Under vital reason for them to collaborate as
Under the name “Huff
Daland Dusters,” Delta Air Lines started as a crop dusting operation founded in
Macon Georgia in 1924 and was the first commercial agricultural flying company
before moved to Monroe, Louisiana in 1925 and entered operations from Florida,
Arkansas, California and Mexico. In 1927, the company expanded their service
into Peru and ran the first international mail and passenger route in 1928 for
Pan Am subsidiary Peruvian Airways.
In the process of
purchasing the company, Huff Dusters was being scouted by C.E Woolman, and
renamed it as Delta Air Services for the Mississippi Delta Region it served.
D.Y Smith, President and C.E Woolman was first vice president. Delta began
operating flights in 1929 which carry only five passengers and a pilot. In 1930
the company renamed to Delta Air Corporation and then Delta Air Lines in 1934.
Delta offers first night services and aircrafts operated by two pilot.
In 1940, officially be
recognized as Delta Air Lines. The company improve their service by added
stewardesses, modified aircrafts and trained army pilot and mechanics. Delta
made the biggest gaining in 1991, by buying Pan Am’s trans-Atlantic and the Pan
In 2000, Delta
creating global alliance called Sky Team which combined with Aero Mexico, Air
France and Korean Air. They prolonged more their technology and customer
service. Due to a compilation of management missteps, Delta acknowledged
bankruptcy in 2005. During 2007, the company had dragged itself out of this condition.
Delta become the first U.S airlines to broadcast its plan to upgrade within
decode, a $2 Billion dollar investment geared at improving customer experience.
The company sustained to improve facilities and technological resources owed to
clienteles (Rudy, 2016)
2.0 Details of the Investment
for the investment
Investing is actually the
first step to start and expand a business. Delta Airways and Virgin Atlantic
had decided to create a collaboration in order to compete with British Airways
and American Airlines, the market leader in transatlantic aviation on that
time. This will be a vital reason for them to collaborate as they can increase
connections between other airlines to increase market value.
Delta is confidence with the
collaboration because the planned was to expand brand to worldwide. It is not a
long-term investment but only to focus on Virgin’s Heathrow airport slots.
Customer from Virgins’ will know about the airlines provided and it will create
customer confusion plus they can increase their slot in airport due to high
demand from customer.
The other reason is to help
Virgin Atlantic increase their financial performance. The relationship and
extra traffic on moneymaking routes will bolster Virgin’s finances after two
years of heavy losses. For instance, Virgin can improve their services by
travelling to many countries in order to fulfil customers’ desire. So, Virgin’s
financial performance will increase from time to time as they had made an
improvement in their services.
collaboration has given a significant impact for Virgin Atlantic, which has
been battered by rising fuel prices and the euro crisis. Before the partnership
agreement is made, Virgin loss for at most 80 million pounds (£128m) in its
lost full year. This will cause Virgin performance to develop well as the
collaboration is made.
In addition, Delta Airways
can earn a high rate of profit. The rate of return will be higher as they
invest more. Since the company is now partnering with Delta Airways, Virgin
Atlantic is believed to provide a continuous return for Delta Airways. Based on
the Virgin’s annual report states that the revenue was increased from $3,929,
million on 2012 to $5,021 million on 2016.
Last but not least, the
reason for the investment to exist is such a strategic location to market their
brand. Richard Branson’s has 3% of the highly coveted spots at London’s
Heathrow airport. Delta CEO Richard Anderson said the New York’s John F.
Kennedy to London’s Heathrow is the world’s most profitable by a wide margin.
Customers are able to use either Delta or Virgin lounge which are alongside one
Delta will pay $360 million (49%) stake to
Singapore Airlines, ending the Asian group’s inacceptable 12-year asset in
Virgin. Singapore Airlines had learnt the near-half part from Branson in 2000
for £360 million. Delta
has a joint venture with Virgin Atlantic. The collaborative action will bring
together Virgin’s six round-trip flights a day from Heathrow to JFK with a further
three operated by Delta (Bowers, 2012). The partnership
would combated their dominance of 60% of the north Atlantic (flight market).
Besides, they were also can created the real run of money.
There are three main types of investment which are
stocks, bonds and cash equivalent. The type of investment choose by Virgin
Airlines and Delta airlines is stock investment. Delta Airlines was bought
stake from Virgin Airlines with 49% stake ($360m). Virgin Airlines sell stakes
of stock to raise money for their growth. They already lost for two years. This
decision had been made to increase their performance. Delta Airlines has a role
to play in influencing the operation of Virgin Airlines. When Virgin Airlines
make earnings or profit, they must pay interest and dividend to Delta Airlines
as external stakeholders.
Delta Airlines is a main United States airline based
in Atlanta, Georgia while Virgin Airline is a California-based airline. The
destination for the partnership of Delta Airlines and Virgin Airlines is from
Heathrow Airport to John F Kennedy Airport (JFK). Both of the airport are
busiest airport. Moreover, Heathrow Airport is major international airport in
the world and also have high capacity of passengers. So, they can increase the supply of flight
against the high demand of passengers. This can lead both airlines to gain high
profit and low risk of loses. Apart of that, JFK airport is primary
international airport that serving New York City. It is also lead as air cargo
center. On 2003, there were AirTrain that connected JFK airport with Long
Island Rail Road New York City Subway and bus lines.
2.5 Success or Failure of the investment
Based on the article, we can
infer that the investment made by Delta Airlines to Virgin Airlines is
successful. The collaboration between both airlines had create a complete giant
across the Atlantic. On a seat share basis, Delta’s share has dropped from 9%
to 8% but Virgin Atlantic’s share has jumped from 20% to 22%. As a result, the
combined seat share of Delta and Virgin Atlantic has increased to about 30% (CAPA, 2017).
Moreover, the collaboration
bring together Virgin’s six round-trip flights a day from Heathrow to JFK with
a further three operated by Delta (Bowers, 2012) During the 2015
summer season, Virgin Atlantic and Delta are operating about 39 daily return
trans-Atlantic flights between the UK and North America, including eight daily
flights in the key JFK-London Heathrow. The partners also offer three daily
flights between Los-Angeles and London Heathrow (CAPA, 2017).
The partnership lets Delta
and Virgin Atlantic to coordinate flights and fares, helping them against
rivals in the trans-Atlantic market. The airlines were offering their customers
even more choice between Europe, UK and the United States via twelve hubs on
both sides of the Atlantic as said by Air France CEO Jean-Marc Janaillac. The
deals also greatly expand the reach of the carrier via connections and their
Besides, the collaboration
was a success due to Virgin Australia achieved both the uppermost level of
on-time arrivals and departures among all Australia airlines during 2015 and
2016. The performance increase slightly from year to year in 2015 and 2016 with
arrivals averaged 86.1% while departures averaged 86.7%, representing annual
rises of 1% and 0.2% respectively.
Currently, Virgin flies to
34 destinations and carries about 6 million passengers a year. Then, Delta
entertain more than 160 million customers a year and offers services to more
than 300 destinations in 58 countries (Bowers, 2012).
Delta was named by Fortune magazine as the most admired
airline worldwide and Virgin was recently awarded Best Long Haul Airline and Best Airline Lounge at
The Daily Telegraph Ultratravel awards.
also can be proven from the pattern of their financial statement. For Delta
Airlines, the mainline rose from year 2012 ($25,237 millions) to 2015 ($28,898
millions) and dropped slightly during year 2016 with $28,105 millions, thus the
revenue was increasing rapidly from 2012 to 2015 with $31,807 millions to
$34,782 millions and then decreased during 2016 with $33,777 millions. During
2015, the revenue increased due to the falling of fuel prices. In contrast, the
revenue declined in 2016 due to the increase in number of competitors.
Therefore, Delta had made decision to charged lower airfares price which
resulting in declining of revenue. This lower income in all regions continued
to adversely impact unit revenue. The foreign currency fluctuations and lower
fuel surcharges due to lower oil prices will affect the international market.
So, Delta should charges lower airfares (Net, 2017)
the financial statement of Virgin Airlines, the total revenue and income
increase continuously from year 2012 ($3,929 millions) to 2016 ($5,021
millions). Virgin had gained customer’s confidence because they want to
promoted their brand names. Their services were tip-top because always arrived
and departure on time. Moreover, the
company has been able to compete other airline industry to cut their service
cost while providing outstanding service to their target marketplace.
In conclusion, the collaboration made
by Delta and Virgin Airlines in the investment had found to be successful. By
investing 49% of stake had increased the potential in marketing their brands to
worldwide. Profit gain is continuously increase in each year and show a
positive growth in the company. Besides, the collaboration had allow them to
gain customers as they provided various choice by sharing lounge and add more
slots. This will increase customer satisfaction by selecting these brands. It
is evident that this liaison is the right decision in investing because the
flow of money can be reduced especially in cost of goods sold. Assets are to be
shared within the company in order to decrease the cash outflow.