Demand, 2008).
o   Supplier power
The Boeing and Airbus are the major suppliers of the airline industry. These suppliers control about 92% of entire market of aircrafts designs and construction. Delta is looking forward for the possibility of vertical integration with Boeing and Airbus (News Blaze, 2008). 
o   Threats from substitutes
With increase in industrialization there is a rapid advancement of technology over the last 50 years. The airline industry has greater threats in its efficiencies in mode of transportation. The main modes as substitutes include the railways, ocean going, and motor vehicles. The main attraction to Airline is due to its speed and less time consumption.
o   Potential entrants
As the demand in the market is still very high the new entrants are a great threat to the existing airlines. When there will be any new entry of entrants in airline industry there will be fall down of the prices due to competition. So, in case of Delta although it is safe in market shares but it still has threats from new entities. One of this is Disney that wishes to expand from Florida to main stream.
o   Complementors
Complementary force means when a specific advantage or product enhancement is affecting overall demand from other product. The Delta can surly increase its customers by developing a safety standard that will require a safer technology and materials.
Financial analysis of Delta and competitors:
The financial data of Delta and it four competitors i.e. United, American, Northwest and continental shows that Delta Airlines is the low cost industry leader.
o   Net income
The table here shows the net income of each competitor. On average Delta is leading into a distinguish amount although it was far behind United and American in 2003.
Net Income(million US dollars)
2003
2004
2005
2006
2007
AVG.
United
2808
1,721
21,176
22,876
403
485
American
1,228
761
861
231
504
423
Delta
773
5,198
3,818
6,203
1,612
2,876
Continental
38
363
68
343
459
82
Northwest
248
862
2,533
2,835
2,093
778
Southwest
442
313
548
499
645
489
o   Return on assets ratio
ROA as defined by Investopedia, (2008) is “an indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings”.
The net asset ratio of Delta and its competitors as mentioned by Jason Baumwoll (2008) shows that on average Delta has ROA ratio of 0.14.
Data shows that in 2003, the ROA for Delta was third on number having a negative at amount of 0.06 which indicates that there was a terrible return on their assets.
 In 2004, Delta faced an extremely downfall that was of 0.22. but in 2005 they improved their returns and
In the following year, they were able to improve their return slightly but still were getting a negative return of 0.18 and ended third.
Once again they took another hit in 2006 on their return and ended in last place at a loss of 0.31. This was their worst return out of the five-year analysis. Finally, in 2007, they were able to have a positive return on their assets at 0.07 which indicates that the company was finally making earnings on their assets. In that year they ended second only to Northwest, who had a return of 0.11. 
ROA
2003
3004
2005
2006
2007
AVG.
United
0.26
0.08
1.06
1.02
0.02
0.07
American
0.08
0.03
0.03
0.01
0.02
0.02
Continental
0.01
0.03
0.01
0.03
0.04
0.01
Southwest
0.09
0.03
0.04
0.04
0.04
0.05
Delta
0.06)
0.22
0.18
0.31
0.07
0.14
Northwest
0.04
0.06
0.19
0.22
0.11
0.06

o   Debt To Equity Ratio:
The debt of equity is defined as “a high quality of debt / equity ratio generally means that a company has been aggressive in financing its growth with debt. This can result in volatile earnings as a result of the additional interest expense”.
Higher debt of equity is good for shareholders but this cost may outweigh the returns of company and it may become difficult for company to handle.
The comparison of Debt of Equity in different competitors of Delta
Debt to equity (M US $)
2003
3004
2005
2006
2007
AVG.
American
636.61
50.52
20.96
0.98
1.10
113.44
United
1.27
3.70
1.76
1.09
1.11
0.40
Continental
12.45
38.64
45.59
1.03
1.15
19.77
Delta
40.99
4.76
3.03
0.59
1.17
9.40
Northwest
8.04
5.55
3.32
0.62
1.43
2.97
South west
0.96
1.05
1.13
1.92
1.71
1.35

The results show that the debt of equity in 2003 was about 40.99 which put this industry far below in ranking. In a year there was quite a good improvement and this ratio raised to about 4.76 by this the company came 3rd in ranking. In 2007 the ratio was improved to a positive value of 1.17.
Company’s Current Financial Performance

Company financial report
The financial report of Delta Airline over the past few years shows that the company is improving in profitability Bloomberg Business Week, (2011).
Here the values show that in 2007 there was total revenue of 19,154 and it is increasing till 2010.
While the gross profit was about 4,074 in 2007 but in 2008 it decreased to 3,491 but fortunately it got good profit output in 2009 due to its good performance.
The operating income was 1,096 in 2007 but it got very low in 2008 due to installation and improvement in the internal environment. It got down to 83 but in 2007 it again raised to 2667. There was a tremendous fluctuation in the net incomes too. The net cash flow is rising steadily. It got a jump in 2008 but it declined to 1379 in 2009.
Table: adopted from Bloomberg Business week, (2011)
4rth quarter
2007
2008
2009
2010
Total revenue
19154
2269
28063
31755
Gross profit
4074
3491
4582
7333
Operating income
1096
113
83
2667
Net income
1612
8922
1237
593
Net cash flow
1359
1707
1379
1822

 

 

Table: Annual finances of Delta Air lines (DAL) adopted from Delta Air Lines Inc.

Fiscal year is January-December. All values USD millions.
2008
2009
2010
2011
2012
 Sales/Revenue
22.7B
28.06B
31.76B
35.18B
36.67B
Sales Growth
-
23.64%
13.16%
10.77%
4.25%
 Cost of Goods Sold (COGS) incl. D&A
20.94B
25.02B
25.62B
29.74B
30.56B
COGS excluding D&A
19.67B
23.48B
24.11B
28.22B
28.99B
Depreciation & Amortization Expense
1.27B
1.54B
1.51B
1.52B
1.57B
Depreciation
1.06B
1.44B
1.43B
1.45B
1.5B
Amortization of Intangibles
207M
97M
79M
70M
70M
COGS Growth
-
19.48%
2.41%
16.10%
2.73%
 Gross Income
1.76B
3.05B
6.14B
5.43B
6.12B
Gross Income Growth
-
73.17%
101.41%
-11.46%
12.57%
Gross Profit Margin
-
-
-
-
16.68%

According to The delta Airline Inc. there is a constantly increase in sales and revenues from 2008 till 2012. It is because of its competitive skills and a big supportive background. The sales growth was calculated in percentage and it shows that there is a decrease in sales growth. From 2009 till 2012 there is a big difference in the values of sales growth.
The other main mentionable value is about the Depreciation and Amortization Expense that are relatively constant value. There is very low fluctuation in it.
The gross income rate was very high in 2009 i.e. about 73.17% and in 2010 i.e. 101.46% but it decreased in 2011 and 2012.
The gross Profit Margin is calculated to be 16.68% for the year 2012.
Delta VS. Industry:
Liquidity risk arises when the firm is unable to purchase or sell a certain assets due to lack of sellers or buyers. This risk also arises when there is an excessive loss in relation to its real worth in transaction on a market
If we compare the performance of Delta with industry than we find out that the liquidity ratio of Delta is 0.75 while that of industry is 1.42.


Delta
Industry
Liquidity Ratios
Current Ratio:
0.75
1.42
Quick Ratio:
0.53
1.19
Debt/Equity
16.33
2.1
Asset Management Ratios
Inventory Turnover
65.85
42.5
Asset Turnover:
0.53
0.83
Efficiency Ratios
Rev/ Emp
   177,737.00
          188,899.00
Profitability Ratios
Profit Margin:
-5.81%
4.94%
Return on Equity:
-121.90%
12.04%

The asset management ratio for inventory turnover of Delta was calculated to be 65.85 whereas that of industry is 42.5. It shows that Delta is leading industry.
The asset turn over for Delta was 0.53 where as that of industry is 0.83.
The margin profit for Delta is calculated in negative as compared to that of total industry which is 4.94%. It shows that comparatively Delta is far behind industry.
SWOT Analysis:
SWOT analysis is carried out to find out the strengths, weakness, opportunities and threats to an organization or department. Todd Beals, Matt Tucker, and Mary Vick, (2010) carried out The SWOT Analysis of Delta Airlines. They found the following Strengths, weaknesses, opportunities and threats:
Strengths:
Strength means what are the main factors by which an organization or any department is getting stronger or benefit. These are the positives aspects of an industry. The strengths of Delta Airlines are listed below:
·         Delta is the third largest Carrier center that is working on basis of equality for all.
·         Delta has innovative strategic business moves. Which includes:
1.      Song
2.      Sky team alliance
3.      Comair and Atlantic Southeast Airlines
·         Self-leading airport models, for example kiosk check-in, and lobby redesigning.
Weaknesses:
Weaknesses are the negative aspects of an industry or organization which threaten the progress and act as hurdles. In weakness there are two main factors one is that weakness is by internal forces like poor management, improper skills, physical or technical issues. There are many weaknesses due to the internal environment of the Delta. These include:
·         Labours expense:
       I.            It includes the wages and pays and other allowances provided to the workers. Delta is ranked highest in labour an expense that is about 40%.
    II.            Market share, loans and pressure of stockholders, and load factor.
 III.            The stock price is relatively lower since Sep., 2011.
Opportunities:
Opportunities mean how Delta airlines can improve its performance and finance income and create more attraction in customers.
       I.            Regional jet coverage
    II.            Online reservation service
 III.            Customer service initiative
Threats:
Threats are from the other sources outside the company that can influence the performance, efficiency and output of any organization.  The main threats to Delta Airlines are listed below:


       I.            Various increased costs:
This was mainly due to taxation, billing and security and terrorism risk management.
    II.            Global Airline Industry Globe:
When there is a sudden decline in Global Airline industry than it affects all stockholders and companies under it. In Delta Airline there were losses of about $13 billion in 2002 and $18 billion in 2001.
 III.            Competitors:
There is always an influence of competitors. In case of Delta Airlines there are mainly four competitors who are United, American, continental and northwest.
Summary:
Delta air line is one of the most economical airlines who are in the highest rank. Although the start of this company was not like other companies initiated but it is gained popularity and fame in a short period of time. The first two major stockholders who provide funds are American Funds, and Janus Overseas D, while the institutes that provide finance are Wellington Management Company, LLP, Vanguard Group, Inc. among many others. The financial analysis of overall performance of Delta shows that it is leading its competitors that are united, American, Continental and northeast. For more profits and to increase the customers it should carry out the safety risk assessments of the airlines, and develop a stronger strategy.





References
W., Kacmar, K., & Perrewe, P. (2010), Human Resource Management: A Strategic Approach. Madison, OH: Cengage Learning.
 Whitelegg, J. (2000).The Social, Economic and Environmental Impact of Flying”. Retrieved February 15, 2011, from Google.com. Available at:  www.us-caw.org/pdf/air10.pdf.
Global Airline Industry Program. (2011). Retrieved February 6, 2011, from Massachusetts Institute of Technology:http://web.mit.edu/airlines/analysis/analysis_airline_industry.html
Boeing, (2008). “About Us – Culture”. Available at http://boeing.com/aboutus/culture/index.html 
Goliath, (2008).  "Creative destruction and globalization," - Business Knowledge on Demand, retrived on 1 January 2008. Available at http://goliath.ecnext.com/coms2/gi_0199-3894486/Creative-destruction-and-globalization.html

Glynis, Sonia, & Andrea, (2009),Chapter 24 – Sources of Finance”, Finance Director's Handbook (Fifth Edition), 2009, pp. 873–889.

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