Analysis Of The Pending Delta Merger

Pending Merge Between Delta and Nothwest

Delta’s Corporate Landscape

Delta Airlines was not always the expansive corporation it is today, it actually had very meager beginnings. Delta was founded in Macon, Georgia under the name Huff Daland Dusters as an aerial crop dusting company. In 1928 C.E. Woolman purchased Huff Daland Dusters and was renamed Delta Air Service. Through the years of 1934 вЂ" 1970 Delta experienced massive growth from a meager crop duster to a fully functioning mail carrier, and commercial transport for the U.S. and abroad.

Today Delta is an international and domestic network which flies to over 332 locations across five continents, and 57 countries. Delta’s current service offering is the availability to fly to more destinations than any other airline worldwide. Delta holds the title of being the second largest airline in the world which caters to approximately 119 million customers per year. From a passenger miles revenue standpoint the airline is ranked the third largest in the world, sixth overall for total operating revenue.

For most airlines September 11, 2001 brought significant change upon the entire airline industry. When nineteen terrorists high jacked four separate airplanes on that infamous morning, they ravaged fear through the minds of all Americans. Before that morning the only fear of flight was that of airline malfunction, the thought of becoming a moving bomb never would have crossed the minds of airline passengers. It is hard to believe that the airlines were capable of recovery after the events that transpired on that infamous day. Massive inspections, long waits and an overabundance of regulations that now take place to ensure safety have not stopped the consumers. There is a strengthened positioning in consumers mind; they are beginning to feel safe again. The consumer understands the security measures, and is willing to take flight once more.

In 2004 Delta began a massive restructuring process in hopes to stave off the need to file for bankruptcy. This included large amounts of job loss, and wage reductions. An estimated 35% of the wages per employee across the board were affected by the restructuring process. The deductions in wages along with the mass layoffs enabled the cost savings to be reinvested into additional flights at the Atlanta hub. Delta had hoped that what they called “Operation Clockwork,” which was the code name for the large Atlanta expansion program would turn things around. The Atlanta hub would become their major focus, while the decision was made to close Delta’s Dallas-Fort Worth International Airport.

In the year 2005 times continued to be very turbulent for Delta Airlines. The next approach was a price cut on all flights. Fares on a whole were cut by almost 50% for all domestic and international flights. The extensive price slashing raised revenues for a short time period, but the fuel costs began to increase dramatically forcing the fares to be reinstated at almost the original prices. Another promotion included the offering of “same day confirmed” which enabled the passenger to call ahead to be listed as a possible stand by ticket recipient for the small fee of $25 dollars this could be a time saving asset to the stand by flier. Again the low price was short lived, and was raised to $50. With the high cost of fuel, and minimal consumers the great deals offered through promotion could just not maintain with the minimalist budget available.

At this point Delta desperate for profit, made some very difficult, last ditch attempts at avoiding bankruptcy. The first of many was that of the sale of Delta Connection carrier Atlantic Southwest Airlines to SkyWest. The carrier which had an estimated value of $700-800 million, was practically given away for a measly $425 million in August of 2005 according to “wikipedia.org/wiki/Delta_Connection”. Along with the sale of ASA, Delta also decided to cut 26% of all flights into the hub located in Cincinnati. With this decision alone 1,000 jobs were instantly lost.

Even with all of their attempts Delta was unable to avoid the inevitable, they were forced to file for bankruptcy in September of 2005. The once proud Delta airline had depleted almost all of their resources, and needed the protection of chapter 11 ensure survival. The stated reasoning “high fuel cost, along with high cost of labor.” At this point in time Delta airline had accumulated a debt of $20.5 billion dollars. Ironically, $10 billion of which accrued since January of 2001. September 11 really did leave a dark cloud over the airline industry at this time. Considering half of Delta’s debt was accrued in the time frame following.

With the restructuring process which comes along with chapter 11 bankruptcy, Delta would face some of the fiercest cuts imaginable. $3 billion was the target number for reductions per year; this was to occur from 2005-2007. Of course this meant all of the staff again would face radical pay cuts, the airline itself would again cut back on the flight offerings, and another 7-8 thousand would lose their jobs entirely. Even the CEO was not exempt from the restructuring, Gerald Grinstein himself lost approximately 25% of his salary in the process.

In 2006 Delta regained positive momentum when they were able to purchase the rights to a New York to London flight from one of their competitors, United Airlines. Also in 2006 Delta partnered with Mesa Air Group provide flights available in the northeast. Delta also began expanding flights for the hub located in the Salt Lake City region. The goal was set that Delta would be profitable in the later part of 2007, and through all of their extensive efforts they were successful. For the first time in several years Delta had recorded a profit for 2007.

With their positive profit margins out of the red Delta was ready to promote their service offerings aggressively. Some of their promotional services included on demand viewing for longer flights, live programming, as well as music for a minimal fee. At this time they also reenlisted 1,000 of their previous employees that were let go during the reorganization efforts. After the massive recall in 2007 for the first time in a five year span, Delta was looking for new employees. The work force was not the only expansion effort in 2007. Delta decided to increase its fleet as well. A purchase order for 30 bombardier CRJ вЂ" 900 jets was placed, which included an additional 30 aircraft option.

In April of 2007 it was official; Delta survived bankruptcy and was released from protection and labeled an independent