Delta Air Lines is one of the world's largest airlines by traffic. Through its regional carriers (including subsidiary Comair), the company serves about 320 destinations in about 60 countries, and it operates a mainline fleet of 800-plus aircraft, as well as maintenance, repair, and overhaul (MRO) and cargo operations. The airline serves nearly 180 million customers each year and offers more than 15,000 daily flights. Delta is a founding member of the SkyTeam marketing and code-sharing alliance (airlines extend their networks by selling tickets on flights), which includes carriers Air France, KLM, and Alitalia.
Delta divides its operations into two chief segments: airline and refinery. The airline segment provides scheduled air transportation for passengers and cargo throughout the US and around the world and other ancillary airline services, including maintenance and repair services for third parties.
The refinery segment provides jet fuel to the airline segment from its own production and through jet fuel obtained through agreements through third parties. The costs included in the refinery segment are primarily for the benefit of the airline segment.
Delta operates from domestic hubs in Atlanta, Boston, Detroit, London, Los Angeles, Minneapolis/St. Paul, New York, Seattle, and Salt Lake City. Delta has international hubs in Amsterdam, Paris, and Tokyo. The US market is its largest, representing about 70% of net sales.
Sales and Marketing
Delta's tickets are sold through various distribution channels including telephone reservations, Delta.com, and traditional brick and mortar and online travel agencies. It spent about $277 million on advertising in 2016.
After peaking at a record-setting $40.7 billion in 2015, Delta's revenues dipped 3% to $39.6 billion in 2016. This was attributed to a 5% decline in passenger revenue per available seat mile (PRASM) on 2% higher capacity compared to 2015. The decrease in PRASM was largely driven by competitive pressure within the low fuel price environment and the impact of US dollar strength on tickets sold in international markets, which are largely priced in local currency.
In addition to the revenue decline, profits fell 3% from $4.5 billion in 2015 to $4.4 billion in 2016 as lower passenger revenue and higher salaries and related costs offset the benefits of lower fuel prices. Cash flow from operations also fell from $7.9 billion in 2015 to $7.2 billion in 2016 mainly due to unfavorable changes in accounts receivable and fuel inventories.
The airline industry is fueled by strategic alliances that allow individual carriers to extend their service without physically flying into new territory. Delta's alliance with SkyTeam allows the airline's reach to extend to more than 900 destinations in 170-plus countries around the globe. The company gets a boost in global coverage with airlines around the world coming aboard the SkyTeam alliance.
To boost its position in the important region of China, Delta in 2015 expanded its global network with China Eastern, one of the leading airlines in China. The agreement included a $450 million investment by Delta to acquire an almost 4% stake in China Eastern. The move allowed Delta and China Eastern to compete more effectively on routes between the US and China and provided more travel options for customers in both countries.
Looking to Europe, Delta plans to build its presence in its strategically advantaged hubs in London, Paris, and Amsterdam, while de-emphasizing higher Europe point-of-sale markets. Its 49% equity investment in Virgin Atlantic has improved its presence in London, one of the largest revenue markets from the US, while also enhancing its transatlantic network, including its existing joint venture relationship with Air France-KLM and Alitalia.
Targeting the Asia/Pacific region for growth, in mid-2017, Delta and Korean Air announced a joint venture that will create a combined network serving more than 290 destinations in the Americas and more than 80 in Asia. The increase in scale between the carriers includes expanded codesharing in the trans-Pacific market, joint sales and marketing initiatives in Asia and the US, and co-location at key hubs.
Another important key growth component for airlines that has made headlines recently is customer satisfaction. Delta has significantly invested in its business since 2010 to improve its operational performance, which it states consistently ranks first among the major US carriers. During 2016, the carrier operated 241 days with zero mainline canceled flights, a nearly 50% improvement over its 2015 performance.