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Managerial Accounting In Action

CFO featured an interview with Delta Airlines CFO.  He discussed how Delta went from losing $4 B to making $1.5 B in the period after it came out of bankruptcy.  How did  Delta do it?

They moved airplanes they owned to growing markets.  They became an international carrier instead of primarily a domestic one with international connection. In short they did Cost Volume Profit Analysis on their routes, determined the ones with the highest contribution margin, and then went there.  As he says this is not a business for the faint of heart.

We study CVP in Chapters 5 ande 6 in the Managerial course, this is an excellent application of that methodology in action.

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2 responses to “Managerial Accounting In Action”

  1. Marie Callier Avatar
    Marie Callier

    Dr. Elam,
    When reading this interview with the CFO of Delta Airlines, it brings to mind a few points from Jim Collins’ book “Good To Great.” Collins mentions the Hedgehog Concept in one of the chapters which explains that hedgehogs simplify a complex world into a single organizing idea, a basic principle or concept that unifies and guides everything. One of the circles in the Hedgehog Concept according to Collins is to think about and understand what your company or organization can be the best in the world at, which helps drive success. One of the ways that Delta recorded a net income of $1.64 billion compared with a loss of $4.28 billion is by moving from being a domestic carrier to being an international business. Sounds to me like Delta thought that they could now be the best in the international market. Just thought this was an interesting thought since it relates so much to some of the things in the book that I read.

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  2. Dennis Elam Avatar
    Dennis Elam

    Marie
    Great post, it combines ideas in the book you are reading with this article in particular, this was a hallmark of GE they are only in markets where they can be the top two or three in the world.

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