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Delta Air Lines Cost and Productivity Analysis

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Delta Air Lines Cost and Productivity Analysis
Ujaval Patel
Airline Information
Delta is considered a legacy carrier.It has:A heterogeneous fleet mixFleet hubs (Dom: ATL, DTW, MSP, LGA, SLC, JFK, CVG, MEM;Int: CDG, NRT, AMS)Small percentage of unionized workersCategorized seating classesSeat assignmentsFrequent flyer programGDS
RPM –Revenue Passenger Mile – One revenue paying passenger transported one mile. ∑i= 1 to All Flights(# of revenue passengers * # of miles traveled)ASMs – Available Seat Miles – One available seat flown 1 mile. ∑i= 1 to All Flights(# of seats on flight * # of miles flown)RASM – Revenue Per Average Seat Mile –Revenue made from each seat mile offered = Operating Revenue/ASMsCASM – Cost Per Average Seat Mile -Cost to operate each seat per mile offered = Operating costs /ASMsYield – measure of the average fare paid by all passengers per mile flown. = Total Operating Revenue/ # Revenue Passenger Miles = Load Factor * YieldPRASM - passenger revenue per ASM. = Total passenger revenue/ASMFuel Consumed – Total volume of fuel usedFuel Costs per ASM = Fuel Cost / ASMNon-Fuel Costs per ASM = (Operating Expenses – Fuel Costs)/ASM
RSM, ASM, and Load Factor Comparison
The trends shown represent the rise in 3rdQuarter RPMs and ASMs.2010 showed a great increase in both RPMs and ASMs, though the trend seems to be tapering off a little, due to the merger with Northwest.The load factor has gradually increased from ~80% to ~90% in 6 years.
Operating Revenue, Operating Expenses, and Income Before Taxes
The 3rdquarter is prime summer traveling season and sees the most RPMs and ASMs.2008 and 2009 signal the high cost to keep up profits up even during the summer.The merger in 2010 saw expenses and revenues dramatically rise, and this has led to higher Q3 profits.
By 2009 theyeildwas dropping and CASM was seeing a rise. This was cutting into profits.With the merger in 2010, theyeildwas climbing again and CASM was dropping . Though, currently CASM is back at 2009 levels.
Fuel OPEX, Non-Fuel OPEX, Fuel Consumption
The summer months tend to have higher than average fuel prices.2008 saw a price spike in fuel prices and thus there was a spike in Fuel OPEX.With the merger Fuel OPEX has increased steadily, while Non-Fuel OPEX and fuel consumption has remained relatively steady.
OPEX ASMs and Fuel Cost
The price of fuel saw a spike in 2008 and the price dropped back down in 2009, but it has steadilycreepedup over the past 3 years.As expected Fuel OPEX per ASM closely follows the trend of fuel cost. Where as Non-Fuel OPEX has remained fairly stable.
Final Thoughts
Fuel prices and dropping profits in Q3 were probably an indicator of two years of lost profits at Delta in 2008 and 2009.With the merger in 2010 with Northwest fuelexpenses did rise as the fleet size increased.Additionally, airline expenses rose to handle the larger company that was formed.With an increased market share and a drop in CASM after the merger profits rose, and have steadily risen since.





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Delta Air Lines Cost and Productivity Analysis