Company Background
Headquartered in Atlanta, Georgia, Delta Airlines has grown to become one of the world largest aviation companies. The organization traces its roots to 1924 when it was founded by Huff Daland Dusters who incorporated it as an agricultural flying company (Hoffman & Hunger 2012). Since then, it has expanded its services to include passenger and mail services. Indeed, its passenger and mail services grew as a product of its expansion plans.
The expansion period happened in the 1930s and 1940s, when its Chief Executive Officers (CEO) restructured the company to be a viable and sustainable entity in the aviation industry (Hoffman & Hunger 2012). According to Kralev (2012) and Kumar (2012) Delta has a long fleet of aircrafts, which are mostly big Boeing 700s. Such aircrafts have helped the airline to improve its competitiveness in the cut-throat aviation market because they are able to complete long-haul and short-haul flights easily. Improvements in aircraft technology (for these aircrafts) have also made it easy for the company to reduce its operational costs and increase its reliability, Concisely, most of them are fuel efficient and safer, compared to older aircrafts (Kralev 2012; Kumar 2012).
Delta airline has a strong employee force of more than 75,000 people who work at different stations around the world (Hoffman & Hunger 2012). Since the airline sector is a service-oriented one, the high service delivery standards that the employees have been trained to observe prove they are a significant asset for the company. The employees are trained on proper customer service and efficient service delivery, which they have sworn to uphold as part of their job requirements (Hoffman & Hunger 2012). Delta also has a Sky-Miles Program, which it has used to gain a competitive edge over its rivals. This program is unique in the sense that there is no imposed expiration date for redeeming the miles (Kralev 2012). Most airlines have an expiration date, which may easily “put off” customers, especially considering the difficulty involved in organizing travel plans, according to the Airline’s schedule (expiration schedule), as opposed to the customer’s schedule.
Over the years, Delta’s expansion plan has been characterized by mergers and acquisitions (Kumar 2012). For example, in 1953, the company merged with Chicago and Southern Airlines to increase its market share and improve its service networks (Hoffman & Hunger 2012). This strategy gave it access to the Caribbean and Southern American markets. In 1974, the company also merged with North-eastern Airlines, which increased its outreach in the Northern United States Market (Kumar 2012).
Through such corporate expansion programs, Delta has grown to provide passenger, cargo and mail services in the United States and overseas markets. A partner of the Sky team Alliance, this airline provides local and international flights to six continents around the world, except Antarctica (Kumar 2012). Its flight network includes 319 destinations in more than 50 countries (Hoffman & Hunger 2012). Its passengers are accommodated in more than 5,400 flights that the airline operates daily (Hoffman & Hunger 2012). Its main customer segment is comprised of passengers who prefer to pay for reliability, comfort and safety. This customer segment is mostly comprised of business travelers and middle/upper middle class travelers (Kralev 2012; Kumar 2012). Broadly, the airline’s market positioning is in the passenger airlines market segment.
Internal Analysis
To have a proper understanding of Delta’s internal competencies and weaknesses, we will use the SWOT analysis tool, which simply evaluates the strengths, weaknesses, opportunities, and threats of the company. This analysis appears below.
Strengths
Fleet Size: Delta’s long fleet of aircraft is a significant strength of the company because it allows the company to operate several flights in a day. Similarly, it is able to increase its network of routes without necessarily affecting the service delivery standards in older routes. In this regard, it is able to increase its flexibility in meeting the demand of passenger numbers in rapidly growing markets, while at the same time downsizing on those markets that are showing little potential for profitability.
Strong Brand Equity and Presence: Since Delta has been in operation for many years, it has developed a strong brand equity that has proved to be a strong strength of the company. For example, the airline’s brand is the strongest in Atlanta (Kralev 2012; Kumar 2012). Customers who have bought into the equity would rather fly with the airline, as opposed to its competitors.
Strategic Mergers: As mentioned in this paper, Delta’s history has mostly been characterized by mergers and acquisitions. Most of them have been strategic in increasing its market share and expanding the company’s outreach. Its strategic merger with Northwest Alliance and its decision to join the Sky-team Alliance have mostly played an instrumental role in improving the company’s performance by allowing it to gain access to new routes and to gain access to new markets (Kumar 2012).
Weaknesses
Overdependence on the American Market: An analysis of Delta’s revenue stream shows that it overly depends on the American market to sustain its operations (Hoffman & Hunger 2012; Mills 2016). This is a significant weakness for the company because if something wrong happens to this market, it could significantly witness a reduction in its company shares, or experience a significant loss of revenue that could impede its operations.
High debt Obligations: Although Delta has significantly reduced its debt burden in the last couple of years, its debt obligations continue to weigh down on the company’s operations (Hoffman & Hunger 2012). This makes it difficult for the company to free some of its cash to undertake expansion projects.
Opportunities
Growing Market for Aircraft Repairs: Undoubtedly, the aviation industry is among the most vibrant industries in the world today. With it comes a growth of support services, such as aircraft repairs and maintenance (Mills 2016). Delta could capitalize on this growth by offering its services to smaller airlines that want to use its facilities or support services. This could be an additional revenue stream for the company.
Partnerships: Although Delta made a bad decision by improperly predicting the direction of fuel prices in the past year, it has managed to sustain its revenue growth by maintaining strong margins in most of its key market segments (Hoffman & Hunger 2012). Some of its global partnerships have helped to spur part of the company’s strategic growth. Mills (2016) estimates that the next five years will see increased capacity growth in this regard. In the next five years, there is also potential for an even stronger performance through this business strategy.
Threats
Competition: Delta experiences intense competition both locally and domestically. Competition from American Airlines is especially stiff because both airlines operate in the same market (Mills 2016). A simple strategic flaw could lead to a loss of market share for Delta because the competition is always ready to exploit any mistake the company makes. Therefore, it is a huge threat to the company.
Reputation: Delta faces the possibility of reputation damage from online rating agencies, or other media, that may deem its performance as unfavorable to its customers. For example, in 2010, it received negative reviews from US.News, which ranked it among the worst airline in America (Kralev 2012). Such bad reputation poses a serious threat to the organization’s operations.
Business Level and Corporate Level Strategies
There are two common types of corporate-level strategies pursued by airlines in the aviation sector – cost strategy and differentiation strategy. A differentiation strategy premises on the uniqueness of a firm that sets it apart from its competitors. This strategy often leads to a cost increase in services, but capitalizes on an increase of value instead (Dudley 2013). Comparatively, a cost leadership strategy premises on the principle of making airline services affordable, at the expense of quality and fringe benefits. Many low-cost airlines often pursue this strategy (Kralev 2012). Therefore, the main tradeoff for this strategy is lower costs at the expense of improved quality.
Delta pursues a differentiation strategy as opposed to a cost-strategy. Its differentiation strategy hinges on its brand legacy and extensive flight service. To demonstrate its differentiation strategy, many airlines that have sought mergers, or been acquired by Delta, have done so on the “good name” of the airline. For example, its merger proposals with United Airlines and Northwest Airlines were premised on the company’s brand legacy. Kumar (2012) supports this fact when he says that details of the merger pointed out to the fact that the combined parties wanted to take on the Delta name.
Nonetheless, it is important to point out that Delta has tried to make a mark as a low-cost airline, but history has proved that this strategy has been a misstep on the part of the company’s managers (Flouris & Oswald 2016). Thus, at the core of the company’s differentiation strategy has been an emphasis on some key pillars of the company’s performance, such as a unique customer satisfaction and rewards strategy, a unique employee retention and reward strategy, and a unique marketing and promotion strategy.
The customer service standard is the foundation of the company’s differentiation strategy. For example, premium in-flight offers and a rewards program (that does not have an expiration limitation) are key hallmarks of the company’s corporate level strategy, which set Delta apart from its competitors. The airline’s differentiation strategy has helped it scoop several awards in the industry, such as the best of business travel awards, which the company won by scoring highly in three performance categories – best airport lounges, best frequent flyer program, and best airline website (Kralev 2012).
The success of the company in these three categories emphasizes its differentiation strategy. Similarly, to support the differentiation strategy, we find that Delta’s employees have a high morale (Flouris & Oswald 2016). The company also has among the highest employee retention standards in the airline industry because the company treats its employees well. Mills (2016) has delved deeper into this phenomenon and found out that only a fraction (about 17%) of the company’s employees are unionized. Other airlines have up to 100% of their employees in unions (Flouris & Oswald 2016). Based on these facts, we find that differentiation is at the core of Delta’s corporate strategy is differentiation.
References
Dudley, J 2013, Leader reliability, iUniverse, New York.
Flouris, T & Oswald, S 2016, Designing and executing strategy in aviation management, Routledge, London.
Hoffman, A & Hunger, D 2012, Delta airlines: navigating an uncertain environment, Web.
Kralev, N 2012, Decoding air travel: A guide to saving on airfare and flying in luxury, Nicholas Kralev, London.
Kumar, B 2012, Mega mergers and acquisitions: Case studies from key industries, Springer, London.
Mills, G 2016, The airline revolution: Economic analysis of airline performance and public policy, Routledge, London.