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Simulation Airline Performance Report

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Simulation Airline Performance Report

Part 1: Introduction

The major American airline is Delta Air Lines, which has headquarters in Atlanta,

Georgia. Being one of the world's largest and most established carriers, Delta covers an

extensive network of domestic and international routes to almost 300 destinations in over 50

countries. It is based primarily at Hartsfield-Jackson Atlanta International Airport, one of the

busiest airports in the world. A fleet of over 800 Delta aircraft can depend on the narrowbody,

widebody, and regional jet aircraft to carry out their operations. Delta's expansive fleet and

network puts it at the forefront of the global aviation market, with several services catering to

domestic or international travelers.

Delta's success is rooted in existential reasons, including the corporation's values,

mission, and vision. Delta has safety, integrity, service, and sustainability as its core values. It

aims to be the world's most trusted airline, specializing in world-class customer service and

operational excellence. Using connection as a mission, the airline undertook the mission of

connecting people with opportunities, delivering a high service standard, and positively

impacting communities. This is also a key factor in Delta's business practices, as it is the

largest airline in the world with a commitment to carbon neutrality by 2050. They influence

every aspect of Delta, from what customers provide to how and what flies.

This report analyzes Delta's performance in almost all dimensions, including business

success, financial performance, and competitive positioning. That said, recent years have

offered Delta success and challenges as its business has been a market portfolio, profits have

varied, and substantial financial decisions have shaped the overall strategy. This report will

assess Delta's business strategy, economic and financial analysis, competitive strategies, and

key performance metrics to reflect how the airline has been able to withstand a competitive
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and volatile industry. This report also covers key points such as profitability, revenue streams,

costs, fleet strategy, and debt management.

Part 2: Business Strategy

Delta Air Lines has crafted a robust business strategy that positions it as one of the

leading global carriers. The airline's strategic approach revolves around operational

efficiency, customer satisfaction, and market competitiveness. Delta's business model is

based on a comprehensive blend of competitive route structure, a diverse fleet, and cutting-

edge technology, allowing it to maintain an edge in a crowded and ever-evolving industry.

The airline has balanced its offerings between high-frequency services, international

expansion, and premium offerings while maintaining cost control and profitability.

Business Model and Route Structure

Delta's business model is based on becoming a provider of multiple types of travel

options for both business and leisure travelers. Its network covers 300 destinations

worldwide, concentrating on the top metropolitan areas of the United States and the key

international markets. Delta's hub and spoke system is central to its business plan, having

major hubs in Atlanta, Minneapolis, New York City, and Salt Lake City (Ma, 2023). These

hubs provide excellent means for connecting services, allowing the passengers to get to their

destinations using the least number of layovers. The airline has a set of domestic and

international routes to provide flexibility to passengers and strategic response to demand in

the market.

Delta's route and fleet structure is designed with care to grab the high demand and

obscure markets simultaneously. Delta concentrates on frequent services to high-demand

areas like New York City, Los Angeles, and Atlanta to maintain high load factors and boost

yield per passenger. In less competitive and unserved markets, Delta deploys its fleet in a

manner that is cost-efficient but still satisfies market needs (Ma, 2023). Additionally, it
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incorporates codeshare agreements and joint ventures, specifically on international routes, to

widen its reach without the private market being served by direct service on all such routes.

For instance, Delta's partnership with Air France, KLM, and other international carriers

through the SkyTeam Alliance improves its competitive advantage by offering passengers

additional means to connect globally.

Fleet Strategy

Delta's fleet strategy is an integral part of Delta's whole business approach. Its fleet

consists of a diversified range of narrowbody short and medium-haul, widebody long-haul,

and regional jets for smaller markets. Diversity of the fleet also means that Delta can respond

to market demand fluctuations and minimize its operating costs. The Airbus A350 and Boeing

787 have always been a part of Delta's commitment to investing in modern, fuel-efficient

aircraft that deliver passenger comfort and lower fuel consumption (Atay et al., 2024). Delta

has reduced fuel consumption, improved operational reliability, and reduced maintenance

costs by emphasizing fleet modernization. The newer aircraft also enables Delta to keep a

competitive edge in the premium market segment, where passenger comfort and fuel

efficiency are important. The involvement of new aircraft offers better environmental

benefits, reduces operating costs, and enhances the airline's capability to offer competitive

fares.

Competitive Strategy

Delta's competitive strategy focuses on differentiation, pricing, and operational

efficiency. Dynamic pricing is used by the airline to adjust ticket prices to changes in

demand, competition, and the market. This allows Delta to compete in both price-sensitive

routes and premium markets. Moreover, Delta's SkyMiles frequent flyer program has

endeared customers and encourages loyalty through rewards, like free flights and upgrades,

keeping people engaged and boosting revenues (Leng, 2024). Delta's scheduling and
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frequency strategies are key components of its competitiveness. The airline flies many times

a day on major routes predominantly from its hubs to better meet passengers' flexibility in

booking and higher satisfaction. For instance, across high-demand routes like New York to

London and Atlanta to Paris, Delta flies multiple times daily to accommodate passengers with

various travel times. As this high frequency increases Delta's load factor, it becomes more

competitive on these lucrative routes (Sun et al., 2024). Delta also has a competitive

advantage in international markets. With the additional benefit of joint ventures and

codeshares with partners like Air France, KLM, and other SkyTeam members, the airline

strategically grew its reach globally, particularly in Europe, Asia, and Latin America.

However, these alliances let Delta fly to more markets without buying additional aircraft,

bring in more revenue, and maintain a better position against the carriers worldwide.

Competitive Strategies on Origin-Destination (O-D) Markets

The competitive strategies along the Origin-Destination (O-D) are frequency,

scheduling, and capacity management. The airline has optimized its schedule to provide as

many services as possible on its busiest city pairs like New York-London and Atlanta-Paris,

with various booking options to balance its service offer. The airline can adjust its schedules

to coincide with peak travel periods and provide frequent service that enhances load factors

and revenue (Ma, 2023). Delta also maintains a practical timetable for peak demand periods,

holidays, and business travel seasons. During busy periods, the airline adjusts schedules to

match peak travel times by adding flights or changing routes in response to such changes in

demand. This flexibility also helps Delta to utilize its capacity better, thereby improving its

load factor, resulting directly in its profitability. In addition, Delta's frequent departures from

key hubs offer opportunities for connecting flights that make it very competitive in O-D

markets, where connections are a serious factor. Delta also uses smaller aircraft, such as the

Airbus A220, which is ideally suited for mid-sized O-D markets with moderate demand on
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regional and domestic routes. A lower operating cost allows these aircraft to offer

comfortable services yet still allow Delta to compete in the highly competitive domestic

market.

Part 3: Economic and Financial Analysis

Business Analysis

Over the past three years, Delta Air Lines has experienced a range of financial

outcomes based on external market conditions and internal strategic decisions. Changes in

fuel prices, labor costs, economic fluctuations, and competition have all affected the airline's

profitability, revenue, and costs. Due to the global COVID-19 pandemic and the resulting

unprecedented drop in travel demand, Delta saw significant losses in 2020. On the other

hand, 2021 and 2022 experienced strong recovery, with Delta posting a net profit of $2.3

billion in 2022 as passenger demand increased (Fontanet-Pérez et al., 2022). Revenues are

primarily based on the passenger segment, generating 80 percent of Delta's total income. The

airline has also actively diversified its revenue streams with cargo operations and ancillary

services, significantly impacting the overall income. However, even after the recovery, these

rising fuel and labor costs have been a challenge (Bas & Aksoy, 2022). Global supply

disruptions brought roller coaster price fluctuations in fuel, a significant part of operating

costs, eroding profitability margins. Delta is also committed to maintaining competitive

compensation and employee benefits, driving up labor costs.

Delta's fleet management strategy has played an important role in cost management.

Delta has cut its cost per mile by modernizing its fleet with fuel-efficient aircraft like the

Boeing 787 and Airbus A350. Strategically, the company phased out older, less efficient

aircraft, lowering maintenance costs. By taking a proactive approach like this, Delta was able

to maintain its profitability even with rising fuel prices (Chokshi, 2021). A stark picture

emerges from Delta's income statement of the impact of the pandemic through 2020 and
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2022. The collapse in passenger traffic led the airline to report a net loss of $12.4 billion in

2020, while it returned to profitability with a net income of $4 billion (Chokshi, 2021) in

2021. Reliance on robust demand for domestic and international travel and higher-than-

expected revenue growth contributed to a stronger recovery reflected in the 2022 financial

results. Other insights from the cash flow statement show that Delta is financially strong, with

positive cash flow from operations in 2021 and 2022, and it can invest in new aircraft and

further infrastructure improvements to maintain its competitive edge in the future.

Network Analysis

Delta's network is a critical piece of the company's economic and financial

performance, with the most profitable routes being a significant source of the airline's bottom

line. One of Delta's highest revenue-generating routes is from New York (JFK) to London

(LHR). Ideal for business travelers, this transatlantic flight offers much of its capacity mainly

to business travelers; its 85% average load factor helps the airline to increase yields,

especially for its premium cabins. During the pandemic, revenue from this route, which also

became the key factor in New Delta's financial recovery, exceeded $500 million in 2022,

following a surge in international travel demand (Soliman et al., 2022). Another high-yield

international service similar to Delta's that makes money is the Atlanta (ATL) to Paris (CDG)

route. Therefore, this route has a potent demand mix of leisure and business travelers and a

higher percentage load factor, making sense for Delta's competitive pricing strategy and

synergies in the SkyTeam alliance. Back in 2022, the revenue from this route was about $450

million, demonstrating how crucial this route plays in the airline's overall revenue.

Both the Minneapolis (MSP) to Amsterdam (AMS) route and the Minneapolis (MSP)

to Madrid (MAD) route have been equally profitable because of a mix of consistent

international business traffic and premium service offerings. In 2022, this route achieved an

88% load factor and a high yield per passenger, providing revenue of $350 million, with
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support from strategic partnerships with European airlines (Santana & Gómez, 2024).

Turning to these routes allows Delta to use high-demand international markets to generate

substantial income. Delta also has less profitable routes. The included are those domestic and

short-haul flights that typically are not particularly good at maintaining yields and load

factors and are not quite financially viable. Despite these hurdles, Delta realigns its strategy

to reallocate resources to more profitable markets to carry out the overall network efficiently

and profitably.

The top three failure routes include;

Delta Air Lines has encountered challenges with several routes that have consistently

underperformed financially. For example, the Atlanta (ATL) to Charleston (CHS) route has

become unprofitable because of its short distance, low yield, and stiff competition from low-

cost carriers like Southwest Airlines. However, these attempts to increase frequency have

proven fruitless, earning an average load factor of only 65%. Despite its tenuous relationship

with legacy airlines such as Delta, it has proven difficult for Delta to lock down enough

premium travelers to succeed financially (Rodriguez-Deniz et al., 2022). For example, the

New York (JFK) to Boston (BOS) route, a high-frequency domestic route, has also faced stiff

competition from other major carriers, including American Airlines and JetBlue. Load

factors, on average, have hovered at just 70%, below expectations partly because of the

presence of low-cost carriers in this market. It has significantly affected Delta's revenue,

which is very competitive.

The Minneapolis (MSP) to Des Moines (DSM) route has proven unprofitable due to

weak demand and an average load factor. This route, which is highly seasonal and served by

small planes to a small market, has problems drawing enough year-round passengers to

operate past early spring. As a result, Delta cannot fully cover its operating costs, with

revenue left paying for fixed costs only. The lower yield per passenger, coupled with the
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rising costs of operating regional aircraft, results in the long-term unsustainability of this

route. Delta has reexamined flight frequencies to answer these challenges, pondered other

pricing models, and forged partnerships with regional carriers to cut costs. The airline has

also looked into reallocating aircraft from less profitable markets.

Part 4: Competitive Strategy Assessment

Competitors and Actions

The competition that Delta Air Lines faces is from both domestic and international

Airlines. Domestically, most of its competitors include American Airlines, United Airlines,

and Southwest Airlines. Frequent, high-frequency, low-cost service is the significant

competitive factor on the major routes, and these carriers compete directly. Apart from the

long haul, it competes on the long haul with airlines abroad, such as British Airways,

Lufthansa, and Air France. Similar services include premium cabins, in-flight amenities, and

connectivity via major European hubs offered by the carriers (Ma, 2023). Delta has employed

several strategies to stay competitive. It focuses primarily on domestic operations of frequent

flights, strong on-time performance, and excellent customer service. By adding Delta to the

SkyTeam alliance, Delta expanded its network of routes, thereby increasing its global routes

while competing with them internationally (Sun et al., 2024). It also has invested in modern,

fuel-efficient aircraft that reduce operational costs and allow competitive pricing on domestic

and international routes. Delta has also introduced premium services on key routes, such as

New York to London and Atlanta to Paris, to appeal to business travelers who want comfort

and reliability.

The company's market valuation reflects some significant areas where Delta has

performed well. The airline has a high score, so it is operationally efficient and customer-

satisfying. This score reflects Delta's ability to deliver service, an extensive network, and low

prices (Sun et al., 2024) regularly. Its credit rating is one of the big pieces of information used
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to calculate Delta's value. In recent years, the carrier has separated from its debt load, leaving

it with a good credit standing. This also helps Delta's company image with its sustainability

ambitions and customer service focus. In addition, Delta has positioned itself in front of its

competitors due to investments in modern aircraft in in-flight amenities and improved

customer experience.

Airline Valuation

Key areas in which the airline performs well are reflected in market value. This is a

high-scoring, customer-satisfying, operationally efficient airline. This score results from

Delta's ability to offer its passengers reliable service, a broad network, and competitive

pricing (Sun et al., 2024). Another key component of Delta's valuation is its credit score. In

recent years, the carrier has shed its debt load and is a creditworthy company. This also helps

Delta's company image with its sustainability initiatives and customer service focus.

However, Delta also invested its money in today's modern aircraft and better amenities than

its competitors, and it managed to trick its competition into thinking it was outrunning them.

Delta's market valuation also takes into account tangible and intangible assets. They

have tangible assets, like its modern aircraft and the extensive airport infrastructure that

supports its sprawling network. Specifically, Delta's intangible assets, including its brand

value, customer loyalty, and strategic alliances, play a key role in enhancing Delta's

competitive advantage and market position. These assets are significant in helping Delta

stand out from its competition and make Delta one of the top airlines in the world.

Strengths and Weaknesses

Strengths

Operational Efficiency: Delta's operational efficiency is a significant strength. Fuel-

efficient aircraft have been invested in by the airline, lowering operating costs. Similarly,

Delta is particularly efficient in the ground operations, which are key to reducing production
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costs, and remains the most on-time performer in its industry (Ma, 2023). This has allowed

Delta to operate at higher hub frequencies without taking profitability out of the equation. As

a result, there has been an increase in customer satisfaction and loyalty.

Action: Delta has taken advantage of its strength by consciously expanding its

network to provide customers with more flight options and a record of reliability. This

operational efficiency has enabled Delta to optimize its resources, reduce costs, and increase

revenue.

Customer Service and Brand Reputation: Delta is well known for its excellent

customer service, which has developed a strong customer base. Its successful SkyMiles

frequent flyer program has made sure passengers continue to come back (Sun et al., 2024).

Delta, along with other industry leaders, not only focused on reducing costs associated with

aircraft maintenance costs but also increased its image as a luxury airline offering by

introducing in-flight entertainment and Wi-Fi.

Action: Delta can leverage its strength to provide passengers high-quality service

from check-in to in-flight. The airline has also concentrated on technology personalization,

offering individualized experiences for passengers based on their preferences and previous

travel behavior.

Weaknesses

Fuel Price Sensitivity: One of Delta's major weaknesses is the impact of fuel prices

on the airline. While the airline's fleet is fuel efficient, sudden fuel price spikes are high

operating costs, leading to profitability (Samunderu, 2023). About every fuel price volatility

is a constant challenge in this thin-margin industry.

Action: Delta has put formal protection against sharp fuel price increases with a

hedging strategy to overcome this weakness. The airline also assesses its routes and

operational efficiency while permanently evaluating how to minimize fuel consumption.

Should there be a significant rise in fuel prices, Delta would adapt its pricing strategies, such

as raising ticket prices on specific routes, to recover costs.

Intense Competition in Domestic Markets: Delta offers services within its domestic

markets and competes intensely with other legacy carriers and low-cost carriers on many

routes (Samunderu, 2023). However, low-cost carriers like Southwest and Spirit Airlines

dominate key domestic markets. They offer lower ticket prices that some travelers cannot

pass up because they are cost-sensitive.

Action: Delta has responded by diversifying its product offering. It has also offered

more affordable fare classes, such as basic economy, that are exciting to cheaper fliers. While

Delta has continued to promote its premium offerings, in the meantime, business travelers

seeking comfort still choose to fly Delta over low-cost options.

Handling Major Events

Delta has had various interruptions throughout its operations. The COVID-19

pandemic was one of the most significant interruptions of recent years. Travel restrictions and

safety concerns led to a drastic drop in airline passenger demand. Delta quickly adjusted its

flight capacity, grounded planes, and implemented stringent health protocols to handle this

interruption with passenger safety in mind. Furthermore, Delta provided flexible rebooking

alternatives, permitting travelers to reorganize travel plans without high penalties (Kalic et

al., 2022). Delta made tough decisions during the pandemic, like reducing the workforce and

delaying the purchase of a fleet. The airline responded quickly, protected customers, and

recovered faster than its competitors. Under the most challenging circumstances, Delta's

ability to be agile and adapt to such unprecedented disruptions also illustrated such agility

and willingness to adapt that we could continue providing our resilience and operations
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