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Delta Air Lines Inc. (DAL)Stock (Airlines Industry, Transportation Industry)
This article is about the airline. For other uses, see Delta (disambiguation).  Delta Air Lines (NYSE:DAL) the 4th largest passenger airline in the world by Available seat miles (ASM), and one of the most prominent legacy carriers. In recent years, the company has faced financial difficulties as price competition from discount airlines like JetBlue and Southwest has intensified. This has limited Delta's ability to raise prices to their natural supply/demand and cost reflective levels. As a result, Delta was forced into bankruptcy in September of 2005.[1] During the past 2 years, Delta decreased its number of aircraft types in an effort to reduce maintenance costs, and cut its number of unionized workers so that it now has the lowest percentage among legacy airlines [2]. Since exiting bankruptcy on April 30, 2007, the company has followed a revised operating strategy calling for a network shift towards more profitable international routings. Despite operational improvements, Delta continues to face threats to its profitability, the most prominent among these being the price of oil. Increasing worldwide demand compounded by investor speculation has led to ongoing concern that prices will continue to rise. Delta is also vulnerable to deterioration in broader U.S. economic conditions. With less discretionary income, consumers and businesses will tend to cut back on air travel. In a move to cut costs and consolidate operations, Delta and Northwest have decided to merge. This new joint airline will be called "Delta." It will be the largest airline in the world by both enterprise value and available seat miles.[3]
[edit] Business FinancialsWith a fleet of 361 owned and 223 leased planes, Delta has carrier service to 306 destinations in 58 countries. Delta has the 2nd largest[4] and 3rd oldest[5] fleet in the American airline industry. The airline operates on a hub-and-spoke system , centered at airports in Atlanta, Cincinnati, New York JFK, and Salt Lake City [6]. Delta is attempting to offset weak U.S. consumer demand by expanding heavily in international flights. The company is now offering non-stop flights from Atlanta to Shanghai.[7] As the graph below suggests, revenue for Delta Air Lines has increased approximately 6% each year going forward from 2006. These gains are largely attributable to increases in passenger revenue, particularly on international routings. International passenger revenue grew 17% from 2004 to 2005 and 24% from 2005 to 2006[8]. Operating income has also picked up, reaching positive values for 2006. Higher revenue in combination with lower costs has allowed for increased profitability. Delta pursued significant cost cutting during bankruptcy, most significantly in employee salaries and aircraft rent. From 2004 to 2006, employee salaries and related costs were reduced by 32%, while costs of aircraft rent fell over 55% [9].
These numbers above show that Delta has been effectively lowering costs these past four years. Additionally, rising oil's impact on Delta is illustrated by the upward march of fuel costs per Available Seat Miles. However, as fuel becomes a bigger share of total expenses each year management will have less control over costs. This does not bode well for the future of the airline industry, and more mergers may come out of the current oil price environment. 
Operational terminology unique to the airline industry includes available seat miles (ASM), revenue per available seat mile (RASM) and cost per available seat mile (CASM). The three metrics are determined as follows: 
[edit] Key Trends and Forces[edit] Rising Fuel CostsFuel expenses represent one of the largest single costs faced by airliners. From 2004 until 2006, fuel costs have climbed from 16% to 25% of total operating expenses[11]. Continued oil price increases will pressure Delta’s profitability, given that the company’s purchase contracts offer only limited hedging protection against higher prices. [12]. Moreover, the growing cost based nature of the airline industry prevents Delta from immediately passing on these price increases [13]. However, Oil Prices dropped 39% between September 11, 2008 and October 31, 2008, marking a turnaround in DAL's forecasted profitability in 2009.[14] Most airlines, including DAL have entered into hedging agreements to be breakeven at oil prices of near $130 per barrel.[14] As of October 31, oil was trading near $68 per barrel, which signal profitability for DAL and other airlines.[14] [edit] Domestic Governmental RegulationsPublic outcry against airline delays has led to demand for a government response. In November 2007, President Bush voiced support for higher penalties for airlines that severely delay passengers [15]. Even more troubling for Delta are suggestions that the government might limit the number of landing slots at busy airports including several Delta hubs[16]. This could result in significant scheduling difficulties for the airline. [edit] Open SkiesDelta’s post-bankruptcy business plan is focused on shifting more of its aircraft towards international routes. The majority of the airline's international flights, and 18% of its total flights, are between destinations on opposite sides of the Atlantic Ocean[17]. This could become problematic given the recent U.S.-E.U. Open Skies agreement, which will allow for increased competition in transatlantic flights. The agreement is expected to begin in March 2008, and will among other things, allow for European airlines to operate with more freedom in the U.S. market[18]. [edit] Labor CostsAs part of the airline’s reorganization plan post-Chapter 11 bankruptcy, Delta negotiated temporarily lower wages for its employees. Most notably, the company entered into an agreement with the Air Line Pilots Association to lower average annual pilot labor costs by $280 million for the period between June 1, 2006 and December 31, 2009[19]. Reduced wage costs for other airline employees will provide an additional temporary per year cost savings of $600 million[20]. In exchange for these wage reductions, Delta agreed to provide its employees with a greater share of future company profitability[21]. As a result, labor costs are expected to increase. [edit] DAL and NWA Merger Creates World's Largest Airline by Passenger TrafficAfter months of speculation and debate, DAL completed its acquisition of Northwest Airlines (NWA) on October 29, 2008 for about $2.6 billion.[22] The new combined airline will retain the Delta name and will be based in Atlanta.[23] The new Delta will have about 75,000 total employees.[23] The Delta brand will not start spreading into Northwest until 2009, when it will integrate websites and scheduling, paint Northwest planes in Delta colors and logos, and so forth.[24] The new airline will have a larger network than either airline previously, serving 375 destinations in 66 countries.[24] Competitor airline Southwest Airlines Company (LUV) announced in November 2008 that it will begin offering Minneapolis service, offering one-way fares to Chicago Midway for as little as $69.[25] Minneapolis has long been a "fortress hub" or main service airport for Northwest airlines.[25] Southwest's move into Minneapolis is an attempt to use its low fares to take market share away from the Delta/Northwest airline, although Northwest claims it will match Southwest's prices when Southwest's service starts on March 9, 2009.[25] [edit] CompetitorsWhile Delta has embarked on a shift towards increased international routings, domestic airliners remain the most significant competition. The airline industry has become increasingly price motivated, which means that both legacy and discount airlines are competition for Delta. Delta’s closest competitors include the following:
 Delta Air Lines Inc.2004 Data 2005 Data 2006 Data 2007 Data 2008 Data Most Recent Data Available [edit] Market ShareDelta is the fourth largest airline in the United States, capturing approximately 11% of the domestic commercial airline market. The top ten U.S. airlines by market share are ranked below, where market share is measured in terms of domestic revenue passenger miles.
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