The topic of the paper is the strategic management after the airline deregulation. The aim of the paper is the analysis of Delta Air Lines strategies and business models and the identification of its weaknesses and strengths. Delta is one of the longest-running US carriers. For nearly a century of its existence, it faced many challenges but ultimately achieved great success. To understand the factors defining Delta’s efficiency, the environmental background, as well as such practices as pricing, route and hub strategies, employee motivation, and internalization, will be reviewed in the paper. The findings of the analysis will be used to make appropriate recommendations for Delta’s further growth.
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Delta Air Lines
Before the Airline Deregulation Act of 1978 was passed in the USA, the government was responsible for granting airline operating certificates, allocation of routes, and selection of ticket prices. At that time, airlines served merely a limited number of domestic routes, and flying was available to a small group of people with higher income. However, technological development and other environmental shifts in the early 1970s resulted in significant financial losses in the industry and revealed that the regulation did not meet the public interest any longer (Cook & Goodwin, 2008).
In the unregulated environment, ticket prices significantly dropped allowing more people to enjoy air traveling and simpler onboard services. Over time, a greater number of new entrants appeared in the market trying to grab a share of profits, the industry became associated with fierce competition and, nowadays, it is challenging for airlines to sustain in the business as never before. To succeed, they have to adjust to environmental influences and implement various strategic techniques that may help develop competencies and advantages effectively. In this paper, we will analyze different strategies that airlines can use by evaluating and discussing the performance of Delta Air Lines, one of the longest-running US airline carriers. Since the moment of its establishment in 1924, the company has become a world leader in air travel, operating the routes to more than fifty countries, and working at one of the biggest domestic hubs (Baumwoll, Howland, Kruse, Lamb, & Shepherd, 2008, para. 1). Although because of the increase in fuel prices and adverse effects of 9/11 terrorist attack, the organization’s debt increased, and it had to declare bankruptcy in 2005, Delta continued to operate and, due to smart strategic decisions, could gain profits shortly after the crisis.
The paper will focus on the analysis of Delta’s strategic orientation including such areas as pricing, route, and hub management; international business models; and employee loyalty. The discussion will be supported by research evidence and relevant theories retrieved from recent credible resources. Afterward, the findings will be summarized, and appropriate recommendations for performance improvement will be made.
After deregulation of the airline industry and with increasing accessibility to air travel, companies strive to differentiate themselves from one another and develop a unique identity and set of competencies needed to sustain in the market. Baumwoll et al. (2008) define market change, direct competitors, threats from substitutes, buyers’ interests, and capabilities as major factors affecting financial returns, risks, and strategic orientations in the industry. The way how Delta responses to these environmental influences are reflected in its pricing, route, and hub strategies.
Pricing is a core aspect of the business. An intelligently selected price can help attract new customers, expand profit margin, and stimulate the positive perception of the brand and service quality (Jiang, 2016). In the US airline industry, there are two types of enterprises − legacy carriers and low-costers − that attach different prices to their products. Legacy carriers including Delta, which operated on the interstate routes before the deregulation took place, usually charge $200 or more per a cost position (Baumwoll et al., 2008). This price is higher than the industry’s average. Conversely, low-cost carriers’ rates are below the industry average and may range from $100 to $160 (Baumwoll et al., 2008).
The selected pricing strategy will largely define value creation and delivery (Jiang, 2016). In the case of Delta, premium pricing implies that the company focuses on the quality of service. Moreover, like any other legacy carrier, it offers services to most demanded and distant destinations which are usually out of low-costers’ reach because of high operation costs induced by flying there (Baumwoll et al., 2008). In this way, premium pricing allows Delta to differentiate its products from those offered by the majority of domestic airlines, create value, and contribute to a better perception of the brand.
It is true that many customers choose airlines based solely on price. However, many people will also pay more for comfort and excellent service, especially if they are flying far. Such complementary properties are inherent with premium pricing, and it may signify that Delta has a well-developed value chain. As stated by Kristianto, Ajmal, and Sandhu (2012), the value is a ratio between all benefits and costs associated with the product. Delta’s customers get more functional and emotional benefits, and his/her experience compensates for the expenditures. Thus, the airline achieves a greater level of customer satisfaction.
Route and Hub Strategies
Airline companies choose routes to operate based on their profit potential. The US legacy carriers serve multiple regions, while low-costers usually do not go beyond the domestic market and a very limited international flight schedule (Baumwoll et al., 2008). Therefore, although Delta may cede in price competition against such airlines as JetBlue, etc., it certainly wins in service differentiation by selling tickets to diverse destinations. Currently, the company serves about 300 countries across the globe. As Baumwoll et al. (2008) note, Delta was also the first large US carrier flying to Africa.
One of the busiest airports in the country, Hartsfield-Jackson Atlanta International Airport, is the primary Delta’s hub. By serving 56% of the airport’s total number of passengers, the enterprise controls its competitiveness as it prevents other airlines to increase the output (Baumwoll et al., 2008). Moreover, to achieve greater operational efficiency when flying to a large number of destinations and serving millions of people each year, Delta employs a smart route management system − Hub and Spoke (H&S). Compared to a point-to-point system that implies boarding at the flight origin and taking off at the destination, H&S requires passengers to make a transfer at the hub before flying to the destination (Cook & Goodwin, 2008, p. 52). The given approach is associated with greater flexibility as it allows passengers to travel from any place to any part of the world by making just one connecting stop. At the same time, with this strategy, Delta achieves greater cost efficiency because the smaller number of aircraft is required (Cook & Goodwin, 2008).
International Business Model: Joint Venturing
After the limits on the entry to new markets were reduced and some previously controlled routes became accessible, Delta started to expand its reach across the globe. Currently, Delta has joint ventures with such business giants as Air France and Virgin Australia (Banstetter, 2015). Moreover, it continues to invest in partnerships with leaders in the industry from different parts of the world including China Eastern and others. As Banstetter (2015) notes, international collaboration is regarded by Delta’s management as “a major competitive advantage” (para. 1). This statement seems valid because these partnerships opened new opportunities for the airline’s success.
According to Greenwald and Kahn (2005), compared to the domestic market, the global market has no boundaries and allows companies to pursue various goals. However, it is much more difficult to sustain competitiveness in the non-restricted economies because new entrants trying to “grab a share of the profits” will continuously appear (Greenwald & Kahn, 2005, para. 1). As the researchers observe, to dominate its rivals, not only should the international company remain flexible in its moves but also localize its strategies (Greenwald & Kahn, 2005). It means that every player in the global market should pay attention to the situation in the hosting environment to understand the actions of local competitors. In this way, one may attain “privileged access to customers or suppliers” and consequently earn superior returns (Greenwald & Kahn, 2005, para. 1).
Among all possible entry modes, joint venturing can be regarded as one of the most beneficial because the strategic alliances established by using the given model are meant to improve the long-term competitiveness of both parties. Moreover, they are rooted in the idea that “each party has something unique to contribute to the partnership” (Gunnarsson, 2011, p. 14). For instance, Delta’s partnership with China Eastern pursues mutual benefits and is associated with shared control. It is possible to assume that by using joint venturing as the primary internationalization technique, Delta avoided significant financial losses and reduced the costs linked to entering a culturally distant market.
In support of this assumption, Gunnarsson (2011) claims that, compared to sole venture mode or direct investment, an indirect way of investment in the market induces lower financial risks. However, joint venturing could significantly slow down Delta’s expansion progress and lead to difficulties in the development of relationships with local customers due to reduced brand recognition. However, slow temps of expansion may benefit the organization in the accumulation of necessary experience and the learning about customer preferences. Thus, Delta’s cautious approach to internalization can be regarded as a smart strategic decision-oriented towards long-term goal achievement.
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Employee Culture as a Factor for Financial Success
It is possible to say that, employee satisfaction is another major Delta’s goal in its strategic management. Recently, the company was included in Fortune’s 100 Best Companies to Work For − the list of international enterprises acknowledged for their leadership quality, excellent relationships among staff members, and high level of job satisfaction among employees. Although the airline industry is seen as one of the most stressful and turbulent, employees at Delta seem to love their jobs. According to Roberts (2017), a unique reinforcement and motivation system is the reason for this. For already a few years, the company implements a profit-sharing program and pays large monetary bonuses to its staff members, i.e., 10% of annual pretax revenue (Roberts, 2017). It shows that Delta values its personnel and, moreover, links employee interests to its financial success. In this way, the company became efficient in motivating team members to integrate the major corporate values, such as empathy for customers, humbleness, and a sound attitude to competition, into day to day professional practice.
It is possible to say that rewards paid to employees play an essential role in improving organizational productivity and efficiency. As stated by Wei and Yazdanifard (2014), extrinsic rewards as salary, promotion, and other financial bonuses, and intrinsic rewards including empowerment and recognition are core to positive reinforcement and elimination of undesirable behaviors in personnel. The researchers observed that when the reward system is directly affected by the employee and overall organizational performance, as in the case of Delta, not only the financial indicators can be improved but also employees’ commitment to their job duties increases proportionally (Wei & Yazdanifard, 2014). Thus, by receiving highly competitive salaries, Delta’s staff members feel valued, and the feeling of recognition is that what makes them work harder, comply with professional standards, and contribute to the company’s improvement and thriving.
Recommendations and Solutions
The findings demonstrate that Delta has both strengths and weaknesses. The extensive international flight service and a good employee reward strategy are among the strong aspects of the performance, while such a company’s core competency as luxury and provision of amenities does not generate too many advantages for Delta even though attracts some specific customer groups. Up-scale service does not allow the airline to enter into a variety of markets and compete based on price. Moreover, it can be easily imitated by competitors (Baumwoll et al., 2008). However, Delta’s current strategic orientation will likely not allow it to be successful in the low-cost market. Therefore, in the future, the company should rather focus on the development and exploitation of its unique employee and customer culture, as well as international expansion.
Since 2007, shortly after the bankruptcy event, Delta managed to become one of the leaders in return on assets in the industry (Baumwoll et al., 2008). Mainly, it happened because international flights are more profitable than domestic ones. Thus, it can be recommended for Delta to continue to invest in international partnerships and avoid competition with low-cost carriers at the domestic market. The further diversification of the enterprise’s international capacity can be considered a major factor for its sustainability.
Marketing promotion and the use of the company’s core competencies in the advertising campaign can be recommended for Delta as well. By focusing on quality, the airline makes it clear that it values customers and aims to increase their satisfaction. Additionally, it appreciates employees by treating them fairly and sufficiently rewarding them. Since Delta strives to establish positive relations with diverse stakeholders and add value to business operations, in promotion activities, Delta should refer to the fact that it aims to contribute to the welfare of people in general. It also can focus on an exceptional commitment of employees to customer satisfaction and quality, and emphasize its ability to create unique experiences for customers.
Despite all previous difficulties, Delta achieved great success and became one of the leaders in the US airline industry. An innovative approach to service, focus on customer value, and employee motivation, efficient route structure, as well as an extensive differentiation of international capacity, helped the company to get out of the grip of bankruptcy and significantly improve its financial performance. Although Delta cannot control a highly turbulent and ever-changing environment in which it operates, its experience shows that, throughout the time, it was able to differentiate itself from competitors. In the current management vision, the airline provides excellent customer service and continues to grow in the international market. If it can foresee all possible risks that may occur in the overseas market, there are all chances that Delta will thrive for a long time.
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