Delta-Us Airways CaseEssay Preview: Delta-Us Airways CaseReport this essayQuzi3 Q1-Delta-US Airways case & Q2-Selling my MBAAnalysis of Deltas value creation processAs a full-service airlines, Delta is configured to get passengers from almost any point A to any point B. To reach a large number of destinations and serve passengers with connecting flights, Delta employs a hub-and-spoke system centered on major airports. Delta offers customers service to more destinations than any global airline with Delta and Delta Connection carrier service to 290 destinations in 46 countries. With more than 50 new international routes added in the last year, Delta is Americas fastest growing international Airline and is a leader across the Atlantic with flights to 28 trans-Atlantic destinations. To Latin America and the Caribbean, Delta offers more than 400 weekly flights to 49 destinations. To attract passengers who desire more comfort, it offers first-class or business class service. Deltas marketing alliance also allows customers to earn and redeems SkyMiles on more than 14,000 flights offered by SkyTeam and other partners. Delta was a founding member of SkyTeam, a global airline alliance that provides customers with extensive worldwide destinations, flights and services. Including its SkyTeam and worldwide code-share partners, Delta offers flights to 445 worldwide destinations in 92 countries. To accommodate passengers who must change planes, it coordinates schedules and checks and transfers baggage. Customers can check in for flights, print boarding passes and check flight status at delta.com. Beginning in December of 1999 the company began using the Twelve Points program to ensure the best customer service possible. Not only does Delta try to be of better service to customers, they also try to be of service to the community. Every year they donate time and money to programs involved with youth leadership development, and also with youth wellness. Recently, Delta starts to provide the wireless Internet in airport terminals across the country. Delta offered healthcare coverage and other benefits to same sex partners. They claim to be committed to their employees, and are considered to be a company that likes to have a diverse staff on hand including handicapped, and a mix of many minorities. Delta has special three customer services, Travel Services, Membership Programs, and business to business programs. (See exhibit 1) Delta also served meals for passengers who would be traveling for many hours but an industry downturn following the Sept.11 attacks, coupled with high fuel costs, led Delta to begin eliminating perks as it sought ways to cut costs. A hub-and-spoke system centered on major airports also lost power to operate efficiently.(See exhibit 1) As I mentioned above, Delta was an innovative company which could create value, but it lost power to create value like Southwest (See exhibit 4-a) From New Delta creation, Delta creditors will get significant premium. First, Approximately $8.0billion of value to Deltas unsecured claimholders ($4.0 billion of cash and 78.5 million shares of US Airways stock valued at $4,0 billion-based on November 14, 2006 closing price of $50.93) will be created. Second, it will represent roughly a 25% premium to current unsecured bond trading levels-40% premium based on a 30-day average. Third, committed financing of $7.2 billion, will also represent $4,0 billion to fund cash portion of offer and $3,2 billion in refinancing. All other allowed secured debt and administrative claims will be assured or paid in full. And new Delta will also get a financing commitment from Citi-group to provide $7,2 billion in new financing for this transaction. This funding would be utilized to refinance Deltas debtor-in-possession credit facility, refinance US Airways existing senior secured facility with GE Capital, and provide the funding for the $4,0 billion cash portion of our offer. All other allowed secured and administrative claims would be paid in full.
Analysis of US Airways value creation processUS Airway is another full-service airline, so the past basic value creation process was almost same as Delta. It is configured to get passengers from almost any point A to any point B. To reach a large number of destinations and serve passengers with connecting flights, US Airway employs a hub-and-spoke system centered on major airports. To attract passengers who desire more comfort, it offers first-class or business class service. To accommodate passengers who must change planes, it coordinates schedules and checks and transfers baggage. They also served meals for passengers who will be traveling for many hours, but stopped serving from an industry downward trend after Sep 11. Like Delta, it lost power to create value these days. It could not create new value from its traditional business model and could only try to cost down from elimination of past customer services. (See exhibit 2) From New Delta, US Airway will get accretive to US Airways Pro Forma EPS for its shareholders.(US Airways emerged with a merger partner(America West) in September 2005 and over $600 million in annual synergies. This has proven the value creation power of airline mergers. US Airways and others reduced capacity through bankruptcy which has driven industry improvement. US Airways share price had more than doubled since the merger with America West was completed last September. The news of a merger with Delta sent shares soaring 17% more.)
Analysis of the value- added argumentAccording to US Airways proposal, “New” Delta will be one of the worlds largest airlines: able to compete in an increasingly competitive industry. Its annual synergies would be $1.65 billion ($935 millions from Network Synergies and $710 millions from Cost Synergies) phased-in over 2 years.(Details in Exhibit3-a) and combined capacity will also be rationalized by 10%
From scope economies and benefit of customers perspective, there will be some advantages.In domestic market, complementary route network will be made by complementary hubs to provide better service with 10% fewer ASMs while maintaining service to all existing U.S destinations. Capacity reduction will also achieved by eliminating unprofitable or low load factor flights and point-to-point flying. (Details in Exhibit3-b) In international market, New Delta would be the #1 airline across the Atlantic, #2 to the Caribbean and a valued partner for either Star Alliance or SkyTeam. The New Delta will expand service and create more choices for consumers within the cost structure of a low fare carrier. Customers will be able to utilize low fare air services to reach more than 350
s. This expansion of direct pricing has the potential to bring a competitive price to the markets already open up to airlines. New Delta is also an essential to the future of lower fare air services in the United States . The U.S. market is still struggling with high prices and a low priced airline is not seen as a viable option. This type of financial decision by the New Delta will allow them to continue expanding customers and growing numbers of more customers in their home markets in order to provide higher customer satisfaction, enhanced customer service and more opportunities for lower fares for all customers.”
New Delta[/h4] Â is an airline based in New York City. Its operations include a number of Delta locations including the Terminal 5 facility in the SkyTeam, Delta’s home base at the Kennedy Space Center, and the JFK U.S. Military Space Center, which is located directly across the Gulf Coast of Texas from the U.S. Gulf Coast.
Based on a recent experience, New Delta’s management believes the New United States market with its large base of Delta customers is an attractive destination for the airline.”
How To Find New Delta New Delta can be accessed at: http://www.newdelta.com/news/new-delta (requires browser)
In New Delta, one of our primary goals is to provide high-quality, safe, available, affordable service and benefits that will increase American business customers’ confidence in our airline . In contrast to other large transportation carriers, New Delta does not need to be part of the airline market and does not seek to enter into any contract negotiations. Instead, we intend to engage customers and maintain strategic relationships with them to grow our international business to our current market share and to support our expanded service across the globe— a strategy that will result in increased customer engagement in the business of New Delta. By participating in this multi-million pound project, New Delta will provide you with higher quality, higher value value, and increased flexibility (all of which in turn benefit your business value and financial stability) than is necessary with many other small airlines of other sizes. Please read more below, and visit this website to explore other ways New Delta customers can benefit from our unique services.
New Delta is a national subsidiary of New York Business Development Corp. headquartered in New York City. We are a business-driven airline that is focused on bringing customers access to affordable, reliable and quality airline service with all of our business models and benefits. New Delta is a full service airline and offers enhanced customer service through frequent use of a variety of