Delta Airlines 2002 Annual Report Download - page 11

The continuing growth of low-cost carriers in the United States places
significant competitive pressures on Delta and other network carriers. A number
of low-cost carriers, including Southwest Airlines, AirTran Airways and JetBlue
Airways, are offering increased seat capacity in Delta's markets. Delta's
ability to compete effectively with low-cost carriers depends, in part, on its
ability to achieve operating costs per available seat mile ("unit costs") that
are competitive with those carriers. Delta's unit costs are higher than those of
Southwest, AirTran and JetBlue.
International marketing alliances formed by domestic and foreign
carriers, such as the Star Alliance (among United Airlines, Lufthansa German
Airlines and others), the oneworld alliance (among American Airlines, British
Airways and others) and the Wings Alliance (between Northwest Airlines and
KLM-Royal Dutch Airlines), have significantly increased competition in
international markets. Through marketing and codesharing arrangements with U.S.
carriers, foreign carriers have obtained access to interior U.S. passenger
traffic. Similarly, U.S. carriers have increased their ability to sell
international transportation such as transatlantic services to and beyond
European cities through alliances with international carriers.
The airline industry is characterized by substantial price competition.
If price reductions are not offset by increases in traffic or changes in the mix
of traffic that improve Delta's passenger mile yield, Delta's operating results
will be adversely impacted.
Delta regularly monitors competitive developments in the airline
industry, and evaluates its strategic alternatives. These strategic alternatives
include, among other things, internal growth, codesharing arrangements,
marketing alliances, joint ventures, and mergers and acquisitions. Delta's
evaluations involve internal analysis and, where appropriate, discussions with
third parties.
Airport Access
Operations at three major U.S. airports and certain foreign airports
served by Delta are regulated by governmental entities through "slot"
allocations. Each slot represents the authorization to land at, or take off
from, the particular airport during a specified time period.
In the United States, the FAA currently regulates slot allocations at
JFK and La Guardia Airport in New York and Ronald Reagan National Airport in
Washington, D.C. Delta's operations at those three airports generally require
slot allocations. Under legislation enacted by Congress, slot rules will be
phased out at JFK and La Guardia Airport by 2007.
Delta currently has sufficient slot authorizations to operate its
existing flights, and has generally been able to obtain slots to expand its
operations and to change its schedules. There is no assurance, however, that
Delta will be able to obtain slots for these purposes in the future because,
among other reasons, slot allocations are subject to changes in governmental
policies.
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