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Flash Player 9 or higher is required to view the chart Click here to download Flash Player now See all Bulls Reasons Bulls: Reasons To Buy Low Valuation 83% agree Low Valuation Delta is expecting to lose about $0.74 per share this year - that's the consensus of the twelve analysts who post annual earnings estimates. On gross annual revenues of over $20 billion, we think it's a sympton of the hyper-competitive airline market that this... read more View or Edit Reason 6 votes 83% agree Industry Leader 75% agree Industry Leader Although airline stocks have always been turbulent due to the tough nature of the industry, Delta stands to persevere in tough times because of its size even though smaller airlines may disappear. Also, tough times leads to industry consolidation, and gives Delta a... read more View or Edit Reason 4 votes 75% agree DAL would be the survivor of the NWA-DAL Merger 50% agree DAL would be the survivor of the NWA-DAL Merger Today, with the stock back to the $7.70 level, the options are also right back at $1.80, so we're issuing this note to say we still like this long stock / short call position very much - hold on here. Implied volatilities in the options on the airline stocks are in... read more View or Edit Reason 2 votes 50% agree Add your own Bulls Reason See all Bears Reasons Bears: Reasons To Sell Delta still has one of the highest cost structures of any airline 57% agree Delta still has one of the highest cost structures of any airline In 2007, Delta's Cost per Available Seat Mile (CASM), was the second-highest in the airline industry, reaching 11.9 cents per ASM. In contrast, low-cost carriers like Southwest operated at an average 10 cents per ASM. Furthermore, Delta paid an average $2.24 per... read more View or Edit Reason 7 votes 57% agree Old Fleet Signals Higher Future Maintenance Costs 0% agree Old Fleet Signals Higher Future Maintenance Costs As of 2008, Delta's fleet ranked as the third-oldest in the airline industry and Northwest's fleet topped the age charts at an average age of 18.5 years. As part of the merger, the new Delta plans to cut costs by retiring the oldest planes of the two fleets. ... read more View or Edit Reason 0 votes 0% agree Growing Competition Hurts Profits 0% agree Growing Competition Hurts Profits As Delta and many other legacy carriers cut capacity by reducing flight frequency and destinations served, low-cost airlines like JetBlue and Southwest are actually expanding. For example, in 2008 Southwest announced plans to expand service to Minneapolis, New York... read more View or Edit Reason 0 votes 0% agree Add your own Bears Reason Send the authors a comment or suggestion 00627261864 [Dismiss] [Done] See All Suggestions

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This article is about the airline. For other uses, see Delta (disambiguation).

Delta Air Lines (NYSE:DAL) the 4th largest passenger airline in the world by Available seat miles (ASM), and one of the most prominent legacy carriers. In recent years, the company has faced financial difficulties as price competition from discount airlines like JetBlue and Southwest has intensified. This has limited Delta's ability to raise prices to their natural supply/demand and cost reflective levels. As a result, Delta was forced into bankruptcy in September of 2005.^[1] During the past 2 years, Delta decreased its number of aircraft types in an effort to reduce maintenance costs, and cut its number of unionized workers so that it now has the lowest percentage among legacy airlines ^[2]. Since exiting bankruptcy on April 30, 2007, the company has followed a revised operating strategy calling for a network shift towards more profitable international routings.

Despite operational improvements, Delta continues to face threats to its profitability, the most prominent among these being the price of oil. Increasing worldwide demand compounded by investor speculation has led to ongoing concern that prices will continue to rise. Delta is also vulnerable to deterioration in broader U.S. economic conditions. With less discretionary income, consumers and businesses will tend to cut back on air travel. In a move to cut costs and consolidate operations, Delta and Northwest have decided to merge. This new joint airline will be called "Delta." It will be the largest airline in the world by both enterprise value and available seat miles.^[3]

[edit] Business Financials

With a fleet of 361 owned and 223 leased planes, Delta has carrier service to 306 destinations in 58 countries. Delta has the 2nd largest^[4] and 3rd oldest^[5] fleet in the American airline industry. The airline operates on a hub-and-spoke system , centered at airports in Atlanta, Cincinnati, New York JFK, and Salt Lake City ^[6]. Delta is attempting to offset weak U.S. consumer demand by expanding heavily in international flights. The company is now offering non-stop flights from Atlanta to Shanghai.^[7]

As the graph below suggests, revenue for Delta Air Lines has increased approximately 6% each year going forward from 2006. These gains are largely attributable to increases in passenger revenue, particularly on international routings. International passenger revenue grew 17% from 2004 to 2005 and 24% from 2005 to 2006^[8].

Operating income has also picked up, reaching positive values for 2006. Higher revenue in combination with lower costs has allowed for increased profitability. Delta pursued significant cost cutting during bankruptcy, most significantly in employee salaries and aircraft rent. From 2004 to 2006, employee salaries and related costs were reduced by 32%, while costs of aircraft rent fell over 55% ^[9].

These numbers above show that Delta has been effectively lowering costs these past four years. Additionally, rising oil's impact on Delta is illustrated by the upward march of fuel costs per Available Seat Miles. However, as fuel becomes a bigger share of total expenses each year management will have less control over costs. This does not bode well for the future of the airline industry, and more mergers may come out of the current oil price environment.

Delta Annual Report^[10]

Operational terminology unique to the airline industry includes available seat miles (ASM), revenue per available seat mile (RASM) and cost per available seat mile (CASM). The three metrics are determined as follows:

[edit] Key Trends and Forces

[edit] Rising Fuel Costs

Fuel expenses represent one of the largest single costs faced by airliners. From 2004 until 2006, fuel costs have climbed from 16% to 25% of total operating expenses^[11]. Continued oil price increases will pressure Delta’s profitability, given that the company’s purchase contracts offer only limited hedging protection against higher prices. ^[12]. Moreover, the growing cost based nature of the airline industry prevents Delta from immediately passing on these price increases ^[13].

However, Oil Prices dropped 39% between September 11, 2008 and October 31, 2008, marking a turnaround in DAL's forecasted profitability in 2009.^[14] Most airlines, including DAL have entered into hedging agreements to be breakeven at oil prices of near $130 per barrel.^[14] As of October 31, oil was trading near $68 per barrel, which signal profitability for DAL and other airlines.^[14]

[edit] Domestic Governmental Regulations

Public outcry against airline delays has led to demand for a government response. In November 2007, President Bush voiced support for higher penalties for airlines that severely delay passengers ^[15]. Even more troubling for Delta are suggestions that the government might limit the number of landing slots at busy airports including several Delta hubs^[16]. This could result in significant scheduling difficulties for the airline.

[edit] Open Skies

Delta’s post-bankruptcy business plan is focused on shifting more of its aircraft towards international routes. The majority of the airline's international flights, and 18% of its total flights, are between destinations on opposite sides of the Atlantic Ocean^[17]. This could become problematic given the recent U.S.-E.U. Open Skies agreement, which will allow for increased competition in transatlantic flights. The agreement is expected to begin in March 2008, and will among other things, allow for European airlines to operate with more freedom in the U.S. market^[18].

[edit] Labor Costs

As part of the airline’s reorganization plan post-Chapter 11 bankruptcy, Delta negotiated temporarily lower wages for its employees. Most notably, the company entered into an agreement with the Air Line Pilots Association to lower average annual pilot labor costs by $280 million for the period between June 1, 2006 and December 31, 2009^[19]. Reduced wage costs for other airline employees will provide an additional temporary per year cost savings of $600 million^[20]. In exchange for these wage reductions, Delta agreed to provide its employees with a greater share of future company profitability^[21]. As a result, labor costs are expected to increase.

[edit] DAL and NWA Merger Creates World's Largest Airline by Passenger Traffic

After months of speculation and debate, DAL completed its acquisition of Northwest Airlines (NWA) on October 29, 2008 for about $2.6 billion.^[22] The new combined airline will retain the Delta name and will be based in Atlanta.^[23] The new Delta will have about 75,000 total employees.^[23]

The Delta brand will not start spreading into Northwest until 2009, when it will integrate websites and scheduling, paint Northwest planes in Delta colors and logos, and so forth.^[24] The new airline will have a larger network than either airline previously, serving 375 destinations in 66 countries.^[24] Competitor airline Southwest Airlines Company (LUV) announced in November 2008 that it will begin offering Minneapolis service, offering one-way fares to Chicago Midway for as little as $69.^[25] Minneapolis has long been a "fortress hub" or main service airport for Northwest airlines.^[25] Southwest's move into Minneapolis is an attempt to use its low fares to take market share away from the Delta/Northwest airline, although Northwest claims it will match Southwest's prices when Southwest's service starts on March 9, 2009.^[25]

[edit] Competitors

While Delta has embarked on a shift towards increased international routings, domestic airliners remain the most significant competition. The airline industry has become increasingly price motivated, which means that both legacy and discount airlines are competition for Delta.

Delta’s closest competitors include the following:

RASM and CASM respectively allow for comparisons across airlines for unit revenue and unit costs. In the battle between low fare carriers and legacy airlines, companies like Southwest and Jetblue have found ways to reduce CASM (through lower maintenance costs from a more uniform aircraft fleet type and a “no frills” customer experience) while legacy airlines continue with their historically higher CASM operating strategy. Thus, even if both types of carriers manage to fill seats and achieve similar RASM, the low fare airlines will achieve greater profitability from their lower cost structure.

 Delta Air Lines Inc.

	Select All  |  Select None Metrics Yield per Revenue Passenger Mile Load Factor Fleet Size Revenue Passenger Miles Average Passenger Fare Gallons of Fuel Used Salaries, Wages & Benefits per Available Seat Mile Fuel Expense per Available Seat Mile Fuel Cost Operating Income Passenger Revenue Freight Revenue Cost per Available Seat Mile Revenue per Available Seat Mile Fuel Cost per Gallon Net Income Cancel

	Select All  |  Select None Companies Air France ADS (AKH) Allegiant Travel Company (ALGT) China Eastern Airlines (CEA) China Southern Airlines Company (ZNH) American Airlines (AMR) Continental Airlines (CAL) Delta Air Lines Inc. (DAL) ExpressJet (XJT) Frontier Airlines Holdings (FRNT) Gol Linhas Aereas Inteligentes S.A. (GOL) Hawaiian Airlines (HA) JetBlue Airways (JBLU) Lan Chile S.A. (LFL) MAIR Holdings (MAIR) Midwest Air Group (MEH) Mesa Air Group (MESA) Northwest Airlines (NWA) Pinnacle Airlines (PNCL) Republic Airways Holdings (RJET) Ryanair Holdings (RYAAY) SkyWest (SKYW) Southwest Airlines Company (LUV) US Airways Group (LCC) United Airlines (UAUA) Air France-KLM (AFLYY) AirTran Holdings (AAI) Alaska Air Group (ALK) Copa Holdings, S.A. (CPA) TAM S.A. (TAM) Cancel

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Company	Data From	Freight Revenue	Fuel Cost per Gallon	Cost per Available Seat Mile	Revenue per Available Seat Mile	Net Income	Passenger Revenue
American Airlines (AMR)	2007	$8.25B[38]	$2.12[39]	$0.114[39]	$0.107[39]	$504M[38]	$20.7B[38]
Continental Airlines (CAL)	2007	$453M[40]	$2.18[41]	$0.108[41]	$0.112[41]	$459M[41]	$13B[40]
Delta Air Lines Inc. (DAL)	2007	$482M[42]	$2.24[43]	$0.119[43]	$0.112[43]	$1.61B	$16.9B[42]
JetBlue Airways (JBLU)	2007	$0[44]	$2.09[45]	$0.0838[45]	$0.0826[45]	$18M[46]	$2.64B[46]
Southwest Airlines Company (LUV)	2007	$130M[47]	$1.7[48]	$0.091[48]	$0.099[48]	$645M[48]	$9.46B[47]

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[edit] Market Share

Delta is the fourth largest airline in the United States, capturing approximately 11% of the domestic commercial airline market. The top ten U.S. airlines by market share are ranked below, where market share is measured in terms of domestic revenue passenger miles.

[edit] Notes

1. ↑ Marketwatch
2. ↑ Delta 2006 10K, Item 7, pg. 22-23
3. ↑ Reuters
4. ↑ http://en.wikipedia.org/wiki/Largest_airline#Passenger_airlines
5. ↑ http://www.ajc.com/business/content/business/delta/stories/2008/04/18/fleet_0419.html
6. ↑ Delta 2006 10K, Item 1, pg. 2
7. ↑ [1]
8. ↑ Delta 2006 10K, Item 7, pgs. 26 and 30
9. ↑ Delta 2006 10 K, Item 7, pgs. 27 and 31
10. ↑ Delta 2006 10K, Item 1, pg. 1
11. ↑ Delta 2006 10K, Item 1, pg. 2
12. ↑ Delta 2006 10K, Item 1, pg. 3
13. ↑ Delta 2006 10K, Item 1a, pg. 9
14. ↑ ^{14.0 14.1 14.2} "Delta, UAL, AMR Rise on Profit Outlook, Drop in Fuel" Bloomberg.com 10/31/2008
15. ↑ The Washington Post, “Bush Frees up Military Airspace for Thanksgiving”, November 15, 2007
16. ↑ Delta 2006 10K, Item 1, pg. 5
17. ↑ Delta 2006 10K, Item 1, pg. 1
18. ↑ United States Department of State, “U.S.-E.U. Air Transport Agreement – Open Skies Plus”
19. ↑ Delta 2006 10K, Item 7, pg. 23
20. ↑ Delta 2006 10K, Item 7, pg. 23
21. ↑ Delta 2006 10K, Item 7, pg. 23
22. ↑ "US DOJ approves merger of Delta, Northwest Airlines" Reuters.com 10/29/2008
23. ↑ ^{23.0 23.1} "Delta Airlines, Northwest Airlines complete merger" bizjournals.com 10/30/2008
24. ↑ ^{24.0 24.1} "It's a done deal: Delta owns Northwest" Star Tribune 10/30/3008
25. ↑ ^{25.0 25.1 25.2} "Southwest lays out plans for Minneapolis service" CnnMoney.com 11/6/2008
26. ↑ Reutersretrieved July 7, 2008.
27. ↑ Delta 2006 10K, Item 6, pg. 19
28. ↑ AirTran 2006 10K, Item 6, pg. 22
29. ↑ Alaska Air Group 2006 10K, Item 6, pg. 27
30. ↑ American Airlines 2006 10K, Item 7, pg. 40
31. ↑ Continental 2006 10K, Item 6, pg. 29
32. ↑ Frontier 2006 10K, Item 6, pg. 30
33. ↑ JetBlue 2006 10K, Item 6, pg. 26
34. ↑ Northwest 2006 10K, Item 6, pg. 24
35. ↑ Southwest 2006 10K, Item 6, pg. 15
36. ↑