Signals Maintains Its Airlines Outlook At Upcycle Late For North America

The United States carries over one third of the globe’s total traffic, where Over 1.5 billion passengers fly annually. Over the past 20 years, air travel has grown at an average of about 5% per year, the reason for annual change is usually differences in economic growth, and of course other environmental factors, such as the current war. As a rule, the annual growth in air travel has been about twice the annual growth in GDP. Deregulation, liberalization, and competition have essentially altered the management strategies and practices of airlines. Productivity improvements and cost management have been two of the greatest concerns for US airlines for the past twenty years. As a whole, the airline industry must continue to improve their specialization in terms of fleet utilization, pricing and revenue management, and schedule optimization.

Delta became the only airline to own and control its reservations system, which is key to operations. In 2014, Bastian stated “We have also moved toward vertical integration (and better management of fuel costs) by acquiring an oil refinery—a decision that shocked both aviation and oil industry observers” (Anderson, Richard H). Rather than be controlled by producers, Delta took matters into its own hands and gained full control over its supply chain. Over the past few years, Delta managed to expand its oil team to include several crude traders and the former president of Total Gas & Power North America (Anderson, Richard H). These innovative changes have allowed Delta’s average cost of fuel per gallon to remain five to 10 cents less than the industry’s for over two years now. Appendix B illustrates Delta’s road to redemption in greater

Southwest Airlines shot out of the gates, much to the chagrin of their competitors as a short haul, low fare, and high frequency carrier. As SWA expanded and deregulation occurred, they had to decide what kind of airline they wanted to be and how they would adapt to the changing environment. The FAA reports that passenger numbers are expected to reach a billion passengers in 2023 (FAA, 2011). Most Airlines are responding to the increased demand by centralizing and consolidating their assets. This in turn creates a situation where capacity is maximized in some airports and congestion increases causing significant delay. Demand will continue to rise over the next few decades and these airlines must rely on regulators and policy makers to upgrade the very necessary infrastructure and technology. Southwest’s strategy is to remain a point to point carrier instead of the traditional hub and spoke carrier, satisfying their customer demand with lower congestion at underutilized airports with more flights. However Southwest continues to remain flexible looking forward as it adopts hub and spoke techniques, coordinates with the FAA and governing bodies, and invests heavily in its most important airports to stay ahead of the pack.

American airline industry is steadily growing at an extremely strong rate. This growth comes with a number economic and social advantage. This contributes a great deal to the international inventory. The US airline industry is a major economic aspect in both the outcome on other related industries like tourism and manufacturing of aircraft and its own terms of operation. The airline industry is receiving massive media attention unlike other industries through participating and making of government policies. As Hoffman and Bateson (2011) show the major competitors include Southwest Airlines, Delta Airline, and United Airline.

1. There are a few trends in the US airline industry. One is consolidation, wherein existing players merge in an attempt to lower their costs and generate operating synergies. The most recent major merger was the United Continental merger, which is still an ongoing affair, but has created the largest airline in the United States by market share (Martin, 2012). Another trend is towards low-cost carriers. In the US, Southwest has been a long-running success and JetBlue a strong new competitor, but in other countries this business model has proven exceptionally successful. The third major trend is the upward trend in jet fuel prices, and the increasing importance that this puts on hedging fuel prices and capacity management (Hinton, 2011).

This report provides an examinaion of the current structure, performance, stragergy and management of Delta Airlines, along with an industry analysis of the airline industry. The report uses current and past financial and statistical data for the company along with other up to date material to determine Delta's current market position and future potential.

Fuel has consistently been one of the largest expense categories for domestic airlines, ranking second only to personnel expenses. During 2003, fuel costs represented, on average, over 16% of the total operating expenses for all U.S. domestic airlines studied by Richard Cobbs and Alex Wolf (2004). Moreover, airlines are generally unable to increase fares to offset any significant increase in fuel costs. From 2001 to 2003, these same airlines experienced a 25.9% compound annual increase in jet fuel costs while average airline pricing decreased by 0.1%, as measured by revenue per available seat mile (Cobbs and Wolf, 2004). Jet fuel costs have substantially risen over the past several years putting consistent pressure on airlines to maintain positive cash flows. Any saving in fuel costs works out to profit earned.

The airline industry as a whole has been experiencing great treatment. Individuals are proving to pack up their bags and fill up seats and airline companies have been earnings solid profits. Oil prices are continuing to demonstrate volatility and companies are capitalizing on these trends. Given the general uptick, American Airlines is also set to show investors some promising numbers. The Estimize consensus is calling for EPS of

The airlines is experiencing an upward trend with the leverage ratio. The company will make large interest payments that would effect the bottom line.

Lingering effects of the 9/11 attacks continued over the next few years. Airlines struggled to match the decline in passenger traffic by cutting capacity and changing route destinations (Tyler). This spanned the development of low cost carriers and air fares decreased over the next few years. The rising dominance of low cost carriers in the domestic market place caused the major U.S. carriers to shift capacity from domestic to international markets. Passenger traffic finally reached its pre 9/11 levels in 2004, although, profitability did not return until 2006 (Tyler).

Airline deregulation was the process of removing the government imposed regulations on the entry of new airlines as well the airline fare limiting the competition and growth of the airline industry. In the United States, airline deregulation mainly refers to the Airline Deregulation Act of 1978 signed by President Carter. President Carter signed the Act, but the act was proposed initially during Nixon’s administration, and carried through Ford administration. The airlines industry was growing dramatically during 1960s and mid-1970s. Due to the steady increase in air travel, and strict regulations imposed by the Civil Aeronautics Board, the industry faced three major difficulties- lack of free and stable market, high ticket prices leading to poor productivity, and rising labor and fuel costs. Airlines have adopted many new strategies ever since the industry has been deregulated. The path since the deregulation has been challenging, as the airlines have faced various hurdles such as terrorism, war, recession, high fuel prices over the years impacting the economic structure of the United States. These challenges have raised the question concerning whether the deregulation should be considered or even reversed.

Delta can utilize these current benefits to emerge as a lower-cost option through its increased buying power and lower overhead costs, allowing Delta to gain higher margins while maintaining competitive pricing with its main two competitors, American Airlines and United Airlines. Additionally, the efficiency of the reduced fuel and operations cost structure enables Delta to set its pricing lower than that of its competitors, which, in the end, will capture much of its competitor’s market share including that of its mid-line competitor US Airways. The increased buying power for fuel contracts will give Delta a competitive advantage should we see another spike in crude oil due to conflicts in the Middle East. Delta must also compete with the value pricing of its lower-end, economy competitors Southwest and Jet Blue. Southwest Airlines stands out in the pack and boasts, according to a customer satisfaction index, the highest customer satisfaction rating in the industry at 81% in 2011.

As with all airlines, Delta’s recent performance has been significantly impacted by industry shifts and external events. Terrorist attacks and escalating costs have significantly impacted Delta’s profitability in recent history (Rivkin 4). The company has also been losing valuable market share to the low-cost carrier Southwest Airlines throughout the southeast and specifically in the lucrative Florida market (Rivkin 8). JetBlue also began encroaching on key Delta routes, and this seems only likely to increase (Rivkin 9). Despite this, Delta has still performed better than any other legacy carrier (Rivkin 8). Still, recent history has brought several changes to this legacy carrier, and the company has turned its attention towards new competitive strategies.

American Airlines is widely known as the world’s largest airline company, so when the oil prices begin to climb in the early to mid 2000’s, economists and investors are curious to see how they will respond. Many airlines have either gone bankrupt or relied on mergers due to the increasing operating costs and poor economy. The increasing oil prices impacts the financial success of the airline industry as a whole. Since jet fuel costs claim a large amount of the airline’s operating costs, drastic measures are sure to be taken in order to balance out the

Air travel has become more than traveling to point A to point B. The goal of all airlines is to generate a profit, in order to that airlines would like to see every flight full or at the least to a breakeven point. In order to get to that point, airlines offer as little as possible to ensure the lowest possible price to the traveler, or offer a wide selection of services to get the most in airfare that is possible. Today the prospective air traveler has almost limitless choices in choosing an airline, the type of service, and in some cases the price they are willing to pay. There is one true fact concerning commercial air travel, not all airlines and passengers are on equal grounds when it comes