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CASE STUDY
E-Business at Delta Air Lines:
Extracting Value from a Multi-Faceted Approach
Jeanne Ross
August 2001
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Abstract: Delta Air Lines entered e-business with much aplomb when it agreed to provide
Priceline.com with its excess inventory (seats on planes) in exchange for a 10% equity position.
When Priceline stock soared, Delta sold part of its holding for $750 million. Delta management
recognized that e-business offered many different business opportunities and has identified ways
to lower costs (e.g. selling tickets on line), increase revenues (e.g. selling excess inventory
through Priceline), and experiment with new business concepts (developing MYOBTravel.com
for small and medium-sized businesses). This case stud y describes Delta’s e-business initiatives,
noting the organizational structure used to aggressively pursue new opportunities. Of particular
note is the role of the IT transformation that positioned Delta for the opportunities e-business
created. Seeking to avert a Y2K crisis, Delta invested $1 billion in its IT infrastructure and
developed a publish-and-subscribe environment to support a cross-functional customer-
orientation.
Key words: e-business, IT infrastructure, IT architecture, IT-business relations hips
Pages 9
Massachusetts Institute of Technology
Sloan School of Management
This case was prepared by Dr. Jeanne W. Ross of the Center for Information Systems Research at the MIT Sloan School of Management.
This case is for the purpose of management education, rather than illustrating or endorsing any particular management practice. The case is
part of a research project on e-business migration conducted jointly by Melbourne Business School and the MIT Sloan School. Support for
the project from PricewaterhouseCoopers LLP is gratefully acknowledged. This case may be reproduced free of charge for educational
purposes provided the copyright statement appears on the copy.
2001 MIT and Melbourne Business School. All rights reserved to the authors.
rebuilt its information technology infrastructure and The Priceline deal created a model for e-business
was gaining recognition as a high-technology firm. initiatives at Delta. For example, when management
Its information technology subsidiary, Delta was looking for a vendor to provide wireless
Technology, won the Computerworld Smithsonian services, it partnered with Softnet Zone and arranged
Award for Technology Innovation in 2000. In July for an equity stake in that firm. Delta also received
2000, Leo Mullin was named by Forbes magazine as equity in People PC as part of an arrangement to
a member of “The E-Gang,” twelve executives who deliver personal computers to its employees.
were “forcing the web to grow up.”2 Management believed that partnering with start-ups
was the best way to marry the speed and agility of
Delta had actually been “lured” into e-business by dotcom companies with Delta’s reputation and
Priceline, a dot-com start-up whose value customer reach:
proposition was that it would sell airlines’ excess
inventory (seats on flights) at discounted prices to We’re not going to go out into the
persons for whom price would determine whether or marketplace to do deals and partner with
not they would fly (www.priceline.com). Delta people just to get equity value. That is not
marketing executives were initially skeptical of the what we’re all about. What we’re all about
idea of selling tickets through Priceline, but the chief is partnering with thought leaders and with
financial officer supported the concept and Leo companies in the new economy that provide
Mullin was persuaded of the inevitability of the us with opportunities to improve the core of
Priceline model as a distribution channel. As the first Delta Airlines. In doing so, we take
major airline to agree to sell tickets through advantage of the fact that we have these
Priceline, Delta received a 10% equity stake. When hidden assets, such as our brand, to drive
Priceline stock later soared, Delta cashed in part of some potential equity value. But the value to
its equity holding and banked more than $750 the core is paramount.
million: —Vince Caminiti, Senior Vice President,
E-Business
What Priceline really represented was
taking inventory that would not otherwise be B2C Initiatives
sold and placing it in the hands of another Following the Priceline deal, Delta actively pursued
supplier. It goes out there and you don't three types of e-business initiatives that management
know exactly what happens to it, and what believed would be important to the firm’s
it’s going to do to your business. You competitiveness: B2C, B2B, and B2E. For airlines,
wonder if you have created a channel of the most immediate impact of e-business was on the
discount sales of your product that could sale and distribution of airline tickets. Travel agents
substantially cause your product to had long been the airlines’ dominant ticket
ultimately be priced lower. It's a classic distribution channel, and as recently as 1997 had
question of disintermediation. I felt that been responsible for approximately 85% of Delta’s
there were a lot of safeguards that would ticket sales. By 2000, almost a quarter of Delta’s
keep that from happening, and oh, by the ticket sales were completed online, while the travel
way, it was going to happen anyway. And, of agent’s share had shrunk to 60%. Travel agents
course, that's what happened. Now there are would continue to provide an important sales
a lot of companies out there with attributes channel, but Delta set a target of selling half of its
that are similar to Priceline. So it was the seats online by 2003. The cost savings would be
right call. We had the right vision as to how significant. Tickets sold by travel agents cost Delta
this whole industry was going to change in approximately $34 each, whereas a ticket sold online
this respect, but by being first, clearly we directly from Delta cost about $2. In 2000, Delta
have gotten much more than anybody else realized savings in sales and distribution costs of
has out of this. approximately $20 million from substituting online
—Leo Mullin, Chairman and CEO ticket sales for sales through travel agents.
Delta.com, Priceline, Orbitz, and MYOBtravel.com Despite these challenges, Delta management felt that
reached out to very different customer segments. an effective market exchange could significantly
Management believed that e-business offered many reduce its $7 billion annual procurement costs, so
more opportunities to segment customers and design Delta was interested in helping to establish a
channels to meet their individual needs: successful B2B exchange for airlines.
We need to be sensitive to the travel public B2E initiatives focused on enhancing the
out there and provide them with channels to productivity and job satisfaction of Delta employees.
accommodate their needs. To the degree The Delta intranet enabled Delta’s mobile workforce
that a customer wants to go to an online to access human resource listings and would
travel agent, to a traditional travel agent, or eventually be used to communicate assignments and
to come to the supplier directly, that is his or schedules to Delta’s 9,000 pilots and 18,000 flight
attendants. Leo Mullin had promised free personal
computers to all of Delta’s employees to encourage
3
The five founding partners of Orbitz (www.Orbitz.com) them to use the technology and to give them access
were Delta, United, American, Continental, and to the firm’s IT infrastructure from their homes. At
Northwest.
1. The Consolidated Financial and Operating Highlights include the results of operatings of ASA Holdings, Inc. and
Comair Holdings, Inc. since April 1, 1999 and November 22, 1999, respectively.
2. Nonrecurring items include gains from the sale of investments, asset writedowns and other special charges, the
effects of a change in accounting principle and a charge for the voluntary prepayment of debt.
DELTA WIRED
WIRED
Operational
Operational Pipeline
Pipeline
Cargo
Terminal T A B C D E Catering
Crew
E
Digital v Hand
Dashboard e Helds
Pagers n
Gate t
Network
Management
Readers s
Kiosks GIDS Wired
Wired
• Schedules
Voice
Workforce
• Pricing / Rev.
Management Digital Nervous System
RIDS
• Forecasting. Video Job
Electronic Events Related
Operations
Management
• IROPS Business Reflexes Location Schedule Flight Maint. Equip. Employee Aircraft Customer Ticket ERM
• Connection Personal
Management Productivity
• Operational Electronic Ticket
Measures Cell
Phones PDA's
Digital Nervous System
ERP
Desktops P Communications
• Financial r FIDS
Management o
• Procurement Laptops f Scanners
• Human OAG I
CRS
Resources l
e
Core Services
Services Skylinks Skymiles Reservations
Travel
Agent
Skycap
Ticket
Counter
Crown
Room
Boarding Inflight Baggage