Delta

1. During the 1990s, none of the five largest airlines in US were profitable. Why do such low rate of return persist in airline industry? Despite of challenges how do Southwest and JetBlue earn good returns?

The airline industry transported 620 million passengers by 2001.

The key driver for profitability is a yield factor( i.e. the amount of price paying passenger per seat)

Profitability in terms of yield is directly linked to

a) Duopoly in carrier market leading to higher supplier bargain power

b) Price sensitivity of customers

c) Competition from rivals (pressure due to LCCs like Southwest and JetBlue)

Modified Exhibit 6 Financial Comparisons Across Airlines, 2001 | | | | |

  | Legacy | LCC |

  | Delta | AirTran | JetBlue | Southwest |

Yield (cent per occupied seat mile) | 14.25 | 14.75 | 9.78 | 12.48 |

Load factor (% of seats occupied) | 68.30% | 69.70% | 76.90% | 68.00% |

  |   |   |   |   |

Revenue per available seat mile (c) | 9.74 | 10.29 | 7.52 | 8.49 |

Cost per available seat mile (c) |   |   |   |   |

Salary and benefits | 4.31 | 2.7 | 2.16 | 3.03 |

Fuel | 1.21 | 2.16 | 0.98 | 1.3 |

Services |   |   |   |   |

Advertising & promotions | 0.11 | 0.29 | 0.37 | 0.24 |

Other services | 1.74 | 1.65 | 1.16 | 1.26 |

Aircraft and facility rental |   |   |   |   |

Depreciation & amortization | 0.88 | 0.44 | 0.25 | 0.49 |

Rentals | 0.77 | 0.89 | 1.16 | 0.55 |

Food | 0.29 | 0.05 | 0.05 | 0.03 |

Maintenance and other materials | 0.51 | 0.22 | 0.16 | 0.19 |

Landing fees | 0.17 | 0.21 | 0.25 | 0.22 |

Other | 0.42 | 0.84 | 0.16 | 0.23 |

Total | 10.41 | 9.43 | 6.69 | 7.53 |

Income per available seat mile (0) | -0.68 | 0.86 | 0.83 | 0.97 |

Average stage length (miles) | 747 | 533 | 985 | 515 |

d) Outcomes of unionized workforce (high labor expense leading to high power to unions in contract negotiations)

Components of Salary Expense (Effect of Union Power) |

Employee Type | Portion of...