Christine Andrews

Ben Armitage
Chad Detwiler
Christopher Hochradel
Sean Mueller
Quyen Tran

DELTA
AIRLINES
Blind Booking

TABLE OF CONTENTS

1. Executive Summary
2. Situation Analysis
a. Company
i.
Who is your company
ii. Corporate Goals
iii. SWOT Analysis
iv.
Organizational Structure
v.
Companys capabilities
vi.
Industry Environment
b. Customers
i.
Who are they?
ii. Expected changes
iii. What Customers are purchasing from Delta
iv.
Why Customers Buy Delta Service and Value in the Service Offered
v.
Order Qualifying and Order Winning Characteristic of Deltas Service
c. External Environment
i. Industry
ii. Economic
iii. Technological
iv.
Societal
v.
Legal
d. Competitors
i.
Company Description
ii. SWOT Analysis
iii. Competitve Advantage
iv.
Financial Ratio Analysis
e. Collaborators
3. Growth Strategy
a. Description of Growth Strategy
b. Goals/Objectives
c. Segmentation
i.
Varibals for segmentation
ii. Specific Customer segments
d. Targeting
e. Positioning

i.
Positioning in our eyes
ii. Positioning in competitors eyes
f. Internal and Sustainable
4. Strategy Execution
a. Product
i.
Goals
ii. Product description
iii. Process description
iv.
Outsourced components
v.
Product Life Cycle Stage
vi.
Complementary products and services
b. Place (Distribution)
i.
Goals
ii. Level of market exposure
iii. Channels used
iv.
Supply chain system
c. Promotion
i.
Goals
ii. Promotional Blend
5. Companys Operations & Supply Chain Situation Analysis
6. Implementations and Control
7. Conclusions

1. Executive Summary-Delta Airlines Blind Booking

Delta Airlines is one of the top tier international companies for air travel, with
headquarters located in Atlanta, Georgia. The hub in Atlanta is the worlds largest airline hub
with more than 950 daily departures to 222 destinations around the world. Besides just having
headquarters, Delta Airlines also has hubs in Detroit, Minneapolis-St.Paul, New York- JFK,
Boston Logan, Dallas-Fort Worth, Memphis, LAX, Orlando, Seattle, and San Francisco. As a
company they have nearly 165 million annual passengers, and more than 5,400 daily flights.
Delta Airlines has an exceptionally strong relationship with the North American market, but with
our research we have gathered that their revenue is the lowest in the first quarter of the fiscal
year, roughly the months from January through March. We have developed a new service to
implement during this quarter named Blind Booking.

Blind Booking is a new, spontaneous way for our customers to reserve a last-minute,
low-cost airline ticket. Customers will choose the time and day of their desired flight, and will be
then given a list of destinations. If there is an undesired destination, it can be eliminated, but in
exchange the price of the customers ticket will increase by $10. Once they are satisfied with the
list of destinations, they will finish their booking process. Once their payment has processed,
they will receive their flight details, and at that point they will discover where their destination is.
This business plan will highlight the positives and negatives, as well as the details of what effect
implementing Blind Booking will have on the company of Delta Airlines. It describes the launch
of the new service, and the expected, best, and worst case financial scenarios this service could
have. The purpose of Blind Booking is to increase the number of filled seats during the first

quarter of the fiscal year for Delta Airlines, which translated means increasing their revenue for
the first quarter.
Our target market has been broken down into three segments, college-aged students
(roughly 18-23), post-graduation (roughly 23-35), and post-college transition (roughly 35+). As
a whole, our target market has a few similar characteristics. We are focusing on both men and
women, with the majority being single or married but without children. Our target market will be
adventurous and possessing a desire to have a spontaneous vacation that is affordable. However,
by breaking our target market up into age segments, it makes it easier for our team to focus on
the crucial differences that will determine the best way to market Blind Booking to our targeted
clientele.
Our college-aged segment will be focused on the low-cost, less-stress aspect of our
service. It is an easy decision, because it is one they will not have to make on their own, and it is
financially feasible for this market to afford. College-aged people are also more willing to try
this type of adventurous service. Based on our teams research, 81% of people surveyed that fit
this segmentation said this would be a service they would utilize.
The post-graduation segment will be focused on the low-cost aspect of this service as
well. This age group typically cannot always afford the luxurious vacation because they are still
in the process of establishing their career. With our service, this is a cheaper alternative than
booking a typical vacation, and its not nearly as time consuming. This segment of people are
also looking for an exploration or an adventure to somewhere new. They are making the
transition into adulthood, but are still looking to keep some of the adventure they had from their
youth. With our service of Blind Booking, they are able to do that.

Our final segment is composed of post-college transition people. These are people whom
majority be without children. They will be looking for a getaway trip, which is impulsive way
to add adventure back into their lives. This age segment will particularly be fond of the fact that
they will have a blind destination, but they will still be able to make their trip luxurious by
their lodging choices and by the activities they participate in while on their getaway.
Blind Booking will give Delta Airlines a competitive edge over their top airline
competitors, United Continental Holdings and American Airlines, because neither airline offers
this exceptional program. The only other airline in the world that offers a program similar to this,
is the airline GermanWings, based in Germany. With this service, this offers our customers a
chance to travel to any of the different regions in the United States, while still keeping the cost
reasonable. With the popularity of living a carefree lifestyle, this new, impulsive way to book a
trip is exactly what the United States market is thriving for. By gaining consumers attention
with this new service, it will deep the relationship between the long-time customer, and also
bring in new travelers to experience all that Delta Airlines has to offer. This service will separate
and distinguish Delta Airlines from the top competitors.
Our aim over the next five years, is to simply increase the revenue for the first quarter of
the fiscal year. We have determined that with the service of Blind Booking, we will increase the
number of seats filled by 0.5%, which will then increase our revenue. We have determined the
expected, best, and worst case financial scenarios for the next five years, including the affect
inflation will have on the outcome. However, even when determining our worst case scenario,
our number of seats filled will still increase, and Delta Airlines will still be making a small profit
on each seat sold through this service.

The management of Delta Airlines is composed of the CEO, Richard Anderson who
joined Deltas Board of Directors in 2007, along with the President, Ed Bastian who played a
major role of finalizing Deltas acquisition of Northwest Airlines in 2008. Delta Airlines
management is also comprised of Gil West, Executive Vice President and Chief Operating
Officer, Glen Hauenstein, Executive Vice President and Chief Revenue Officer, Ben Hirst,
Executive Vice President and Chief Legal Office, Paul Jacobson, Executive Vice President and
Chief Financial Officer, Kevin Shinkle, Senior Vice President and Chief Communications
Officer, Theresa Wise, Senior Vice President and Chief Information Officer, and finally Joanne
Smith, Executive Vice President and Chief Human Resources Officer.
For the purchase of our Blind Booking ticket, we have easily determined our pricing
strategy. Our pricing strategy is very simple, and is determined by our goal of our blind booking
ticket being at a 50% discount. For every city the customer chooses to eliminate, the ticket price
will increase at a $10 increment. The more cities the customer chooses to eliminate, makes the
ticket more comparable to a normally priced ticket. With our pricing strategy, we expect that
within the first year of launching our service of Blind Booking, we will have an operating
revenue of roughly $29,579.68. We have also determined our best case scenario bringing in an
estimated $29.791.77, and our worst case being $29.509.45. Our team has determined that with
our service of Blind Booking, we will be able to bring increase the revenue of the first quarter
sales, because we will still be filling seats that would otherwise go empty. Within the next four
years, we have determined our estimated our expected revenue to range from $31,801.86 in
2016, $34,213.56 in 2017, $36,552.53 in 2018, and finally $39,106.41 in 2019.

2. Situation Analysis
a. Company
i.

Who are Delta Airlines?

Delta Air lines was founded in 1924. Deltas website states that Delta Air Lines serves
nearly 165 million customers each year. This year, Delta was named the 2014 Airline of the
Year by Air Transport World magazine and was named to FORTUNE magazines 50 Most
Admired Companies, in addition to being named the most admired airline for the third time
in four years. With an industry-leading global network, Delta and the Delta Connection
carriers offer service to 333 destinations in 64 countries on six continents. Headquartered in
Atlanta, Delta employs nearly 80,000 employees worldwide and operates a mainline fleet of
more than 700 aircraft. The airline is a founding member of the SkyTeam global alliance and
participates in the industrys leading trans-Atlantic joint venture with Air France-KLM and
Alitalia as well as a newly formed joint venture with Virgin Atlantic. Including its worldwide
alliance partners, Delta offers customers more than 15,000 daily flights, with key hubs and
markets including Amsterdam, Atlanta, Boston, Detroit, Los Angeles, Minneapolis-St. Paul,
New York-JFK, New York-LaGuardia, Paris-Charles de Gaulle, Salt Lake City, Seattle and
Tokyo-Narita. Delta has invested billions of dollars in airport facilities, global products,
services and technology to enhance the customer experience in the air and on the ground.
(delta.com)
ii.

Corporate Goal

Deltas mission statement reads "WeDelta'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.com)
iii.

SWOT Analysis

Strengths:

Strong employee group of 85,000

SkyTeam marketing member

Works with many international airlines (AirFrance)

2014 Airline of the Year by Air Transport magazine

One of FORTUNES 50 Most Admired Companies

Merged with Northwest Airlines

Around 5,000 flights a day

Weaknesses:

Strong dependency on the North American market

Too narrow of a product line

Business fliers doubt Delta Airlines will fulfill their needs

Opportunities:

Growing SkyMiles- only airline with no expiration date on miles earned

Capitalizing on emerging market of aircraft maintenance, repair and overhaul

Trying to recreate business class (business office on airplanes

Threats:

Trying to come back from tainted image in 2010 when ranked Worst Airline in America by
USNews.com

Companies are moving to cheaper alternatives for their business travelers

Rising fuel prices

Top competitors: American Airlines, Southwest Airlines, Lufthansa

iv.

Organizational Structure
Richard Anderson

Chief Executive Officer

Edward Bastian

President

Gil West

Executive Vice President &

Chief Operating Officer

Glen Hauenstein

Ben Hirst

Paul Jacobson

Executive Vice President

Executive Vice President

Executive Vice President

Network Planning

& Chief legal Officer

& Chief Financial Officer

& Revenue Management

Andrea Fischer Newman

Senior Vice President

Government Affairs

Holdon Shannon

Senior Vice President

- Corporate Strategy and Real Estate

Theresa Wise

Senior Vice President

& Chief Information Officer

10

v.

Capabilities and Processes

Delta Airlines has the capabilities to perform at a very high capacity; which is why Delta
is in the top 5 air lines of 2014. With 333 destinations 106 being international and 227 being
domestic. Also with nearly 165 million passengers a year; thats about 5400 passengers a day
delta has created a process that works efficiently and effectively.

vi.

Industry Environment

On a national scale Delta Airlines competes in an Oligopoly with a few other airlines
including Southwest Airline, American Airlines, United Airlines, and Jet Blue. Delta is getting
their fair share of the market representing a significant percentage of the industry and with a high
barrier to enter the market. Delta Airlines will continue to strive to lead the way in the industry
as their market share continues to grow.

11

B. Customers
i.

Who are they?

Delta Air lines customers are everyone who demands for fast and far distance transportation.
Customers also demand for local distance transportation, which is necessary to keep up with the
fast growing pace of the economy.

Geographic
Delta has offered first international flights in 1947. Currently, the company has many
international hubs at major cities across the world with more than 600 destinations in 119
countries. In 2014, Delta expands its service in Seattle as a major point to connect international
flights with the main base in the U.S1. Geographically, Seattle is the closest city to Asia,
compared to other cities in California or many major U.S cities. The severe investment into
Seattle creates the opportunity to gain big share in Asia market.

Demographics
Age
According Delta Sky Media, 82% of its customers are between the ages of 25-54.2 This is said
customers taking Delta flights are well diversified. Generation X, Y and a section of baby
boomers strongly demand for air travel; while seniors are spending on foods and healthcare
rather than traveling. Delta also takes care of young costumers as in flight service offers specific
entertainment just for kids. Seniors also can have special treatment if they request such as gate
transporting.

http://seattletimes.com/html/businesstechnology/2023849614_deltaseattlexml.html
http://www.deltaskymedia.com

12

Gender
Delta customers vary and the company does not aim to target a specific gender.

Social Class
Social class of the Delta customers tends to diversify but middle class and upper class where
average household income is $106,000 take up a large percentage of flights.3 Delta divides flight
services into 3 levels that feed demands of all social classes: first, business, and economy class.

Psychographics
Delta customers could be workaholic businessman or adventurous traveller. With the increase at
rapid rate of the world in terms of globalization, people demand for more flights not only for
business purposes but also recreation trips. To catch up with the trends, the company has
positioned itself, as a reliable and safety flight provider that takes passengers to almost
everywhere no matter it is short inexpensive excursion or long professional business.

Buying Behavior
Customers demand for more flights when vacation time starts to come. In the end of the year
period, consumers purchase more flights since this is a busy time where business people get to
places to finish its goal, college students returning home or families going on vacations. The
demand for flights will continue to grow in the future where airline travelling gradually become
a standard transportation for everyone "Domestic and international aviation traffic growth is a

http://www.deltaskymedia.com

13

reality that will soon add hundreds of millions of people to already crowded airports and
international arrival halls".

b. Customers
Blind booking targets customers who would like to be adventurous and somehow spontaneous.
Customers will not know the final destination among possible places they know in advance until
finishing the booking process. Of course, customers can choose the departure airport and the date
and time to take their flights, but within 45 days for round trips. To be able to take the advantage
of low price tickets, these customers are not limited by planned business and willing to discover
places. They could be foreign visitors, or domestic passenger on vacation time with many desired
places that makes it hard to choose one.

ii.

Recent/ Expected Changes in Customer Behavior,

Attitudes or Composition of Base

Delta has recently seen an opportunity in low fare price. This is because recent economic data
published indicating slow steady growth over the past few years, which would result in consumer
spending less. According to Wall Street Journal, the Fed will stop purchasing bonds and continue
to keep interest rate at record low.4 This indicates the economy was not healthy and fully
recovered. Consumers are discouraged and will have the tendency to save or buy discount, low
price product. Thus, Delta new service providing low fare prices promises a solution for Delta to
remain its competitive advantage in the market. The blind booking service allows Delta to
effectively reach all consumers no matter what their incomes are. Moreover, in terms of
4

http://online.wsj.com/articles/fed-ends-bond-buys-sticks-to-0-rate-for-considerable-time-1414605953

14

consumer behavior, people are flying more miles over each year. According to a Federal
Aviation Administration, there will be an increase from 745 million of miles flying in 2014 to
1.15 billion miles in 2034.5 In additional to this, the world has come together and become one
place that people need to travel more for the sake of doing businesses, indicate a strong demand
for the airline industry.

iii.

What Customers are purchasing from Delta

Delta provides passenger flights and cargo shipping service. In every flight, Delta provides
standard services that meet consumers expect and need. For special treatments, Delta offers
exclusive dining meals which made by award cookers. For example, Chef Michael Chiarello, a
celebrity cooker who has been on many TV show, collaborated with Delta making special meals
on regional flights. 6

iv.

Why Customers Buy Delta Service and Value in the Service Offered

Customers value Deltas service because of innovation, commitment, and its popularity. Delta
has invested billions of dollars in airport facilities, global products, services and technology to
enhance the customer experience in the air and on the ground7. Efficient investment has
increased Delta popularity as well as reputation. In 2014 Delta was named in the top 50 of
FORTUNEs 2014 Worlds Most Admired Companies for the third time in four years. Feeding
its customer demand, Delta has corporate with many other airlines to satisfy different dimensions
5

http://www.usatoday.com/story/money/business/2014/03/13/faa-airline-passenger-growth/6365039/
http://www.delta.com/content/www/en_US/traveling-with-us/in-flight-services/amenitiesinformation/transpacific-business-elite.html
7
http://www.mvariety.com/advertising/special-advertising-feature-2/70705-delta-air-lines-invites-valuedcustomers-for-cocktails
6

15

of customers whether they are working in Tech Company or an entertainment industry. For
example, in December, Delta will add service to Vancouver, Canada, operated by Delta
Connection carrier Compass Airlines.8

v.

Order Qualifying and Order Winning Characteristic of Deltas Service

The main order-qualifying characteristic of Deltas service is the wide range of flight routes
internationally and domestically. Delta serves average 165 million customers each year. By
serving over 600 destinations with more than 5000 flights daily, in 2013, Delta Air Lines was the
world's largest airline in terms of scheduled passengers carried, according to International Air
Transport Association.9 The second order qualifying characteristic is innovation. Delta focuses
on investing in new technology that enhances customer experience. The completed interior fleet
modifications include all Delta Airbus A330-200/300, Boeing 767-300ER/400ER, 747-400 and
777-200ER/LR aircraft, which represents Deltas largest interior fleet modification investment in
more than a decade. 10, or, With more than 900 domestic and international aircraft equipped
with in-flight Wi-Fi, Delta operates the worlds largest fleet of internet connected aircraft
available to more than 400,000 customers on more than 4,000 flights daily. These are examples
showing how much Delta concentrates on improving the technological innovation. The overall
order-wining characteristic is the ability to maintain its competitive advantage in this airlines
8

http://www.aviationpros.com/news/11748668/delta-air-lines-strengthens-support-of-los-angelesentertainment-tech-communities
9
http://www.iata.org/pressroom/pr/Pages/2014-08-12-01.aspx
10
http://news.delta.com

16

industry. Expanding low fare price, reducing cost structure while investing in innovation and
increase its bottom line is not something a competitor be able to obtain.

c. External Environment
The airline industry has had a negative reputation amongst just about anyone who has
ever flown before. Over the past decade, many airlines have experienced bankruptcy, mergers,
and other economic uncertainties, but that appears to be changing in recent years. Many airlines
are reporting numbers that continue to reaffirm the notion that the industry is taking a turn for the
better. Some of the factors that affect the current environment for airlines include industry,
economic, technological, societal, and legal. When the airlines are benefiting from all of these
aspects, the environment continues to be more business friendly and allows the airline industry to
thrive. Delta Airlines has continued to grow over the past few years largely in part to the current
status of the airline industry getting better.
i.

Industry

All industry is, according to Dictionary.com, is the production of a good or service. Most
airlines are in the business of providing one service to their customers. When we look at the how
the industry is doing, there is really only one question that we need to ask ourselves, and that is
simply, Are people flying? Studies show that more and more people are flying every year and
will continue to grow over the next few decades. The Federal Aviation Administration (FAA) is
reporting that the annual number of passengers will increase 0.8% in 2014, bringing the total
number of passengers to about 745 million and that number should continue to grow to 1.15

17

billion people over the next 20 years. In addition to more people flying, the same studies indicate
that the number of miles that people are traveling is up 2.8% (Jansen). So what does this mean?
These numbers indicate that the airline industry is continuing to grow and that there is
more potential for growth among the different airlines including Delta. Of the 745 million people
that will fly somewhere this year, 165 million of those people will fly Delta. That equates to over
1/5 of the passengers from the entire industry that includes over around 10 other major airlines
(Delta). With that kind of market share in an industry like this, Delta Airlines can expect to
continue to grow as the market does over the next 20 years making it a very promising company
in the industry.
ii.

Economic

Some of the major aspects of the economics behind the airline industry include barriers to
entry, consolidation of the smaller unsuccessful airlines with the big and thriving, and
diversification of airlines routes. The airline industry is not one that individuals are going to
want to get into because the barriers are too high. The costs to enter this kind of market would be
outrageously high, which leads me into my next point. Many airlines, like Delta, have decided
that the only way to maintain their leading presence in the market is to merge with other airlines
as to do many things such as capture a higher percentage of the market share, expand their
operations to different parts of the world, or to simply eliminate one more competitor. Many of
the top airlines have merged with smaller airlines such as Delta merging with Northwest in 20082010, AirTran being bought by Southwest in 2010, and American Airlines and US Airways
merging in 2013 (CNN). Another key to these companies staying profitable is their ability to
expand to international traveling routes. Anything that can help an airline get more people on
their planes is going to be good for the financial statements.

18

iii.

Technology

Delta has already established themselves as one the major forces in the marketplace being
the second largest carrier. Their enormous size and resources are what is keeping other investors
from starting their own airlines and cutting into Deltas and other major airlines revenue. At the
time, Delta Airlines was in a very bad place losing passengers left and right. Many of their
problems were solved when they merged with Northwest Airlines to become the biggest airline
carrier in the world. Delta also expanded their international presence in 2013 when they acquired
49% of Virgin Atlantic Airways allowing them to fly more passengers from the U.S. to Europe
(Weiss).
iv.

Societal

One of the most important parts of keeping the many airlines a float is the ability to keep
passengers happy through advancements in technology. The way society sees the airline industry
is directly related to how their experiences go not just on their plane ride, but on their entire
travel experience from the time they purchase their ticket, to when they reach their final
destination. Airlines have implemented different innovations to help make the travel experience
better such as online check-in, boarding passes that can be scanned on your smart phone, and on
plane WI-FI.
Usually, the first thing you do when you enter an airport is wait in a long line to confirm
that you are there on-time and can fly. These lines can take a long time to get through, so airlines
put kiosques right by the doors that allow you to check-in online and avoid standing in line, thus
saving you a lot of time and aggravation. Your travel day is usually bad enough without you
forgetting that boarding pass that you printed off at home last minute and caused you to be

19

running late. Airlines have now made it available to have them scan your boarding pass straight
off your smart phone. You can easily forget a piece of paper, but nine time out of ten, you are
probably going to triple check that you remembered to bring your phone. Probably one of the
biggest innovations that most airlines have implemented that has helped change the perception of
airlines from society is in-flight WI-FI. By having available internet access on the plane, people
can be more productive instead of doing nothing for hours or it can help you pass the time and
make you feel less confined and trapped.
v.

Legal

Lastly, another key aspect of the airline environment that especially affects how society
sees the industry is the legal ramifications that come from flying. Following the aftermath from
9/11, the airline industry has never been the same with the new regulations from the Department
of Home Land Security and the Transportation Security Administration (TSA). One of the big
negatives to how people see the airlines is the images that come into peoples heads when they
think of the TSA. Such images including TSA employees going through your personal
belongings and feeling your personal space being violated. These ill-fated events often times get
directly associated with the airline that they are flying with and sometimes that is unfortunately
Delta.
Delta Airlines continues to grow because they do so well with handling the various
external threats to their company. Delta has proven that they are in the top-tier of the airline
industry and it appears that it is not about to change anytime soon. They have risen from one of
the most dysfunctional airlines, overcame some of the harsh economic turmoil, and successfully
merged their company to become one of the biggest airline carriers in the world.

20

Works Cited

"Industry Defined." Dictionary.com. Dictionary.com, n.d. Web. 2 Oct. 2014.

Jansen, Bart. "FAA projects steady growth in more people flying more miles." USA Today.
Gannett, 13 Mar. 2014. Web. 2 Oct. 2014.
Smith, Aaron. "More people are flying, with fewer complaints." CNNMoney. Cable News
Network, 14 Nov. 2013. Web. 2 Oct. 2014.
"Stats & Facts." Delta Air Lines Newsroom -. N.p., n.d. Web. 2 Oct. 2014.
"The Runway to the Final Four." CNN. N.p., n.d. Web. 7 Oct. 2014.
Weiss, Bob. "All Things Travel: Delta-Virgin Atlantic Merger Could Mean Changes For
Boston Flights - CBS Boston." CBS Boston. N.p., n.d. Web. 2 Oct. 2014.

d. Competitors

i.

Company Description- American Airlines:

21

American Airlines is one of the United States major airlines. They are headquartered in
Fort Worth, Texas. American Airlines has five main hubs in the United States; Dallas/Fort Worth
International Airport, John F. Kennedy International Airport (New York), Los Angeles
International Airport, Miami International Airport, and OHare International Airport (Chicago).
They are a strong company both domestically and internationally, with an extensive route and
destination list. American Airlines is a member of the Oneworld airline alliance. This airline
company was also the first in the market to develop an airfare membership, which they have
called AAdvantage. In 2013, they had merged with US Airways Group, which has helped
increase their revenue dramatically. Now American Airlines has produced about $40 billion
revenue a year.

Company Growth Strategy- American Airlines:

America in recent months has taken what already could be called the strongest domestic
network in the industry bolstered by the biggest, most important business markets and
anchored internationally by an alliance with the best brands and global presence and made it
better by taking positive steps to strengthen its ties in the Pacific and across the Atlantic via
antitrust immunity while complementing its leading position in Latin America.
(http://www.aa.com/content/images/aboutUs/newsroom/ny_backgrounder_factsheet.pdf)

ii.

American Airlines SWOT Analysis

22

Strengths
2nd largest airline in passenger miles
transported
Founding member of the Oneworld airline
alliance
Strong market share and brand image
Strong diversified portfolio
Growing bottom line
Strong image with onboard entertainment
content

Weakness
RealNetworks performance has lagged
compared to other similar companies success
Slow in online growth and innovation
Financial position is beginning to become
concerning

Opportunities
Online growth
Strategic alliances
Capitaliztion on growth of HDTV
Expand more to the international market
on popular routes

Threats
Increasing fuel costs
Low fare service providers
Pressure from regulation bodies and
government policies
Increasing labor costs

iii.

Competitive Advantage:

American Airlines has taken multiple steps to reinvent themselves to make them a much
more competitive company in the airline industry. The first step they have taken was merging
with U.S. Airways in 2013. With this merger, it enabled them to build upon their global network.
American Airlines was first and foremost able to create new routes and destinations for
customers, which without this merger would have been impossible. These new routes were
created for domestic, as well as international flights. By merging with U.S. Airlines, they were
able to have less than 25 percent of domestic available seat miles. While competing with Delta
Airlines nationwide network of 21 percent, their excuse was that Delta has a strong, old
integration of their merged assets. Another advantage this merger has given American Airlines,
is to be able to control their prices of their tickets. They have been able to generally keep an

23

airline ticket at a lower cost than Delta Airlines, which helps them fight against their
competition.
The next step American Airlines has taken in growing towards being a stronger
competitor was reinventing their four-tier membership for AAdvantage. They had developed
four tiers in this; standard, Gold, Platinum, and Executive Platinum. With their system
differentiating themselves verses other competitors, it is extremely beneficial to the customer.
Some of the advantages of their program are that all fares receive at least one free checked bag
(if not more), expedited security, and pre-boarding access. Within the higher tiers, customers
receive access to the Admirals Club and First Class oneworld lounges, a special phone line, VIP
upgrades, and one-way upgrades. Once individuals reach 1,000,000 miles earned on American
receive a lifetime of Gold status, and once they have reached 2,000,000 miles, they will receive a
lifetime of Platinum status.
Another step American Airlines has taken in order to separate themselves from their
competition was to capitalize on excellent onboard entertainment for customers. They have
strong alliances with MTV, BET, and other major networks that expand to hundreds of
thousands of consumers. They are currently progressing with working with other networks that
are becoming widely popular across the markets.
One of the final ways they are making themselves stronger against competitors such as
Delta Airlines and United Continental Airlines, is adapting their growth strategy. This year
American Airlines has adapted a new growth strategy for the next six to eight months, of
incorporating new routes to their largest hubs in North America. They have added four new U.S.
routes to their Miami hub, as well as new routes from Miami and Haiti that will begin March
2015. This is adding more choices for the customers, which is what they have been asking for

24

over the last several years. By showing that the company has listened and incorporated the
customers wants and needs, helps them increase as a major competitor.

Company Description- United Continental Holdings (United Airlines):

United Continental Holdings (UCH) is a publicly traded airline holding company that
owns and operates United Airlines. United Continental Holdings is headquartered in Chicago,
Illinois. The company changed the name in 2010 when United Airlines and Continental Airlines
reached a merger agreement. UCH has main hubs in OHare International Airport (Chicago),
Denver International Airport, Houston George Bush Intercontinental Airport, Los Angeles
International Airport, Newark Liberty International Airport, San Francisco International Airport,
Washington Dulles International Airport, and finally Guam A. B. Won Pat International Airport.
They have the worlds most comprehensive global route network, and a world-class international
gateway to multiple different continents. UCH also is the most fuel-efficient amount all U.S.
network carriers.

Company Growth Strategy- United Airlines:

United is focused on being the airline customers want to fly, the airline employees want
to work for and the airline shareholders want to invest in.

United Airlines SWOT Analysis

25

Strengths
Trusted brand
Founding member of Star Alliance
Employs more than 85,000 people
Parent company of two world class; United
Airlines and Continental Airlines
Largest U.S. carrier to the Peoples
Republic of China
Main operation throughout Asia

Weaknesses
Weakening financial performance is
becoming a concern
Heavy reliance on third party providers
(customer care, aircraft maintenance, and
aircraft fueling are outsources)

Opportunities
Growing U.S. airline industry
Global penetration trying to tap global
customers
Increasing disposable income of people
leading to increased demand for air travel

Threats
Competition from multiple airlines
targeting U.S. market
Price discounting
Increased fuel costs
Strong union within employees which may
lead to strike and/or flight cancellations

Competitive Advantage:
The first aspect United Airlines is changing to differentiate themselves from the other
airline competitors is quite a big risk financially. With the rising fuel prices, many airlines are
taking away the frills for the customer in order to reduce cost. The onboard pillows, blankets,
snacks, and other things that are used to pamper travelers are slowly disappearing. However, this
is not the case for United Airlines. They are working to ensure their customers will come back an
travel with them, whether that be for just business purposes, or for family vacations. United has
begun to redesign their flights, making travel more comfortable for travelers. They are
incorporating services to both high and low ends of the market.
With redesigning their flights, United has changed the number of seats on 100 regional
jet planes. They have installed roomier Economy Plus seating, as well as first class cabins. With
this change, United is now the only airline that offers fully reclining first-class seats on coast-to-

26

coast flights. They are also in the works of planning a multi-million dollar upgrade to their
international first- and business-class cabins.
Another step United Airlines has taken to become a stronger competitor in the airline
industry is developing a completely different growth strategy than their competitors. While
American Airlines and Delta Airlines are mainly focused on the North American market, and are
have a strong domestic base, United has always been focused on international markets. They are
structured differently when it comes to marketing, and they focus on their international
consumers more than the American customer. For instance, due to their constant exposure with a
greater vast of international markets, United Airlines air-travel in Asia is much stronger than
Deltas. Since it is already extremely difficult to make a profit in Asia, United Airlines slight
success with that market puts them as a huge competitor for Delta Airlines.
However, while United is a very strong competitor due to their international presence,
they are also growing within the U.S. market as well. They have begun to add more routes from
the U.S. to Africa in 2011, which was expected to take off slowly due to the financial pains Delta
Airlines suffered when Africa destinations were adopted. However, once this change was
adopted by United Airlines, it was successful within the first four months of operation. Now
there are four to five weekly flights offered to Ghana.

iv.

Financial Ratio Analysis of Companies

27

Financial Ratio Analysis of Company vs. Competitors

Delta Airlines
2014
2013
2012

United Continental
2014
2013
2012

American Airlines
2014
2013

Profitabililty
Return on Assets
6.17% 2.29% 21.78%
4.15% 1.53% -1.91%
7.59%
Return on Capital
16.91%
10.51%
20.84%
Return on Equity
158.45%
44.49% 32.84% -63.23% -19.25%
Margin Analysis
Gross Margin
24.95%
27.58%
27.45%
EBITDA Margin
16.27% 10.20%13.39
13.39% 10.30% 7.70% 4.20% 14.23%
Levered Free Cash Flow Margin
4.17%
1.55%
1.05%
SG&A Margin
4.22%
4.00%
3.76%
Asset Turnonver
Total Asset Turnover
0.8x
1.0x
1.1x
Fixed Assets Turnover
1.8x
2.2x
2.4x
Accounts Receivables Turnover
17.3x
21.6x
21.6x
Inventory Turnover
30.3x
41.9x
31.0x
Credit Ratios
Current Ratio
0.7x
0.68
0.62
0.7x
1.0x
Quick Ratio
0.4x 0.38%
0.38%
0.5x
0.7x
Long-Term Solvency
Total Debt/Equity
87.51% 84.13%
312.99%
343.79%
Total Liabillities/Total Assets
76.33% 18.75% 24.88% 89.83%
88.75%
Growth Over Prior Year
Total Revenue
6.68% 3.01%
4.43%
3.36%
57.47%
EBITDA
35.92% 35.24%
6.92% 37.53%
142.81%
Receivables
8.43% -4.96%
8.32%
-5.00%
46.34%
Diluted EPS Before Extra
379.30% 932.77%17.82
17.82% -675.81% 1.53% -2.18% -89.74%
Cash From Ops.
40.10% 81.91% -12.63% 28.37%
-33.71%
Tangible Book Value
-85.26%
31.49%
-83.78%
Gross Profit
24.90%
13.37%
83.68%
Inventory
-8.72% 3.91% 178.75%
8.36%
73.57%
Capital Expenditures
17.97% 30.49% 56.94% -11.64%
50.56%
Levered Free Cash Flow
2.39%
17.97%
-127.48%

2012

-5.58%

-7.92%

7.6
9.00%

3.70%
4.70%

1.04
0.78

0.78
0.56

166.28
79.83%

3.83%
-1.42%

7.60%
9.40%
38.79%

3.65%
7.34%
24.61%

-47.47%
84.09%

88.97%
-209.91%

64.94%

16.98%

28

e. Collaborators

McDonnel Douglas, Boeing, and Airbus aircraft corporations play a major role in the
Delta Air Line industry. (Delta Air Lines Fleet Details and History, 1) These three companies are
the suppliers of all the aircrafts on Deltas fleet. McDonnel Douglas originally began as its own
individual manufacturer than eventually merged with Boeing. (Delta Air Lines Fleet Details and
History, 1) Before merging McDonnel Douglas produced 3,485 aircrafts with many different
designs and sizes that Delta Air Lines use for specific needs and wants. (Delta Air Lines Fleet
Details and History, 1) The three companies have various sizes and types of aircrafts to meet the
customers needs and satisfactions when traveling around the world. The companies produce the
aircrafts and perform many different tests to make sure the safe and ready to take flight. Once the
aircrafts are ready they are then taken to Delta Air Lines where they are ready to begin carrying
passengers around the world.

"Delta Air Lines Fleet Details and History." - Planespotters.net Just Aviation. N.p., n.d. Web. 08 Oct.
2014.

3. Growth Strategy

29

a. Delta Airlines Growth Strategy & Financial Goals

Our growth strategy for Delta Airlines is to create a product development for the United
States market. Our financial goals are to improve our companys sales with our new product.
With this service we will offer a range of flights in the different regions of the United States at a
discounted rate, however there is a catch. Customers will be unaware of their destination until
their payment has processed. The list of flights will depend on the flights for that time period, as
well as the flights with extra seats available. Our goal is to increase the first quarter sales
specifically, by offering a blind booking service to our customers during the months of JanuaryMarch.

b. Goals/Objectives
With Delta Airlines new service, our goals are fairly simple: to increase our first quarter
revenue. Of all the quarters, first quarter significantly produced the least amount of income,
which was mostly determined from a vast amount of unsold seats. We developed our idea of
Blind Booking by offering a unique way to persuade our customers to purchase our unsold
tickets for flights. With the new trend of being spontaneous, and a you only live once
mentality, our team discussed that this would be a strategic move in following the current trends
in the marketplace.

c. Segmentation
i.

Variables Used for Segmentation:

For our segmentations of markets, we first focused on a few characteristics that all

segmentations would share as a whole target market. The characteristics we came up with were

30

mainly focused around men and women that were trying to add a spontaneous streak or
adventure to their lives. However, we wanted it to be a realistic sense of adventure that people
could participate in without getting too carried away, or spending a great deal of money on
something they would later regret. Our team decided that our market would be made up of
singles and couples, but without children. Customers have the option of traveling alone or in a
group. One of the unique things about our service, is that it is pleasing to travelers of all ages.

ii.

Specific Customer Segments:

Our team has developed three specific customer segments within our target market. We

developed these segments based on different age groups: College-Aged Students (roughly 1823), Post-Graduation (roughly 24-35), and Post-College Transition (roughly 35+). All three
segments of customers have different characteristics, needs and wants.

College-Aged Students: These customers are spontaneous and willing to try just about
anything that sounds appealing. Since our service is offered during the first quarter (roughly
January through March), these customers will be looking spring break plans. Blind Booking will
appeal to them for multiple reasons. First, this is an inexpensive way for young people to travel.
College students finally have a way to have an exciting spring break without draining their bank
accounts. This is also an easier alternative than planning an extensive week-long trip. With just a
few simple clicks, students will have made a decision on what destination they will be traveling
too, and they will already have transportation to make their journey. The only other aspect that
will need to be taken care of is lodging. It eliminates the indecisive steps most people face. By
making it simple, it eliminates the stress that comes with planning vacations. College students

31

are under enough stress as it is, this makes planning a trip simple, not stressful, and cheap,
however, it still keeps the exciting and spontaneous side to it.

Post-Graduate Students: These customers are looking for an exploration or an adventure

to somewhere new. They have grown out of the carefree attitude that college students still have,
but they have not quite matured into the qualities that the mature middle-aged adults have quite
yet. These are the people who are trying to become employed- but have not developed the
workaholic lifestyle. They are trying to hold onto their youth while making the transition into
the real world. Blind Booking is a great option for them, because its a mature way to incorporate
adventure into a customers life. Since these customers have not quite developed a strong career
yet, it is a cheaper alternative than all-inclusive resorts. The no-stress aspect of this service is
also appealing to them because they can focus the rest of their time and energy researching the
things that take priority.

Post-College Transition: These are customers that have already developed their career
and have settled into their lives comfortably. They are typically customers without kids, but are
looking for a getaway for a short amount of time. This service appeals to them because they
are able to add a little adventure to their lives, but still have the options to live luxuriously
through their lodging choices. This service is unique to them because it is different than the
typical vacation tradition. These customers now have the option to travel somewhere new in the
country without doing extensive planning for it. The low price also offers multiple benefits for
them as well. These customers have the ability to put more money towards lodging, fine food
and exciting activities at the destination they receive.

32

d. Targeting

Our team developed a survey that we had sent out to multiple different age groups via
various social media sites and through email. In the survey there were two main questions that
we asked in order to determine our largest target market. The first question asked for your age
range. The results we received are recorded in a chart below.

College-Aged
Student (18-23)
Post-Graduation
(24-35)

19%

Post-College
Transition (35+)

9%
72%

With our survey, our team realized this is only a sample of the population, and cant
make up for the entire targeted segments. We had 58 participants, with 42 people being in the
18-23 age range, 5 people being in the 24-35 age range, and 11 people being in the 35+ age
group. We made the assumption that this would be a good basis to go off of to see which age
groups would be hold an interest of utilizing our service.
The next question we asked was fairly simple and straight to the point; it asked
participants if they would be interested in participating in a new service Delta Airlines would be

33

offering. In the question we vaguely explained our Blind Booking service, and the answers were
either that participants were interested or not interested. Out of 58 participants the results are
displayed in the graph below.

2%5%

Interested (18-23)

14%

Interested (24-35)
Interested (35+)
Not Interested (18-23)

14%

58%

Not Interested(24-35)
Not Interested (35+)

7%

With our survey, our team realized this is only a sample of the population, and cant
make up for the entire targeted segments. We had 58 participants, with 42 people being in the
18-23 age range, 5 people being in the 24-35 age range, and 11 people being in the 35+ age
group. We made the assumption that this would be a good basis to go off of to see which age
groups would be hold an interest of utilizing our service.
The results of the graph should that the main segment that was interested in our service
was the 18-23 segment. However, it can also be argued that this is due to the fact that almost

34

quadruple the number of people were in that age segmentation participated in our survey.
Although based on the results, 80% of that segment was interested in utilizing our service. The
next age group that was interested was the segment of 35+ year old people. Based on the results
72% of that segment was interested in our product. The next age group that was analyzed from
the results was the 24-35 age segment, which had the least amount of participants. There was
also an 80% interest from that segment as well. All three segments shown a large interest in
utilizing our services, which means they are all great markets for Delta Airlines to target.
However, based on the analysis of the results, the two main targeted market segments should be
the college students (ages roughly 18-23), as well as the people in post-college transition (ages
roughly 35+).

e. Positioning
i.

Positioning in the eyes of the customer

Delta Airlines can vaguely position the Blind Booking service to the entire targeted

market, however since all the segmentations have differences between them, steps must be taken
in order to position the service the correct way to a specific group.
For all segments, Blind Booking can clearly be advertised through Delta Airlines website.
Our service can be promoted on the front page during the first quarter, so it can intrigue
customers to click on it. However, this is one of the few ways that we can position this service to
all segments. Since the three segments we have developed all have different needs, priorities, and
lifestyles, our rest of our approach for positioning of our service will be different for all three.

35

College-Aged Students and Post Graduation: While these two segments are quite
different from one another, our team has made the assumption the Delta Airlines will focus on
social media as a way to position and promote our product. This age group is a highly advanced
generation that is specifically familiar with technology, especially in the form of social media
sites. Social media such as Facebook, Twitter, and Instagram, are some of the most popular
applications and websites that corporations have been using to promote and position new
products. By sponsoring advertisements on social media, corporations are able to reach a much
larger number of people- specifically that age group of our two segmentations. By using this
approach to position our Blind Booking service, we will successfully reach these two segments
of our target market.

Post-College Transition: For this segment of our targeted market, this age group is not as
advanced in technology, so by using our previous approach as we did for the other segments,
would be a waste of time and money. For this segment, the best positioning approach would be
through the use of on-flight advertisements. For example, a slide that is shown on the TV screens
before, during, and after the flight. Also, an advertisement page in the airfare magazine would
also be an exceptional way to reach this segment. This segment is more for customers with
disposable income, so a chance them having a family is unlikely. Also having different lodgings
promote us would also be a successful way to position our service to this market segment.

ii.

Compared to competitors

36

Delta Airlines competitors are currently positioning their services based solely around the
cost of their service. With a fragile economy, and prices in fuel rising, the competitors United
Continental Holding (UCH) and American Airlines are constantly concerning themselves with
price strategies for their targeted markets. With our service being a cheaper alternative to the
traditional vacation getaway, this will push Delta Airlines as a stronger competitor. Our company
already has generally lower airline tickets than UCH and American Airlines, however with this
also being another option for a generally low-revenue time of the financial year, our team has
made the assumption that many customers will choose Delta over any other airline brand.

4. Strategy Execution

37

a. Product
i.

Goals

With the new service of Blind Booking, our team has developed a few key goals for
Delta Airlines. First, we plan to keep all of the same quality characteristics that is found
throughout every aspect of booking a flight through Delta. From the beginning, our website for
Blind Booking will be clear, concise, and easy to navigate. To avoid problems, we will have a
detailed description of our service on the web page, including a Frequently Asked Questions
(FAQ) section, that way customers are fully knowledgeable of our service before they participate
in it. We also will encourage our customers to research the possible destinations before they
process their payment, to avoid disappointment. We believe that with this strategy, we will meet
all the quality customer service that is found prior to even arriving at the airport.
When the time comes for our customers to make their journey to their airport for their
travels, they will experience all the same benefits found with a regular booking through Delta
Airlines. They will be able to print their boarding pass from home 24 hours in advance, as well
as having the option of using the app on their smartphones. The check-in process at the airport,
as well as security will be the same. However, our baggage policies will be the same, meaning
customers will have to pay the same $25 for their first check bag, although carry-on policies will
be the same.
Throughout the flight, Blind Booking customers will experience the same treatment as
any other economy class customer. They will receive the same benefits and same high-quality
treatment for our flight attendants. However, on the journey to their destination as well as their
journey home, they will receive a survey to fill out that outlines how they feel about our service,

38

if they would like to see it offered during a longer time period, as well any comments, concerns
or suggestions they have for Delta Airlines new service.
Our team has also developed a set of financial goals as well. Through the new service of
Blind Booking, we expect to raise first quarter sales by 0.5%, 0.7%, 0.8%, 0.2%, and 0.3% over
the next five years. We have determined that the flights will be fuller, and there will be less
available seat miles at the end of the fiscal year. After calculating the leftover average seat miles
of the past years, we expect with the service of Blind Booking, average seat miles will decrease
by 0.5% within the first launch, meaning 0.5% more of seats will be filled in 2015. Respectively
within the next four years after the first launch of our service, we expect the extra seat ratios to
be 0.7%, 0.8%, 0.2%, and 0.3%. With these extra seats earned, we have calculated the operating
revenue by multiplying price per revenue per available seat mile with new revenue passenger
miles. For the best case, we hope Delta will increase by 1.1% filling empty seats in the first year
launch. For the worst case, it would only be a 0.3% increase.

ii.

Detailed Description of Service

Blind Booking will be a product development for Delta Airlines. This new service will be
offered during the first quarter of the year, roughly through the months of January through
March. Through Blind Booking customers will be able to book a standard economy class flight
up to 45 days in advance. With our service customers will receive a list of possible destinations
in the United States, based on the specific time period they choose. However, what makes this
service different from booking a normal flight through Delta Airlines? First, flights will be
offered at a discounted price of

. Here comes the catch- customers will be unaware of their

destination until their payment has processed. Once their payment has been confirmed, they will

39

be emailed their flight itinerary, which includes their destination, time of flight, terminal, etc.
However, if in the list of possible destinations there is a city customers would prefer not to travel
too than they have the option of crossing it off the list for a small fee of $10. The more cities that
are crossed off of the list, the more their flight will be. The ticket purchased will include roundtrip airfare.

iii.

Detailed Description of Processes

Through a standard booking process with Delta Airlines, Secure Flight is a program used
that was developed by the Transportation Security Administration. This program is used to better
the security of booking online, and requires all standard and specific information for U.S. air
travel. This is a mandatory program all airlines must use, and Delta is no exception. For the
payment process of the flights, credit/debit cards are accepted. The list of credit/debit cards
accepted are: American Express, Diners Club, Discover Network, JCB, MasterCard, UATP,
and Visa. PayPal is also a payment option. Customers are also able to use the online interactive
seat map to choose which seat they would prefer. This is not always an option for some aircrafts
however. Once the booking process is through, the tickets are usually sent electronically to the
customers email. However, if needed a paper ticket or electronic ticket receipt can also be sent
through a different delivery service.
With our new service, we will not be changing any aspect involved in the booking
process. We will also not be changing the schedule of flights that has already been created. The
process chart of Deltas airline will stay exactly the same, we will simply be adding another
option for customers to reserve their tickets for their desired journey.

40

Customers will be able to book a last-minute flight at a discounted price. Customers will
be asked to provide details such as the date and times they would wish to travel, and they will be
given a list of different cities that have flights during the selected times with available seats. Our
service is based out of the main hubs of Delta Airlines. This means that the list of the possible
options that travelers will have as a destination will be a portion, or all of our main hubs,
depending on the times selected. Our team will create a system similar to the system used for
basic booking of flights. This online system will gather the scheduled flight information and it
will correspond with the dates and times the customer has selected. From there, a list of
selections will be generated and the customer will have the option to delete cities off their list.
Each city eliminated will be an increase of $10 to their ticket price. Once satisfied with the list,
customers will finish the booking process, and once their payment has processed they will
receive their destination and flight details. Besides the few key details, the online system will
contain the same process of the normal booking process. The real-time schedule and fare
information will be identical, as well as the security Delta Airlines provides.

iv.

Outsourced Components

In addition to some of the many benefits that our new product has to offer, probably the
biggest plus is that this product will require next to zero additional outsourcing or costs directly
related to this product. Introducing blind booking to Delta Airlines list of products will not
require any new costs asides from more advertising. All blind booking does is give the company
a chance to fill empty seats without providing any major changes to their day to day operations.
Customers will still show up on the day of the flight, board the plane, and take off for whatever

41

adventure that they had in mind, only now, the number of sold out planes will increase thus
improving Deltas bottom line making everyone happy, especially the shareholders.

v.

Product Life Cycle Stage

All products and services go through a product life cycle (PLC). At first you go through
and introductory stage, then the growth stage, then the product reaches its maturity stage, and
finishes with the decline stage. The introductory stage is highlighted with high start-up costs,
little to no competition, and a high risk of failure. It is difficult to overcome this obstacle because
there are usually many challenges associated with this stage. Some of these challenges include
high advertising costs, little distribution, and frequent modifications to the product. Our product
falls under the introductory stage because there is no other product like this in North America.
The concept of Blind Booking would be a brand new idea to just about everyone in the
United States. If Delta Airlines was to implement such a service, it would require a lot of
advertising so that all of the potential customers were not only aware of the new service being
offered, but also that they understand what it is and why it should entice them to try it. They need
to find a way to make sure they see all of the benefits it has to offer. Our advertising needs to
focus on why the customers would want to try this new concept. Many times when introducing a
new product, companies offer different sorts of incentives to the customers in order to get them
to try it.
In addition to paying a considerably lower cost for their otherwise expensive ticket, we
could have a promotion where we would offer double the frequent flyer miles that the customer
would accrue over the usual flight. One of the biggest keys to success for an airline is their

42

ability to repeat business with the same customers. Frequent flyer miles are probably the biggest
example of an incentive that airlines offer to their travelers to keep them happy and to develop
that customer loyalty.
When introducing a new product to a market that has never seen anything like it before,
generally one of the biggest obstacles to overcome is, how are we going to get this product to
the customers? For many companies, this is problem because often times they are too small at
the moment to introduce their product to the market that they need in order to expand their
business and to continue to develop their product. Fortunately, Delta Airlines is the second
largest airline in the world. This gives us an advantage of nearly every airline in the market.
Delta flies out of virtually every major city with an airport in the country. With so many
locations, it is only a matter of deciding which market this product would do best in and then we
implement it there.
With blind booking being a brand new concept to the market, there is bound to be many
modifications that will have to be made in order for this product to succeed. This is an idea that
can potentially fill all kinds of empty seats on planes thus increasing revenue without the need
for much more additional costs. Some of the potential modifications that we would have to make
to this service would be where we offer the blind booking. Initially, we want to test the product
in a limited area as to better interpret the products success, but hopefully in the new future we
will have to expand and offer it in many other locations. Perhaps people in certain areas of the
country value this product more highly than others in a different part of the country. If that is the
case, then we will have to look into where this is a high demand for this product and where there
is not.

43

One of the biggest potential modifications that we could potentially have to make would
be the price for these last minute tickets. If we find that there is a very high demand for people
who want to try blind booking but there are not enough open seats for these customers, then we
may have to see how much we can raise the price to try and bring the supply and demand to a
state of equilibrium. And vice versa, if there is little interest in the product because people do not
think the price is worth not knowing for sure where they are going, then we may have to lower
the price for these tickets. The good thing about this is that our costs of offering such a product
will not be very high, so we are free to change the price depending on the situation. Most of the
money generated from blind booking is all extra revenue that Delta would not have collected
without this product.
The whole idea of whether or not to develop a new product can be simply asked, Will
this new product give the firm a competitive advantage in the market? Blind booking will
easily give Delta Airlines a huge competitive advantage in the market because it is something
that no other competing airline does. Blind booking will attract customers who have never flown
Delta before. Once they experience the same kind of great traveling experience that Delta has
been developing a reputation for in recent years, they could potentially become lifetime
customers, which can help Delta stay profitable for many years to come. The real question just
might be, How can Delta afford not offer such a product to the consumers?

vi.

Complimentary Services and Warranties

For many when they arrive at the airport, chances are they did not simply have a five
minute drive to the airport where they can turn around and go home if they need to. Most spend a

44

fair amount of time traveling before they even get to the airport. Some get rides to the airport
from their friends or relatives, some take a taxi all the way from their homes, and some drive
their own cars and leave them in airport parking of some kind. The reality of blind booking,
some people are going to attempt to purchases their ticket on the day of the flight and that is fine,
that is something we are trying to encourage with this product, but there is a chance that those
same people are will experience some kind of difficulty when they arrive. In the event that
customers are not able to get a ticket for that day, we do not want them to be stuck at the airport
with no idea what to do.
Blind booking is supposed to be fun and spontaneous. We want it to be so easy for
customers to get the idea in their head that they want to get away for the weekend that they can
pack their bags, head to airport, and take off to someplace fun and exciting. In order to make that
happen, one of the things that the customers need to be reassured of is will I have to pay an
outrageous fee for parking if they get to the airport and are unavailable to travel. A simple
solution that we want implement is a system for parking where people can leave their cars in the
parking lots just like they would normally would and get shuttled to the airport. If they are
unable to fly, we them to be able to go back to their cars and leave without having to pay for a
days worth of parking. We would simply make it so that if you attempt to leave with your car
within two hours of parking it, there is no charge to them. Making this product more customer
friendly will allow others to feel better about blind booking and will make them want to do it
themselves.
Another way we can make the idea of blind booking more accessible for customers who
choose to get dropped off at the airport by friends, family, or a taxi, is to offer a way for them to
get home. Customers should not be worrying about if they go to the airport and they cannot get a

45

ticket, how am I going to get home. If this problems arises, then we want to offer taxis that are
just for Delta Airlines customers so that they always have a way to get home. Having something
this simple takes all kinds of pressure off the customers and makes their lives easier. Traveling is
often a stressful time for most people so we want to make their traveling as smooth as possible so
they will continue to fly with Delta.
Like most airlines, when customers purchase their tickets in advance, something may
come up and prevent them from flying on the date that planned on. Luckily with our blind
booking, you can simply change the date that you want to fly. For the most part, if you are
willing to travel to a random destination one weekend in the middle of winter just to get away,
odds are you are probably going to be able to do the same the weekend after or some other time
in the near future. While this service will appeal to the much more spontaneous travelers, we
want to try and make this accessible to those who are not that daring and willing to spend the
money to randomly travel around the country despite the heavily discounted ticket.
If all of these reassuring services available to make customers more open to the idea of
blind booking, we will also be offering additional perks such as free in-flight Wi-Fi as well as
double the frequent flyer miles. In an effort to get more people try this new product out, we want
to give the flyers more of an incentive to fly and have a good time. Doubling the frequent flyer
miles that the customers earn will push them to try once and once experiencing the excellence
service provided by Delta Airlines, they will be hooked and continue to fly Delta. Once we have
them buying these tickets and have them filling our planes, we continue to make their flying
experience better with free Wi-Fi on the plane. Having your favorite internet enabled device at
full access while you are flying can make your flight seem faster and smoother. In-flight Wi-Fi
can run you anywhere from $15 and up depending on who you fly with and how long you want

46

to have access to it. So in addition to the customers already heavily discounted ticket, they will
continue to have great savings making them want to travel more often.

b. Place
i.

Goals

Delta Airlines has attempted to encounter multiple goals in an effort to diversify as a

company as well as increase flights by improving their distribution network. Delta prides itself
upon operating in strong distribution channels. One of our goals is to re-evaluate our supply
chain as a whole. The first step to improving our supply chain is to analyze the demand of
fulfilling empty seats on each flight. The second step is to create an inventory profile by
identifying relevant inventory attributes such as number of passengers, and also the relevant
locations for the blind booking to take place. At the end of this step, we will have a process to
analyze the amount of seating still available and also report on the number of empty seats that
have been increased by implementing blind booking. The third step is to create a demand
planning process that can be executed routinely. We need to establish a routine demand planning
process that operates effectively and efficiently to both collect and predict a companys demand.
After following these steps we have decided to keep our current supply chain.
ii.

Level of Market Exposure

Delta Airlines markets their flights through online networking so that distribution of
tickets can be distributed directly to the customers household by simply printing the ticket. With
blind booking being implemented to Delta Airlines is now going to market blind booking flights
though social networking sites along with their actual company website. With only offering blind

47

booking at limited locations it is very important for Delta to market the blind booking tickets to
fulfill empty seats on daily flights.
iii.

Detailed Description of Supply Chain System

Delta Airline industries have improved the travelling experience of passengers across the
world. Delta Air Lines is one of the top American airline companies that offer travel to 333
different destinations and 64 countries around the world. (Delta Air Lines Fleet Details and
History, 1) The main headquarters are located in Atlanta, Georgia. With having international
travel, Delta has hubs in Amsterdam, Paris, and Tokyo. The past couple years Delta has based its
companies focus around supply chain management. Many new companies entering the industry
lag behind due to not having an effective SCM (Supply Chain Management) system.
One of the main goals for Deltas supply chain management team was to find a way to
cut fuel costs. They believed that fuel costs were holding them back from being on top of the
airline industry. Many different airline industries have tried numerous ways of cutting fuel costs
but none have seemed to make a huge difference in savings. With a fleet of more than 700
aircrafts the company had to find a way to be more fuel efficient. (Benjamin, 1) Most of Deltas
aircrafts are older less fuel- efficient aircrafts which really limits profitability due to high fuel
costs. In 2012 Delta Air Lines decided that they were going to spend $150 million on an oil
refinery to cut the fuel costs. (Benjamin, 1) The first year money was actually lost due to fuel
prices lowering because of Delta purchasing such a large oil refinery. With having not having a
large need for oil it lowered the cost of jet fuel. The oil refinery has definitely had its ups and
downs. During 2013 it is figured that Delta lost $116 million dollars at the refinery. (Benjamin,

48

1) However, upgrades and changes have been made and its projected that Deltas oil refinery
could save the company up to $300 million a year in fuel costs. (Benjamin, 1)
Delta Air Lines is well known for their high quality aircraft repair, maintenance, and
servicing. (News Archive, 1) This helps separate them from their competitors by having high
customer satisfaction. In order to meet industry goals and objectives, all aspects of engineering,
quality, planning, logistics, and maintenance are carefully managed and applied by highly skilled
and well-experienced professionals who have sufficient knowledge about the main goals and
objectives of the Supply Chain Management process. (News Archive, 1) These professionals
work hard as a team to find the cheapest but most efficient ways to repair and maintenance
aircrafts. Once the team decides what products are needed they then find suppliers that can
export the products that Delta needs to repair the aircrafts. As previously stated, after an aircraft
is repaired many tests are given to make sure the aircraft is safe to start traveling again.
For this project, as a group, we decided that we were going to focus our company on
international travels and the growth of Delta Air Lines to overpower the competitors. We
decided to take the flights that have extra seats and offer them to customers at a discount rate.
Customers will get a list of cities in different countries to travel too for a cheaper rate. Delta will
then list all the cities available and the customer is allowed to x the cities they dont wish to
travel too. Each time an x is applied to a city a small fee is applied. The catch to all this is that
the customer doesnt know where theyre traveling until the payment process is complete. We
dont believe that this new change to the corporation will have any effect on the supply chain.
Adding last minute passengers to a plane will not change the travel of the aircraft or anything
along that nature. If anything we believe it will only benefit the profit of the company by filling
the empty seats that would have been left empty in the past.

49

"Delta Air Lines Fleet Details and History." - Planespotters.net Just Aviation. N.p., n.d. Web. 08 Oct.
2014.
"News Archive." Delta Technicians to Remain Union-Free. N.p., n.d. Web. 08 Oct. 2014.
Zhang, Benjamin. "How Delta Bought A Refinery And Wound Up Saving Its Rivals A Ton Of
Cash." Business Insider. Business Insider, Inc, 02 Sept. 2014. Web. 08 Oct. 2014.

c. Promotion
i.

Goals

The number one goal for Delta Airlines with blind booking is to fill every available seat
on a Delta Airlines flight. Delta Airlines wants to offer current and potential customers the
chance to be spontaneous and save a buck in the process. It is Delta Airlines goal to become the
first to successfully use blind booking in the Unites States of America. With blind booking we
hope to see a drastic decrease in the number of empty seats per flight in the first quarter of the
year. With this new way to fly Delta hopes to attract new and current customers to use blind
booking. When it comes to traveling by air we want people to recognize that Delta Airlines is an
industry leader and the only choice when it comes to flying.
ii.

Promotional Blend

Delta Airlines has many ways to promote itself. Advertising and sales promotion will
play a huge role in the success of blind booking. Delta Airlines will advertise blind booking from
their website, email newsletters, billboards and posters around airport terminals, television
commercials, and radio ads. Also Delta Airlines will be advertising on in flight videos before
takeoff and after landing. For the sales promotion of blind booking Delta will be offering current
customers a chance to not only use their sky miles with blind booking, but also earn double

50

miles with any blind booking flight. Also, anyone who does book a flight with Deltas blind
booking will receive complementary Wi-Fi (internet) for their flight. Delta expects the sales
promotion to really attract customers to use blind booking with the sky miles, and also the
price of the airline ticket should draw them in and want to fly with Delta Airlines. For Deltas
public relations nothing much will change. Delta still commits many hours to volunteer work
with the local communities around Delta Airline hubs and headquarters. Delta will still continue
to strive to lower its carbon footprint and maintain a positive public opinion.

d. Price
i.

Goals/Pricing Strategy

Our pricing goals for blind booking are pretty simple. Because these seats are already
available and not being used we want to give customers an incentive to blindly purchase a ticket
to a random city out of ten choices. Due to the large amount of uncertainty in where your flight
will be going customers may not use blind booking if the tickets are not discounted enough. We
have decided that tickets should be at a 50% discount of the average ticket price between all the
cities involved in the blind booking. Then, for every city that the customer chooses to eliminate,
the ticket price will increase by $10. This is a fair pricing strategy because as the customer
eliminates destinations the uncertainty is also decreasing make the ticket more and more like a
normally purchased ticket. However, it is possible that if someone chose to eliminate 9 out of 10
destination their ticket could be cheaper than if they went through the normal ticket portal.
Because of this we have decided that no more than 5 destinations can be eliminated.

51

ii.

Value Proposition and Customer Price Sensitivity

Blind booking may not have value in every customers eyes but for people that are a little
more adventurous or spontaneous there is a lot of value in the blind booking option. If a
customer is looking for a vacation but doesnt really care where a half priced ticket to a popular
vacation spot is hard to pass up. In launching this project we know that customers will be
sensitive to price changes, however we also are giving the customers the opportunity to have
control over their prices. If a customer wants a ticket 50% off then they wont eliminate any
destinations, if they would rather pay a little more and have some more security in knowing
where they are going then they might eliminate some destinations. This puts a lot of the pricing
power into the consumers hand, something that our consumer economy values highly in recent
years.

iii.

Breakeven Analysis
Our break-even analysis was calculated based on seat miles. For our base sales
projections we expect to fill 4,497,043.27 extra seat miles. Our break-even point
is at 2,707,922.86 seat miles.

Break Even Analysis

Fixed

Unit Operating

Unit Variable

Break-Even

52

Cost

Fixed cost/(unit operating revenue-unit

variable cost)

iv.

Revenue

$82,275.
85

Cost

$0.17268

Point

$0.1423

2,707,922.8

Pro Forma
Q1 2015
Base

Q1 2015
Worst

Q1 2015
Best

Pro Forma Data

Q1 2013

Q1 2014

Domestic Available Miles

25,517,969,0
00.00

26,100,077,0
00.00

522,001,5
40.00

522,001,5
40.00

522,001,5
40.00

Domestic Passenger Revenue

Miles

21,321,494,0
00.00

22,224,738,0
00.00

449,704,3
26.71

447,094,3
19.01

454,924,3
42.11

83.55%

85.15%

86.15%

85.65%

87.15%

4,497,043.
27

2,235,471.
60

9,098,486.
84

% Availble miles filled

Project Revenue Miles

Operating Cost per available
mile

$0.1453

$0.1433

$0.1423

$0.1423

$0.1423

Operating cost

$3,707,760,8
95.70

$3,740,141,0
34.10

$639,929.
26

$318,107.
61

$1,294,71
4.68

Operating Revenue

$3,383,000,0
00.00

$3,734,000,0
00.00

$776,564.
63

$386,028.
79

$1,571,15
7.45

$0.1587

$0.1680

$0.17268

$0.17268

$0.17268

Operating Revenue per

Passenger Revenue Mile

Above is all the data that was used in calculating and finding the below data for
projecting cash flows and creating the pro formas.

53

5. Companys Operations & Supply Chain Situation Analysis

Step One: Growth and Supply Chain Mission

Delta Airlines Operations & Supply Mission

To create a unique service for our valued customers that will help us achieve our financial goals, which is
specially an increase in our first quarter sales.

Delta Airlines Growth Strategy & Financial Goals

Our growth strategy for Delta Airlines is to create a product development for the United States market.
Our financial goals are to improve our companys sales with our new product. With this service we will
offer a range of flights in the different regions of the United States at a discounted rate, however there is a
catch. Customers will be unaware of their destination until their payment has processed. The list of flights
will depend on the flights for that time period, as well as the flights with extra seats available. Our goal is
to increase the first quarter sales specifically, by offering a blind booking service to our customers during
the months of January-March.

54

Delta Airlines SWOT Analysis

Strengths
Strong employee group of 85,000
SkyTeam marketing member
Works with many international airlines
(AirFrance)
2014 Airline of the Year by Air Transport
magazine
One of FORTUNES 50 Most Admired
Companies
Merged with Northwest Airlines
Around 5,000 flights a day

Weaknesses
Strong dependency on the North American market
Too narrow of a product line
Business fliers doubt Delta Airlines will fulfill
their needs

Opportunities
Threats
Growing SkyMiles- only airline with no expiration Trying to come back from tainted image in
date on miles earned
2010 when ranked Worst Airline in America by
Capitalizing on emerging market of aircraft
USNews.com
maintenance, repair and overhaul
Companies are moving to cheaper alternatives
Trying to recreate business class (business office
for their business travelers
on airplanes

Rising fuel prices

Top competitors: American Airlines,
Southwest Airlines, Lufthansa

55

Step 2: Develop critical success factor

1) Developing low-fuel planes in effort to save gas/reduce fuel costs.

2) Research ways to make planes lighter/encourage less baggage for
customers in effort to reduce fuel costs.
3) Expanding amount of routes at main hubs to give customers more
options, as well as to strengthen Delta Airlines against competitors.
4) Develop strong international hubs to remain as one of the top
worldwide competitors.
5) Increase international flights by merging and working with international
airlines (ex. AirFrance)
6) Increase innovative strategic planning for services offered (ex. Blind
Booking to North American market)

7) Ensure top quality customer service to build long-term relationships with

customers.
8) Flexible operations.
9) Cooperative pricing.

56

Step 3: Critical success factor health check

CRITICAL SUCCESS FACTOR

1

YOUR GRADING
A, B, C, D, OR E
Developing low-fuel planes in effort to save B
gas/reduce fuel costs.

Research ways to make planes

lighter/encourage less baggage for customers
in effort to reduce fuel costs.
Expanding amount of routes at main hubs to
give customers more options, as well as to
strengthen Delta Airlines against competitors.
Develop strong international hubs to remain
as one of the top worldwide competitors.

Increase international flights by merging and

working with international airlines (ex.
AirFrance)
Increase innovative strategic planning for
services offered (ex. Blind Booking to
North American market)
Ensure top quality customer service to build
long-term relationships with customers.

Flexible operations.

Cooperative pricing.

2
3
4
5
6
7

A
A

B
A

A = Excellent, B = Good, C = Average, D = Poor,

E = Embryonic

Step 4: CSFs

Helping Forces

Reduce Fuel Costs

Create low-fuel planes, start

researching and applying methods
used for cars, determining how to
make planes lighter-lowering
baggage limit or charging more
for baggage

Strengthen Delta
Airlines against
competitors

Expanding amount of flights at

two of the main hubs including
locations and destinations

Develop a Strong
International Base

Increase Innovative
Strategic Planning

Quality Customer
Service

Price of fuel keeps rising,

especially for international
flights, wouldnt want to
decrease weight of the plane by
offering less seats, also people
may choose different airlines
because of baggage fees that are
cheaper or nonexistent

Building upon relationships with

international airlines such as
AirFrance, and offering more
routes at international routes and
destinations at main international
hubs
Trying to keep up-to-date with
different markets, such as
business class (creating a more
business feel for business
travelers), developing a blind
booking (our core project)
Always putting their customers
first, only airline that offers
unlimited SkyMiles

What Must We Do
Extremely Well
Statements

Blocking Forces

American Airlines and United

Airlines have been working on
this strategy for the last two
years, so they are already ahead
of the game

We must continue to
support our own refineries
so that we can keep the
price of jet fuel as low as
possible by cutting out the
middleman

We must carry out our day

to day level of success that
the customers have come to
expect from us as to
develop a brand loyalty
with the customers

We must continue to
develop the Delta name in
countries that already have
access to Delta airlines as
well as continue to expand
into new markets

Me must discover what the

people want and to give it
to them better than anyone
else

We must always as
ourselves, What do the
customers want?

Competing with multiple

international airlines that offer
cheaper flights and more
options (examples: RyanAir,
Lufthansa, GermanWings

Becomes difficult to create new

innovative ideas that Delta is
financially able to do

Other airlines are starting to

look into the same ideas

58

59

Step 5: Focus for Performance Indicators:

Effectiveness
Indicators:

Their past merger went swift and smoothly.

Delta Airlines serve more than 160 million customers a
year.
Delta offers 369 destinations, to 67 countries and to 6
continents
They work with creating joint ventures with multiple
international airlines in order to be effective for
international markets.
Quality service is a top priority.
Delta flights are always on-time and/or on-schedule
with cycle time (if late vouchers are offered).
They uses SkyMiles for repeat customers.
Delta has a clean, organized and easy to navigate
website.
They offer easy check-in with the applications you can
download on cellular phone.
Customers have ability to print boarding pass at home
or download it to cellular phone.

Efficiency
Indicators:

2nd on time for on-time arrivals

1st for cancelled flights
2nd for extreme delays
3rd for mishandled bags
3rd for complaints
2nd for overall rank
Cost of waste

Adaptability
Indicators:

Adapting by adding more routes to main hubs

Keeping SkyMiles from expiring so they can be used
and not wasted
Merging/creating joint ventures with international
airlines to offer better opportunities for international
flyers
Working to improve business class
Even with the rise in fuel- trying to keep prices fairly
reasonable
With our blind booking it will apply to a larger marketthe spontaneous customers (being adventurous is
becoming popular and company will grow to new trend)

60

What Could Go
Wrong? (Key
Vulnerable Areas)

What Will Cause

This Problem?

Your Preventative
Actions

Your Contingency
Actions

No open seats for

specific weekends

A lot of travel for a

popular weekend

Encouraging people
to book 3+ weeks in
advance, especially
during popular flying
weekends

If no flights are
available for a
specific weekend
look into expanding
routes

Weather causes
delays for flights

Unpredicted unusual
weather patterns (ex.
snow in Midwest in
April)

Explaining to
customers it is out of
companys control

Check weather
forecasts weekly and
put up warnings if
flights are predicted
as delays or cancelled

Still filling seats but

losing significant
amount of income

Further destinations
require more fuel
however cost of ticket
is same for everyone

Not choosing areas

that are great
distances, if seats are
unsold a profit will
still be made
regardless

Look into charging

more per region and
limiting options of
cities

People complaining
about not getting a
trip they want

Forgetting to mark
off an undesirable
destination due to
various reasons
(added money, lack
of knowledge of
destination, etc.)

Making it clearly
visible they must
eliminate each city
they do not wish to
travel to and to
encourage customers
to research all cities
offered

If complaints arise,
identify the specific
problem, and
brainstorm ways as to
how to fix the
problem

Dropping service
with Delta due to
poor experience

Having a poor
vacation experience

Offer customer
feedback after every
flight, promote
surveys and
questionnaires.

Always offer
exceptional customer
service, even if that
means changing the
destination for a
small fee

61

Step 6:

Conclusion:
Our teams conclusion is that while there may be some delays, complaints and issues with
Blind Booking, overall the result will be positive. With flights and traveling, one cannot please every
customer 100%. Traveling can be a very stressful, which can lead to customers not being satisfied.
However, based on our research, our team has made the assumption that despite the possible
complaints this new service will be a success.

Recommendations:
Our recommendation is that with implementing this service we must have a clear explanation
of the service on Deltas website, including a FAQ section. With this, it should answer any questions
or concerns the customer has. We also recommend that it is critical that we try to enforce customers
to research the list of possible destinations before processing their payment, that way they do not end
up with a undesirable destination. Our final recommendation is that we offer customer feedback.
This is critical because if customers have a poor experience, we want them to know that Delta cares
about ensuring that never happens again. By offering customer feedback after their experience with
Blind Booking, Delta Airlines will be able to detect the positive aspects of this new service, as well
as what needs to be altered.

Highlights:
Based on the research our team has done, we have collected that many customers would
prefer this to be a year-long service, verses just being available during the first quarter. If customers
do enjoy this service, and are pleased with the results, this will only help Delta Airlines continue

62

their long-term relationships with customers, as well as gain a new loyalty from a different
consumer.

Lowlights:
Some lowlights of this new service are that customers may be disappointed after their
journey. They may end up with a destination they are not happy with, or may have a bad experience
upon arrival. If their experience with our new service is poor, Delta Airlines may lose that customer
permanently.

63

6. Implementation and control

a. Timing and implementation activities.
We plan to release blind booking service in January of 2015. One of the reasons is the
company generally generate fewer sales in this time of the year than other periods. The company
may not well prepare for a sharp increase in the number of customers from the blind booking
program at the initial stage.
The period from 9/2014 to 12/2014 targets on advertising the program through several
channels, such as sending notifications to official members, using social Medias (Facebook, Twitter)
to reach potential customers. The blind booking section is needed to add on the official website as
well.
From January to March, the program would be officially release. We expect to increase our
sales by more than 1 percent compare to the March 2014 quarter. During the first period of
operating, we need to collect immediate feedbacks from customers, and focus on maintaining the
quality of customer service since there are more passengers taking flights.
For the rest of the year, we still need to maintain the quality of service as well as collecting
the evaluation from passengers on the program. More importantly, we target on analyzing the
customer profile of the blind booking service based on their preference. Based on the analyzed
information, we could adjust accordingly the frequency of flights to their locations.

64

Time frame

Implementation

Add blind booking section on the official website

Send notifications to official members

Use social media to reach potential customers

Promote the service at main airports

Maintain the quality of customer service since there are

9/2014-12/2014

more passengers taking flights

1/2015 3/2015

Collect immediate feedbacks from customers

Customer evaluation of the service; to maintain the quality

of service

Analyze the customer profile of the blind booking service,

such as where are the prefer locations. The blind booking

4/2015-12/2015
program could adjust accordingly based on the customer
interest.

Focus on marketing during that period of time, such as

through national TV channels, etc.

65

b. Sales Estimates (forecast)

c. Year (Q1)
Project Income
Statement
Sales
COGS
Operating Income/ EBIT
Interest Expense
Income Before Tax
Taxes
Net Income
Initial Investment
Depreciation
Cash Flows

2015
Base

2016
Base

2017
Base

2018
Base

2019
Base

2020
Base

$776,565
$722,205
$54,360

$799,862
$743,871
$55,990

$823,857
$766,187
$57,670

$848,573
$789,173
$59,400

$874,030
$812,848
$61,182

$900,251
$837,234
$63,018

$54,360
$19,798
$34,562
$72,221
$14,444
$49,006

$55,990
$20,392
$35,599
$$14,444
$50,043

$57,670
$21,003
$36,667
$$14,444
$51,111

$59,400
$21,634
$37,767
$$14,444
$52,211

$61,182
$22,283
$38,900
$$14,444
$53,344

$63,018
$22,951
$40,067
$$14,444
$54,511

Above is Blind Bookings base Pro Forma shows that although profits are minimal this
project is profitable and a good addition for the company. We showed a 1% increase in passenger
revenue miles for our base projections of this project. Below is the worst-case scenario; instead of a
1% increase in revenue miles it only shows a .5% increase.

c. Forecasts/Estimates
The original idea of filling available seat miles by operating the blind booking service is very
practical and promising for several reasons: (i) low initial investment, (ii) low risk of investment and
the opportunity to increase bottom line. The project does not incur a large amount of expenses on the
building infrastructure, or technological innovation since all of them are available in Delta, with or
without the blind booking project. However, to have a better and accurate view for long term benefit,
several important factors need to forecast and estimate.

66

Cost of revenues
Cost of revenue is the total cost of delivering a product or service. We expect the cost will
increase at a steady rate after initializing the blind booking project. First, the number of flights may
increase. As we know, a flight can be cancelled or delayed for numerous reasons one of which is
because of lacking passengers. Blind booking service offer low price tickets can increase the
numbers of customers that forces flights to carry on without cancelling. Second, along with the
increase in the number of costumers, the company needs to increase employees to maintain the
quality of service. As a result, it increases the cost of revenue. Third, due to the typical property of
airline industry, a flight can be canceled without expectation, such as due to severe weather
condition. 17,000 flights were canceled due to severe weather in January and February 2013.11
Cancelling expected to happen more in future due to a larger number of costumers. Therefore, a
corresponding service needs to be considered to maintain the quality of Delta Airline.

Maintain quality of customer service

Delta Airline until now targets on the group of customer in medium income: $106 average
household income, 31% using premium gold card. Most of them are educated with undergrad or
graduate degree12. Now, the Delta customer profile has a tendency to change, more youth people
with possibly lower income. Delta Airline needs to change, accordingly, to maintain the quality of
service so that not only get more costumers but still keep the prior customers.

d. Sensitivity Analysis
11

http://worldairlinenews.com/2014/04/23/delta-air-lines-reports-a-first-quarter-net-profit-of-281-million-despitemore-than-17000-cancelled-flights/
12
Deltaskymedia.com

67

Year (Q1)
Project Income
Statement
Sales
COGS
Operating Income/ EBIT
Interest Expense
Income Before Tax
Taxes
Net Income
Initial Investment
Depreciation
Cash Flows

2015
Base

2016
Base

2017
Base

2018
Base

2019
Base

2020
Base

$776,565
$722,205
$54,360

$799,862
$743,871
$55,990

$823,857
$766,187
$57,670

$848,573
$789,173
$59,400

$874,030
$812,848
$61,182

$900,251
$837,234
$63,018

$54,360
$19,798
$34,562
$72,221
$14,444
$49,006

$55,990
$20,392
$35,599
$$14,444
$50,043

$57,670
$21,003
$36,667
$$14,444
$51,111

$59,400
$21,634
$37,767
$$14,444
$52,211

$61,182
$22,283
$38,900
$$14,444
$53,344

$63,018
$22,951
$40,067
$$14,444
$54,511

Above is Blind Bookings base Pro Forma shows that although profits are minimal this project is
profitable and a good addition for the company. We showed a 1% increase in passenger revenue miles for our
base projections of this project. Below is the worst-case scenario; instead of a 1% increase in revenue miles it
only shows a .5% increase.

Worst Case Scenario

2015 Worst

2016 Worst

2017 Worst

2018 Worst

2019 Worst

2020 Worst

Sales

$386,029

$397,610

$409,538

$421,824

$434,479

$447,513

COGS

$359,007

$369,777

$380,870

$392,296

$404,065

$416,187

Operating Income/ EBIT

$27,022

$27,833

$28,668

$29,528

$30,414

$31,326

Income Before Tax

$27,022

$27,833

$28,668

$29,528

$30,414

$31,326

Taxes

$9,841

$10,137

$10,441

$10,754

$11,077

$11,409

Interest Expense

68

Net Income

$17,181

$17,696

$18,227

$18,774

$19,337

$19,917

Initial Investment

$72,221

Depreciation
Cash Flows

$14,444

$14,444

$14,444

$14,444

$14,444

$14,444

$31,625

$32,140

$32,671

$33,218

$33,781

$34,361

Best Case Scenario

2015 Best

2016 Best

2017 Best

2018 Best

2019 Best

2020 Best

Sales

$1,571,157

$1,618,292

$1,666,841

$1,716,846

$1,768,352

$1,821,402

COGS

$1,461,176

$1,505,012

$1,550,162

$1,596,667

$1,644,567

$1,693,904

Operating Income/ EBIT

$109,981

$113,280

$116,679

$120,179

$123,785

$127,498

Income Before Tax

$109,981

$113,280

$116,679

$120,179

$123,785

$127,498

Taxes

$40,055

$41,257

$42,494

$43,769

$45,082

$46,435

Net Income

$69,926

$72,024

$74,184

$76,410

$78,702

$81,063

Initial Investment

$72,221

Depreciation

$14,444

$14,444

$14,444

$14,444

$14,444

$14,444

Cash Flows

$84,370

$86,468

$88,629

$90,854

$93,146

$95,507

Interest Expense

In the above best-case scenario we chose to show a 2% increase in passenger revenue miles due to
blind booking.
For our cost sensitivity analysis we chose to analyze two of Deltas biggest expenses, fuel and labor.
For the fuel analysis we increased fuel prices by 6% from 2013s calendar year average cost. Then
over the five years we had fuel increase with inflation by 3%. For the labor expense we inflated
labor cost by 5% and then also increased those with inflation.

Fuel Price Increase Sensitivity

Analysis

2015

2016

2017

2018

2019

2020

Base Sales

$776,565

$799,862

$823,857

$848,573

$874,030

$900,251

COGS Without Fuel

$481,422

$495,865

$510,741

$526,063

$541,845

$558,100

Fuel Expense (6% Inflation)

$255,154

$262,808

$270,692

$278,813

$287,178

$295,793

Total COGS

$736,576

$758,673

$781,433

$804,876

$829,022

$853,893

69

Operating Income/ EBIT

$39,989

$41,189

$42,424

$43,697

$45,008

$46,358

Interest Expense

$-

$-

$-

$-

$-

$-

Income Before Tax

$39,989

$41,189

$42,424

$43,697

$45,008

$46,358

Taxes

$13,996

$14,416

$14,849

$15,294

$15,753

$16,225

Net Income

$25,993

$26,773

$27,576

$28,403

$29,255

$30,133

Initial Investment

$72,221

Depreciation

$14,444

$14,444

$14,444

$14,444

$14,444

$14,444

Cash Flows

$40,437

$41,217

$42,020

$43,697

$43,699

$44,577

Salaries and Related

Costs Sensitivity Analysis

2015

2016

2017

2018

2019

2020

Base Sales
COGS Without Salary
Expense
Salary Expense (5%
Inflation)
Total COGS

$776,565

$799,862

$823,857

$848,573

$874,030

$900,251

$559,709

$576,500

$593,795

$611,609

$629,957

$648,856

$183,463

$188,967

$194,636

$200,475

$206,490

$212,684

$743,172

$765,468

$788,432

$812,084

$836,447

$861,540

Operating Income

$33,392

$34,394

$35,426

$36,489

$37,583

$38,711

Interest Expense

$-

$-

$-

$-

$-

$-

Income Before Tax

$33,392

$34,394

$35,426

$36,489

$37,583

$38,711

Taxes

$11,687

$12,038

$12,399

$12,771

$13,154

$13,549

Net Income

$21,705

$22,356

$23,027

$23,718

$24,429

$25,162

Initial Investment

$72,221

Depreciation

$14,444

$14,444

$14,444

$14,444

$14,444

$14,444

Cash Flows

$36,149

$36,800

$37,471

$38,162

$38,873

$39,606