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Delta Memo - MEMORANDUM TO Isin Guler FROM Josh Kahn DATE...

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MEMORANDUM TO: Isin Guler FROM: Josh Kahn DATE: September 23, 2008 RE: Delta Case Analysis The purpose of this memo is to analyze the transformation of the airline industry, specifically low-cost carriers’ effect on Delta’s strategy. Low ROI for Established Airlines The low rates of return on investment for the five largest airline carriers during the 1990’s was a result of a higher cost structure than competitors. Exhibit 6 shows that all of the legacy carriers had total costs per available seat mile of $.10-$.16, while the low-cost carriers had costs of $.6-$.10 per seat mile. This high cost per available seat had two main sources: high salary and benefits costs, a result of unionized labor, and higher aircraft and facility rental fees because low-cost carriers operated out of smaller airports. In an incredibly competitive industry, the largest airlines were forced to lower their prices to the level of low-cost airlines, even with higher cost structures.
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