Problems at Delta Airlines

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Case Details:

Case Code : BSTR135
Case Length : 18 Pages
Period : 2001 - 2004
Organization : Delta Airlines
Pub Date : 2004
Teaching Note : Available
Countries : U.S.A
Industry : Aviation

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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The Road Ahead

By mid 2004, there was no doubt that a comprehensive restructuring program was the need of the moment at Delta. Analysts said that, while Delta had managed to stay in a relatively better position than United, US Airways and American, it was fast going downhill.

Despite passenger numbers increasing marginally in 2004, Delta was not only still making losses, but the quantum of the losses was rising(Refer Exhibit VI).

Analysts also expected the airline to keep posting losses, given that fuel costs were expected to rise by $680 million in 2004, and that its cash reserves were declining rapidly due to pension payments and increased operational expenses.

In August 2004, Grinstein announced a comprehensive restructuring plan, called 'The Delta Solution', aimed to put Delta back on the growth path. "Decisive and comprehensive, this is a 360-degree plan which, when complete, will transform our product, fleet, network, and cost structure into an airline that is designed to carve out new and previously uncharted network airline territory," said Grinstein in his presentation of the plan to the board.


Exhibit I: The Hub and Spoke System

Exhibit II: Layoffs Immediately After September 11

Exhibit III: Annual Financials

Exhibit IV: Q2 2004 CASM for U.S. Airlines

Exhibit V: Labor Cost as a Percentage of Operational Cost in Q2 2004

Exhibit VI: Quarterly Profits/Losses for Delta Air Lines from First Quarter 2000 Through Second Quarter 2004. (Earnings in US Dollars)

Exhibit VII: Key Initiatives Under the Delta Solution

Exhibit VIII: Delta's Restructuring Plan


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