Analysis of Delta's Management Accounting Strategies in 2001

The homework explores Management Accounting with a focus on Delta Airlines' financial performance in 2001, particularly examining operating leverage that resulted in negative EBIT due to high variable costs. The analysis suggests launching the low-cost carrier Song as a strategic decision by Delta's management to combat losses caused mainly by rising fuel prices and high service charges. Alternative solutions like ticket price reduction are also considered.

Running head: MANAGEMENT ACCOUNTING
Management Accounting
Name of the Student:
Name of the University:
Author Note

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Table of Contents
Discussion Paper 2...........................................................................................................................2
Answer to Question 1..................................................................................................................2
Answer to Question 2..................................................................................................................3
References........................................................................................................................................4

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Discussion Paper 2
Answer to Question 1
Operating Leverage on 2001:
Particulars
Amoun
t
($M)
Sales Revenue in 2001 11964
Variable Costs:
Salaries & Related Costs 6124
Aircraft Fuel 1817
Passenger Commission 540
Selling Expense 616
Passenger Services 436
Aircraft Maintenance &
Services 801
Landing Fees 785
Other Expenses 816
Total Variable Costs 11935
Net Operating Income/(Loss) -1602
Operating Leverage -1.81%
The operating leverage of the firm has been a negative figure. An operating leverage
refers to the impact that sales has on the operating profits of the firm. A negative operating
leverage represents that the firm has been operating at lower level in terms of the break-even
point. This further indicates that the EBIT that has been incurred by the firm will be negative.
Thus, the decision by Delta in regards to the introduction of the low cost air carrier, Song is
needed and proper.
A sharp decline on the passengers for a firm with a micro economic structure such as the
one Delta had in place during 2001 would have the following effects:

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 Delta has been one of the well-known airlines companies. Thus, the fall in the number of
passengers will affect the economic structure
 The fall in one of the major companies like Delta will in all probabilities lead to the rise
of a peer airlines company. The JetBlue has been such a company in case of Delta.
 The strategies that have been undertaken by the major airlines company will also affect
the particular industry, as this will change the particulars of the competition (Cook &
Tanner, 2015).
Answer to Question 2
The proposal in regards to the launching of the low cost air carrier, Song has been a
correct decision for Delta. This is because Delta has been incurring low profits and ultimately
losses. This has been majorly due to the unprecedented rise in the fuel prices. Moreover, the
prices that have been charged by the airlines company for the providence of services also appear
to be quite high for the mass. Therefore, the launching of a low cost air carrier is the best
possible solution that can be adopted by the management of Delta.
An alternative solution to the problem faced by Delta might be reducing the charges in
regards to the prices of the tickets. Remodeling of the complete airlines services in order to fit
the required cost management strategies could also be a potential solution (Williams, 2017).

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References
Cook, A. J., & Tanner, G. (2015). European airline delay cost reference values.
Wensveen, J. G. (2016). Air transportation: A management perspective. Routledge.
Williams, G. (2017). Airline competition: deregulation's mixed legacy. Taylor & Francis.
Williams, G. (2017). The airline industry and the impact of deregulation. Routledge.