Delta Air Lines Swot Analysis

Business Analysis Part I

With its meager start as the crop-dusting operation Huff Daland Dusters and only 18 aircraft in its fleet, one would have been hard pressed to say that the future of Delta Air Lines was bright. In October 2008, Delta and Northwest Airlines completed the merger that would make the new Delta Air Lines the world's largest airline until the approval of the merger between United and Continental Airlines. Now rated the second largest airline in the world, Delta serves more than 16 million customers each year, taking them to 341 destinations in 61 countries on six continents (Delta Air Lines, 2012). But is Delta Air Lines a "good" investment? To truly determine the value of the company and its potential as an investment, it is necessary to establish what are the internal strengths and weaknesses, as well as the external opportunities and threats, also known as SWOT analysis.

Strengths

* Brand name strength

* Cost advantage of fleet ownership

* International alliances

Weaknesses

* High debt

* Dependence of North American market revenue

Opportunities

* Additional mergers or alliances

* International expansion

Threats

* Economic slowdown

* Rising fuel costs

* Competition

Strengths

Brand name strength is important whether you are talking about airlines, running shoes or dishwashers. It can be said that a company is only as strong as its name and Delta Air Lines is a household name. Delta Air Lines is consistently recognized amongst its peers garnering awards such as "World's Most-Admired Airline", "Airline of the Year" and "One of the Most Innovative Companies" (Delta Air Lines, 2012).

Delta also finds they are in a position not common in the airline industry; they own the majority of their fleet. Delta currently has a fleet of approximately 790 aircrafts, ranging from Canadair Regional Jets to Airbuses. Of these 790 aircrafts, Delta owns 585, or almost 75% of their fleet. The major advantage to owning the aircraft is there are no payments associated with that portion of the fleet. In addition, there are tax breaks associated with owning the aircraft that do not exist when the equipment is leased.

Another strength would be the international alliances that Delta has and continues to build. As a founding member of the Sky Team Alliance, Delta has established codeshare arrangements with the 14 other members of the alliance (Sky Team Alliance, 2012). International codeshare agreements enable Delta to market and sell seats to an even greater number of international destinations. In addition to the Sky Team Alliance, Delta has a joint venture agreement with Air France KLM and Alitalia to share decision making, revenues and costs on transatlantic routes. Delta is able to provide increased flight frequents and higher levels of convenience to customers throughout the market.

Weaknesses

Delta Air Line's debt continues to be a weakness for the company. When entering the merger with Northwest Airlines in 2008, it was recorded that Delta's debt exceeded $16.5 billion. A "high debt obligation makes it difficult for [a company] to pay principal and interest. It requires the company to dedicate a substantial portion of its cash flow from operations for interest, principal and lease payments. It also reduces the company's ability to use cash flow to fund working capital and other general corporate requirements" (Data Monitor, 2009).

While Delta continues to grow their market, there is still a strong dependence on the North American market for revenue. In 2008, the company generated over 65% of its revenue from North America travel. Delta operates in many regions that are gaining in popularity including Atlantic, Pacific and Latin America regions, but in 2008 only generated 33.6% of its revenue from these markets (Data Monitor, 2009).

Opportunities

There continues to be opportunities for Delta Air Lines to expand. Recent rumors have touted the merger potential of American Airlines and US Airways. While the powers that be at Delta have not spoken to this matter definitively, "Delta has hired Blackstone Group as its financial advisor to study a potential (American) bid" (Chon, Carey, & Spector, 2012). A merger would American could help Delta regain the number one spot it lost with the merger of Continental and United Airlines. More importantly,

...