Transcript Delta Airlines Case Study

Delta Air Lines Case Study
Prospectus
Ayodele Locke
Jonathan Long
Markos Taddesse
Robert Buonocore
Delta Air Lines Case Study
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Introduction to the Industry
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Up-to-date scan of Delta
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Markos Taddesse
Suggestions related to the IT issues
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Markos Taddesse
Responses to specific Delta questions
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Jonathan Long
Responses to Industry Questions
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Robert Buonocore
Ayodele Locke
Final Conclusions
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Jonathan Long, Robert Buonocore
Introduction to the Industry
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Since 1978 airlines were permitted to select their own
routes and establish fares.
Varying prices has helped balance the costs and ensure
that airlines are not flying with empty seats. “Today it is
likely that almost every passenger on a flight has paid a
different price” (McCartney 2003)
Introduction to the Industry (Continued)
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JetBlue –
 offering DirectTV to its passengers.
 New planes
 Lower maintenance costs
 Lower insurance costs
September 11th Effects
 Caused more safety regulations
 Fear of flying – less passengers.
Introduction to the Industry (Continued)
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Airline Costs – According to the Air Transport Association
(ATA) (McCartney 2002)
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Labor Costs make up the greatest percent. (38.4%)
Administrative overhead (23.7%)
Fuel Costs (11.6%)
Cost of the Plane/interest (13.2%)
Maintenance (2.5%)
Food Programs (2.2%)
Travel Agent Commissions (2.2%)
Airport Fees (2.1%)
Insurance (1.5%)
Communications (1.5%)
Advertising (1.0%)
Introduction to the Industry (Continued)
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Future
 Re-negotiating union contracts
 Small planes could create a business “air taxi “ service
that would be outpriced for most consumers but ideal for
businesses.
Up to date scan of Delta Airlines
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September 2005
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Delta files for bankruptcy
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Pilots gave deep concessions after lengthy negotiations
Closed Dallas hub
Cut jobs
August 2006
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Delta receives permission to outsource IT to IBM
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200 employees effected
Delta turns first profit under restructuring
Up to date scan of Delta Airlines
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November 2006
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December 2006
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Delta announces new SOA for DNS
January 2007
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U.S. Airways attempts hostile takeover
U.S. Airways drops takeover bid
April 2007
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Delta emerges from bankruptcy
Responses to Industry Questions
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What information technologies have helped this industry?
 Reservation Systems
 Customer and corporate data tracking
 Telemetry data acquisition
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Did the technologies provide a competitive advantage or were
they quickly adopted by rivals?
 Yes they do but they are quickly adopted by the industry.
 Smaller airlines are more adept at incorporating new innovations
Responses to Industry Questions
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Which technologies could this industry use that were developed in
other sectors?
 RFID
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Is the level of competition increasing or decreasing in this industry? Is
it dominated by a few firms, or are they fairly balanced?
 The Airline industry is dominated by a few big Airlines.
 But Competition is increasing (Southwest, Jet Blue, Airtran)
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What problems have been created from the use of information
technology and how did the firms solve the problems?
 Defective systems
 Disparate databases
Responses to specific Delta questions
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Why do people fly on discount airlines?
 Price, speed of service (in terms of turn around)
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What do they not like about discount airlines?
 Bare minimum services
 Inconvenient, not all cities are directly served
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Can Delta combine these answers with IT to regain market
shares and profit?
 Yes, but not fully realized at this time.
Responses to specific Delta questions
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How does Delta use technology to reduce costs? Is it enough to
make a difference?
 In house IT work
 Delta Nervous System (DNS)
 CRM software
 Self check in kiosk
 Yes it is making a difference
Responses to specific Delta questions
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Can Delta use IT to become more like Southwest? Is that the
best strategy?
 Yes, cut certain services, re-negotiate wages, implement systems
that track companywide data for travel managers , improve
budgeting software for more accurate forecasts, adopt own
booking system that compete with the likes of Sabre, and
Southwest own online booking system.
Suggestions Related to the IT Issues
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Although Delta has implemented several large
technology systems in recent years, including ‘DNS’ &
‘Operation Clockwork’ to help them improve productivity
and their bottom line, lowering costs to compete with low
cost airlines still remains a major hurdle.
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The following section will summarize some of Delta’s IT
challenges and suggested recommendations on how to
address them.
Suggestions Related to the IT Issues
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Issue #1: Inefficient baggage bar code system.
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Issue #2: Outdated radio communication systems.
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Issue #3: Lack of web presence targeted to business
customers.
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Issue #4: Inefficient passenger boarding process.
Suggestions Related to the IT Issues
Issue #1: Inefficient baggage bar code system
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Delta airlines currently processes millions of pieces of baggage
per year. Delta utilizes a bar code scanning system to keep track
of bags that are tagged to specific flights. A tag is placed on each
piece of luggage which is then scanned and then sent to the
appropriate flight.
This technology however is inefficient and leads of some baggage
being lost and lost revenue in airline staff takes to locate or
redirect the baggage. As many as 15 to 20 percent of bags are not
scanned properly.
Suggestions Related to the IT Issues
Suggestion #1: RFID Technology
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RFID Technology systems are a significant improvement over bar
code scanning systems. RFID tags attach to customers luggage in
the same way as bar code tags and each RFID tag is encoded
with the owner’s information as well as their travel itineraries. ,
RFID readers are able to locate baggage an average of 95% or
greater compared with a scan rate of 70 to 80% with the current
bar code scanning systems.
Suggestions Related to the IT Issues
RFID Technology cont’d
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In 2004, Delta began testing this new technology and planned to
implement it in 2007. Plans were put on hold indefinitely due to
budget issues. The projected implementation costs for a RFID system
was $15 to $20 million, a significant expenditure for an airline such
as Delta that is facing financial woes.
Delta however spends an estimated $100 million a year addressing
lost luggage issues. In light of these figures, Delta should reconsider
RFID technology because they would be able to quickly recoup their
investment as well as gain greater customer satisfaction.
Suggestions Related to the IT Issues
Issue #2: Outdated communication systems
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Delta and other airlines have radio systems that are decades old.
Dispatchers and airplane captains communicate information such
as flight patterns or weather info with each other via voice radio
equipment.
Voice radio equipment is prone to static, interference and poor
voice quality.
Suggestions Related to the IT Issues
Suggestion #2: VDLM2 Technology
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VDLM2 technology systems can transfer text data at fifteen times
the rate of traditional radio systems in airlines.
More efficient communications between dispatchers and airline
captains helps to increase staff efficiency and cut down turnover
rates, an important goal for all airlines.
Competitor SouthWest airlines has already invested in this
technology and Delta should follow suit.
Suggestions Related to the IT Issues
Issue #3: No website targeted to business customers
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Southwest Airlines is one of the few profitable airlines today and
one of the reasons is that they address the concerns of their
customer base.
Southwest’s business travel website lets business travelers book
their flights online and has a backend system for keeping track of
company travel data.
Delta Airlines currently has one website and reservation system for
all its customers with no such features for business travelers.
Suggestions Related to the IT Issues
Suggestion #3: Business Travel website
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A Delta business travel specific website would help them have a
better relationship with corporate travel departments.
In addition to the key features offered by Southwest’s swabiz.com,
Delta’s business website should also offer travel discounts, travel
news and customer satisfaction surveys and feedback forms.
Traditionally business class tickets cost more than economy tickets
so paying attention to the needs to this customer base could be a
profitable endeavor for Delta.
Suggestions Related to the IT Issues
Issue #4: Inefficient passenger boarding process
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Delta Airlines currently uses a passenger boarding system that
does not help them to improve their turnaround times.
The passenger boarding system using a standard back-to-front
method does not address boarding delay due to passengers with
aisle seats obstructing those with window or middle seats.
Suggestions Related to the IT Issues
Suggestion #4: Reverse pyramid boarding system
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The Wilma reverse pyramid boarding system implemented by
United Airlines calls for boarding rear window and middle seats
first, followed by front window and middle seats; then those in the
rear and front aisles and finally seats in the front of the plane
would be boarded last. Business and first class passengers would
be boarded before everyone else.
Even a few minutes saved per flight translates into measurable
savings for an airline. The quicker a plane boards and takes off,
the more flights the airline can have in a day.
Delta Air Lines Case Study
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Conclusions
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Delta will benefit from adding interoperability to the Delta Nervous
System with their Service Oriented Architecture.
As Delta emerges from bankruptcy and posts profits, IT will
continue to be an integral part of their success.
In order to have future success, Delta will need to address certain
issues:
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Inefficient baggage bar code system.
Outdated radio communication systems.
Lack of web presence targeted to business customers.
Inefficient passenger boarding process.
Delta Air Lines Case Study
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Resources used
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Associated Press. Delta Airlines still considering an acquisition.
CNNMoney.com. Retrieved November 11, 2007 from
http://money.cnn.com/2007/11/07/news/companies/delta_acquisition.ap/?postv
ersion=2007110718
Associated Press. Delta seeks to outsource 200 IT jobs to IBM. Mcpmag.com.
Retrieved November 11, 2007 from
http://mcpmag.com/news/article.asp?EditorialsID=1014
Broache, Anne. “Can technology solve air travel woes?” New York Times.
September 27, 2007.
Foust, D., Bachman, J. (2007). A surprising new pilot for Delta. Business
Week, 4048,
44
Greenemeir, Larry. “IT Pros Plus Marketing Experts Equal Better Service”.
Information Week. March 18, 2002.
Delta Air Lines Case Study
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Resources used
 Havenstein, H. (2006). Delta Set to Launch Three-Year SOA Project.
Computerworld, 40(50), 8.
 McCartney, Scott. “Which costs Airlines More: Fuel, Labor or (Ugh) Meals?
The Wall Street Journal. November 6, 2002.
 McDougall, Paul. “Techie Exodus At Bankrupt Delta Caused Flight Delays,
Broader Chaos”. Information Week. December 19, 2006.
 Overby, S. (2003, February 15). Delta Aims for Infrastructure Overhaul. CIO.
Retrieved November 11, 2007 from http://www.cio.com/article/31708/
 Post, Anderson (2006). Management Information Systems: Solving Business
Problems with Information Technology. New York: McGraw-Hill.