caseAnal

ysi
s: 
Del
taAi
rLi
nes
TheLow-
CostCar
ri
erThr
eati
n2002
-Themostdangerouscompetiti
onwefaceisnotUnit
ed.
It
’snotAmeri
canorNorthwestorConti
nent
al.I
t’
slow-cost
competit
ionf
rom companiesl
ikeJet
BlueorSouthwest.

—LeoMul
l
in,
Del
taChai
rmanandCEO

-Wit
hthechal
lengeofalow-costsubsi
diar
y,t
he
managementofDelt
aAirLinesmustcomeupwi than
ef
fect
ivest
rat
egyindeal
ingwithsuchat hr
eat
.

-I
nMarch2002,across-
funct
ional
taskf
orceconv
enedat
Del
taAi
rLi
nes’headquar
ters
Whatarethest
rategi
copt
ionsav
ail
abl
etot
hecr
oss-
funct
ionalt
eam t
hat
MarkBall
ounco-l
eads?

Whatst
epsshoul
dthet
eam t
aketochooseamongt
heopti
onsandmakea
r
ecommendati
ontoDel
ta’
sboar
d?Pleasepr
ovi
deathor
oughexpl
anat
ion

Env
ironment
alscanni
ng(gat
her
ingi
nfor
mat
ion)
Ouranal
y si
sismadeaf terwegatheredinformationabout
theenvi
ronmentatthetimeoft hecaser egardi
ng
competi
torsandthecompanyi tself(10kf ormsand
annaulr
eportsofai
rtransportassociati
onATA)al so
fur
theri
nformati
onont heeconomy ,
industryandonli
ne
i
nformati
on.
Cur
rentsi
tuat
ion
Cur
rentper
for
mance
In2002,Del
tawast hethi
rd-l
argestpassengercar
ri
eri
ntheworl
dinter
msof
revenueandthesecond-l
argestinter
msofpassengersfl
own.Thecarr
ier
enplanedover100mill
ionpassengersannually

Delt
ahadav oi
dedbankr
uptcyinthewakeofSept
ember11buti
ncur
redan
operat
ingl
ossof$1.6bi
ll
ionin2001

By2002,Deltafacedthreetypesofcompetiti
vethreattoit
smar ketposit
ion:
mainli
nehub-and-spokecar ri
ershadbeensystemat i
cal
lydroppi
ngf ar
es,
regi
onalai
rl
ineswer eeatingawayatDelta’
straff
icinmidsizedmar ket
s,and
LCCshadmadesi gnif
icantinr
oadsint
oDelta’sFlori
damar ket

January2002,managementhaddet erminedthatsy st
ematiccostcut t
ing
wit
hinDeltamainli
necouldcombathub- and-
spokecompet i
ti
on, andDel ta’
s
i
ndustry-
leadi
ngpositi
oninregionaljetscouldadequatelydefendi tssharein
midsi
zedmar kets.However
,Del ta’
smaj orLCCr esponsetodat e—an
i
ntendedlow-costsubsi
diar
ynamedDel t
aExpr ess—hadnotpr ovenan
adequatedeter
rentandwas, i
nf act,bei
ngreplacedbymai nli
neai rcraft

“We’
venev erseenahi gh-
costcar
ri
ertransformitsel
fint
oalow-costcar
ri
er,
”
sai
dDarrelJenkins,di
rect
oroftheAviati
onI nst
it
uteatGeorgeWashingt
on
Uni
versi
ty.“They’
llst
il
lbeahigh-costcarri
ersell
ingcheapseat
s.

St
rat
egi
cpost
ures
Mi
ssi
on,
visi
on,v
alues:
Object
ives:pr
ovidesscheduledairt
ranspor
tat
ionfor
passengersandfrei
ghtthroughoutt
heUni t
edStat
esand
aroundtheworld.

St
rat
egi
es:
Del
tai
sor
gani
zedbyf
unct
ion,
sol
uti
onsf
ocusedon
i
ndiv i
dualpart
soft hecompany
.Themar ket
ingorganizati
onprovi
ded
mar keti
ngideas,thecust
omerservi
ceor
ganizat
ionof fer
edcustomer
serviceideas,
andsof ort
h.Wedidn’
thav
eacompr ehensiver
esponsetol
ow
-costcarri
ers[LCCs]

Delt
ar egul ar
lymoni t
orscompet i
ti
vedev el
opment sinthe
ai
rl
inei ndustry,andev al
uatesi
tsstrategi
calternativ
es.
Thesest rategicalt
ernati
vesincl
ude, amongot herthings,
i
nternal growth,codesharingarr
angement s,mar keti
ng
al
li
ances, jointventur
es,andmer gersandacqui siti
ons.

Delt
a'sevaluat
ionsinvol
vei
nternalanal
y si
sand,
wher
e
appropr
iate,di
scussionswi
ththir
dpar t
ies.

Pol
ici
es:
 Cor
por
ategov
ernance
Boar
dofdi
rect
ors
.

Topmanagement
.

.
 Ext
ernal
env
ironment
s:
oppor
tuni
ti
esandThr
eat
s(SWOT)
Nat
uralphy
sical
env
ironment
.
.
.
Soci
etalenv
ironment
PESTELAnal
ysi
s:t
hedr
ivi
ngf
orcesaf
fect
ingt
he
ai
rl
inei
ndust
ry

Pol
it
icalf
act
ors:
 Der
egul
ati
onAct
:

Deregulati
onActof1978pav edthewayfornewpot enti
al
entr
antsi nthemar ket
.Thi
sincreasedcompet i
ti
oninthe
markett owhichDel t
aAirLi
nesbelong.Thisledtoa
considerabl
er educti
oninpr
icingpower,whichledt
oan
i
ncreasei nbankruptci
es.

Thisr
esult
edinai
rl
inescr
eat
ingl
argernet
wor
kst
osust
ain
themsel
vesandtogetbackt
hepri
cingpower
.

 11/
9ter
ror
istat
tack:

Theterror
istatt
acksthathappenedonSept ember11led
totheclosureofUSairspaceandalsol ateraff
ectedtr
avel
bylargeamountwi t
hsecur i
tybei
ngr aisednational
l
yand
i
nternati
onall
y.Thi
sresult
edi nfi
nanciallossesforDel
ta
AirLines,
anditwasforcedt
orat
ionali
zefl
i
ght
sandt
o
decreasethei
remployeesby15percent
.

 Economi
crecessi
on:

Del
taAirLi
nescouldusebankr
upt
cypr
otect
ioni
ntheUS
byf
il
ingforbankr
uptcy
.

Economi
cfact
ors
 Wor
ldwi
der
ecessi
on:

Themaj orcarr
iersintheairl
i
neindust
rywer enotablet o
sustai
nt hecombinedef f
ectsoftheworldwiderecession,
anincreaseinfuelcosts,andthe9/11terr
oristat
tacks.

 Unpr
edi
ctabl
efuel
cost
s:

Asf uel costsaccountf or30- 40%ofoper ati

ngexpenses
ofairlines,theunpredictabili
tyoff uelcost
sledtof uel
hedgi ngst r
ategiestomi ti
gat et heri
skoferosionofprofi
ts.
Butt heai r
lineindustr
ysuf feredhugel ossesbecauseofa
quickdecl ineinjetfuelpricesbecauseoft heglobal
recessi on.Asar esultofthis, DeltaAi
rLinesswitchedto
anotherappr oachofbuy ingar efi
nery.

 Thr
eatofcompet
it
orsof
fer
ingl
owerf
ares:

Gulfcarri
ersoff
erhigherquali
ty,bettercust omer
exper
ienceatlowerfares.Newent rantsint hisfi
eldare
off
eri
ngv eryl
owf ar
esf ortr
ansatlant
icf l
ights.Thiski
nd
ofcompet i
ti
oninthi
sindustrywil
l dri
v edownt hefar
esof
fl
i
ghts,whichwil
lbenefittheconsumer s.

 Gr
owt
hint
hei
ndust
ry:
TheFederalAviati
onAdmi ni
str
ati
onhasproj
ectedgr owth
oftheair
li
neindustryat2.
9%f ort
henext20year s.Futur
e
growthcanbeseeni ntheAsianmarketasone-
t hirdof
worldai
rtraf
fi
ci nvol
vesAsiancount
ri
es.Del
taAi rLinesis
dependentonpar t
nershi
ps.

Soci
alf
act
ors
 Ther
eisaf
earofsaf
etyaf
ter9/
11.

 Thereisademandf ornewservi
cesli
ke”Childf
ree”
zones,whichwi l
lbeappeali
ngtomill
ennial
s.The
mill
ennium generati
ontrav
elswit
hfamili
esand
fr
iends,whichincreaseset
hnicdi
ver
sity
.

 Del
taAi
rLinesi
salsocr
eati
ngwiderai
sleseat
sas
t
herei
saobesit
y(1/3popul
ati
onintheUnit
edStat
es
i
sobese)
.

Technol
ogi
calf
act
ors
 Therear efewertravelagenciesasmor eandmor e
peoplear edoingonlinebooking, usi
ngmobi l
e
appli
cat i
onsoraki osk.Peoplear ealsousinge-
boardinginsteadofpr i
ntedboar dingpasses.Peopl
e
arealsodoi ngself-
check-i
nusi ngkiosks,mobil
e
check-inandar ealsousingself-dropbaggage
mechani sm.Peopl earealsot r
ackingbaggageusing
mobilet r
acking.Peoplearealsousi ngremoteseat
al
locationusingwebsi tesandmobi l
eapps.Even
duri
ngf li
ghts,peopleareusingWi -
Fiorwatchi
ng
mov i
es.

 Peopl
ear
eusi
ngpr
icecompar
isonsear
chengi
nes
 l
ikeExpediaorKayaktofi
ndthelowestpri
ce,which
hasresul
tedintheunbundl
ingofser
vicestooff
erthe
l
owestbasepr i
ce.

 Delt
aAi rLi
neshaddev
elopedquant
it
ati
vepr
ici
ng
analy
ticsandrev
enuemanagementtool
stoimprov
e
rev
enuegenerati
onamongstdif
fi
cul
teconomic
condit
ions.

Ecol
ogi
calf
act
ors:
 Theecologi
calcareoftheplanethastobet akenas
thepopulat
ioni
sgr owi
ng.Ai r
li
nesaremov i
ng
towardsmor ef
uel-
effi
cientpl
anesthatconsumel ess
fuel
todecreasethepolluti
onandcarbonfoot pr
int
.

 Taskenv
ironment
Por
ter
’s5for
cesanal
ysi
s:t
oident
if
ythei
ndust
ry’
spr
ofi
t
pot
ent
ial

Thr
eat
sofNewEnt
rant
s

Newent rantsi
nMaj orAir
li
nesbr ingsinnovati
on,new
way sofdoi ngthi
ngsandputpr essureonDel taAirLines,
I
nc.t hr
oughl owerprici
ngstrategy ,
reducing costs,and
providi
ngnewv alueproposi
tionst othecustomer s.Delta
AirLines, I
nc.hastomanageal lt
hesechal l
engesand
buil
def fecti
vebarri
erstosafeguar ditscompet i
ti
veedge.

HowDeltaAi
rLi
nes,
Inc.cant
ackl
etheThr
eat
sofNew
Ent
rant
s

•Byi
nnov
ati
ngnewpr
oduct
sandser
vices.Newpr
oduct
s
notonl
ybr
ingsnewcust
omer
stothefoldbutal
sogiveold
cust
omerareasont
obuyDel
taAi
rLines,I
nc.‘
sproduct
s.

•Bybuil
dingeconomiesofscal
esot
hati
tcanl
owert
he
fi
xedcostperunit
. 

•Buil
dingcapaci
ti
esandspendi
ngmoneyonr
esear
chand
devel
opment .

Bar
gai
ningPowerofSuppl
ier
s

Allmostallthecompani esintheMaj orAirl

inesindustr
y
buytheirr
awmat erialfrom numer oussuppl ier
s.Suppli
ers
i
ndomi nantposi t
ioncandecr easethemar ginsDeltaAir
Li
nes,Inc.canear nint hemar ket.Power fulsuppli
ersin
Servi
cessect oruset heirnegoti
atingpowert oextract
hi
gherpr i
cesf r
om thef irmsinMaj orAi rl
i
nesf iel
d.The
overal
limpactofhi ghersuppl i
erbar gaini
ngpoweri st
hat
i
tlowerstheov erallprofit
abil
it
yofMaj orAirli
nes.

.Thereisstr
ongbargainingpowerofsuppl
ier
sasther
e
arejustt
womanuf act
ur ersf
or 
manufactur
ingst
andar
d,
rel
iabl
eaircr
aft–BoeingandAi r
bus.

Fuel suppli
ershavet osell f
uel asperinternati
onalpri
ces.
Sincet hi
sv ar
ies,alotofAi rl
ineslikeDeltausedt ohedge
therisk.Butsincetheyl ostmi l
lionsduringtheeconomi c
recession,DeltaAirLinesboughtar efi
neryin
Pennsy lv
ania,whichpr ovidesthem wi t
hahugeamountof
fuelhedgingcapabi l
it
iesandcoor di
nateswi t
hitsfuel
partners,Phil
ips66andBP.

HowDelt
aAirLi
nes,
Inc.cant
ackl
eBar
gai
ningPowerof
t
heSuppl
ier
s
•Bybui
l
dingef
fi
cientsuppl
ychai
nwi
thmul
ti
plesuppl
i
ers.

•Byexperi
menti
ngwithproductdesi
gnsusi
ngdi
ff
erent
materi
alssot
hatift
hepricesgoupofonerawmateri
al
thencompanycanshif
ttoanother.

•Dev el
opingdedicatedsuppl i
erswhosebusi nessdepends
upont hefir
m.Oneoft helessonsDel t
aAi rLines,I
nc.can
l
ear nfrom Wal-
Mar tandNi keishowt hesecompani es
developedthir
dpar tymanuf acturer
swhosebusi ness
solelydependsont hem thuscr eati
ngascenar i
owhere
thesethirdpar
tymanuf actur
ershav esigni
ficantl
yless
bargainingpowercompar etoWal -MartandNi ke.

Bar
gai
ningPowerofBuy
ers

Buyersar eoftenademandi nglot.Theywantt obuyt he

bestof f
eringsav ai
lablebypayingt hemi ni
mum pr iceas
possible.Thisputpr essureonDel t
aAi rLines,Inc.
profi
tabili
tyinthelongr un.Thesmal lerandmor epower f
ul
thecust omerbasei sofDeltaAirLines,Inc.thehi gherthe
bargainingpoweroft hecustomer sandhi ghert heirabi
lit
y
toseeki ncreasingdiscountsandof f
ers.

HowDelt
aAi
rLi
nes,
Inc.cant
ackl
etheBar
gai
ningPower
ofBuy
ers

•Bybuildi
ngalargebaseofcustomers.Thiswillbe
helpf
ulintwoway s.I
twil
lreducethebargai
ningpowerof
thebuyerspl
usitwi l
lpr
ovi
deanoppor tuni
tytothefi
rmto
str
eamlineit
ssalesandproductionpr
ocess.

•Byrapidl
yinnovati
ngnewpr oduct
s.Cust
omersoften
seekdiscountsandofferi
ngsonestabl
i
shedproductsso
i
fDeltaAirLines,
Inc.keeponcomingupwithnew
pr
oduct
stheni
tcanl
i
mitt
hebar
gai
ningpowerofbuy
ers.

•Newproduct
swil
lal
sor
educethedef
ect
ionofexist
ing
cust
omersofDel
taAi
rLi
nes,
Inc.t
oit
scompeti
tors.

Thr
eat
sofSubst
it
utePr
oduct
sorSer
vices

Whenanewpr oductorservicemeetsasimi larcustomer

needsindi f
ferentway s,i
ndustryprofi
tabi
l
itysuf f
ers.For
exampl eserviceslikeDropboxandGoogl eDr iveare
substit
utetost oragehardwar edri
ves.Thet hreatofa
substit
uteproductorser viceishi
ghi fi
toffersav alue
propositi
onthati suniquel
ydi f
fer
entfrom present
offer
ingsoft heindustry.

HowDeltaAi
rLi
nes,I
nc.cantackl
etheTr
eatof
Subst
it
utePr
oduct
s/Services

•Bybeingser
viceor
ient
edr
athert
hanj
ustpr
oduct
ori
ent
ed.

•Byunderstandi
ngthecoreneedoft
hecust
omerr
ather
thanwhatthecustomerisbuyi
ng.

•Byi
ncr
easi
ngt
heswi
tchi
ngcostf
ort
hecust
omer
s.

Ri
val
ryamongt
heExi
sti
ngCompet
it
ors

Iftheri
v al
ryamongt heexistingplayersinanindustr
yis
i
ntenset heni twilldri
vedownpr icesanddecr easethe
overallprofi
tabili
tyoftheindustr
y .DeltaAirLi
nes,I
nc.
operatesi nav erycompet i
ti
veMaj orAirl
inesi
ndust
ry.Thi
s
compet iti
ondoest aketol
lont heov erall
longter
m
profi
tabili
tyoft heorganiz
ation.

HowDel
taAi
rLi
nes,
Inc.cant
ackl
eInt
enseRi
val
ry
amongtheExi
sti
ngCompet
it
orsi
nMaj
orAi
rl
ines
i
ndust
ry

•Bybui
l
dingasust
ainabl
edi
ff
erent
iat
ion

•Bybui
l
dingscal
esot
hati
tcancompet
ebet
ter

•Col
l
aborat
ingwit
hcompeti
torstoincr
easet
hemar
ket
si
zerat
hert
hanjustcompet
ingforsmallmar
ket
.

Summar
yofext
ernalf
act
ors(EFASTabl
e)
 I
nter
nal
env
ironment
:
st
rengt
hsandweaknesses(SWOT)
Cor
por
ateSt
ruct
ure
.
.
.
Cor
por
ateCul
tur
e
.
.
.
Cor
por
ateResour
ces
Mar
ket
ing
.
.
Fi
nance
.
.
 Resear
chanddev
elopment
.
.
.
Oper
ati
onsandl
ogi
sti
cs
.
.
.
Humanr
esour
cemanagement
.
.
.
I
nfor
mat
iont
echnol
ogy
.
.
Summar
yofI
nter
nalFact
ors(I
FASTabl
e)
 Anal
ysi
sofst
rat
egi
cfact
ors(SWOT)
Si
tuat
ional
anal
ysi
s
Oppor
tuni
ti
es.

Reduceoper
ati
onal
costandcapaci
ty.

St
reaml
i
neoper
ati
onsandsuppl
ychai
n.

Newv
aluef
ormoneyst
rat
egi
es.

Enhancet
hecust
omerexper
ience.

Cust
omerr
etent
ioni
nit
iat
ives.

I
nvesti
nnewt
echnol
ogi
es.

Renegot
iat
eleaseandl
aboragr
eement
s.

Thr
eat
s

Al
ter
nat
ives.

Compet
it
ion.

I
ncr
easedr
egul
ati
on.

Mar
ketenv
ironment
.

Economy
.

Fuel
cost
s.

Cr
ashes.

Ter
ror
ism.
St
rengt
hs

Wor
ld'
slar
gestmegacar
ri
erandf
ightnet
wor
k.

Paci
fi
candAt
lant
icOceanf
li
ght
srout
es.

Empl
oyees.

Ai
rpor
tmodel
.

Br
and.

Hi
stor
y.

Skyt
eam andskymi
l
esal
l
iance.

Weaknesses

Lowont
imer
ati
ng.

Oper
ati
ngcost
s.

Suscept
ibi
l
ityt
oser
vicedi
srupt
ions.

Technol
ogydependencef
oroper
ati
ons.

Di
ff
erent
iat
ion.

Rev
iewofmi
ssi
onandobj
ect
ives
.

.
 St
rat
egi
cal
ter
nat
ives
.

Recommendedst
rat
egy
.

.
Recommendat
ion
Basedonthei
nfor
mat
ion,
iti
ssuggest
edtotheboar
dof
Delt
aAir
li
nest
omakesomechangesintheDelt
aExpress.

-Inaddi
ti
ontot
his,
theyshoul
dtryandbui
ldstrong
rel
ati
onshi
pwit
hunionsaswellasl
owerthelaborcost
.

-Thecompanyshoul
dalsost
rengthentheassoci
ati
on
betweenthemar
keti
ngandsalesdepart
mentalongwith
di
ffer
enti
ati
ngt
heservi
cest
hant hoseofthecompeti
tor
s.

-I
tisimportantf
ort he company tohavea cost
advantage 
aswellasadi f
ferent
iat
ionstr
ategyinor
dert
o
overcometheincreasingthreatofthelowcostcompeti
tor
.

-Thecompanycanintr
oducehol
i
daypackageal
ongwi
th
thef
acil
i
tiest
oit
sloyalcust
omer
sandcanalso,

-provi
detheonli
nespecialdiscountof
fers.--Delta
Airl
i
nesneedstof ocusconti
nuouslyonthei nnovat
ionand
enhancethecustomerservi
cet ocompetewi t
hthe
growingcompeti
tionfrom t
hel owcostcarri
ers.

-Itisalsorecommendedt hattheboar dofDelt

aAir
li
nes
needst odev el
opat
tr
activepromotionpr ogr
amsforthe
customer sthatmayincl
udepr omotionrelat
edtot
he
frequentfl
yerandmember shipcardl ongwitht
hespeci
al
facil
it
ies.

-However,t
heserecommendat i
onswi l
lall
owthe
companytomai nt
aini
tsposit
ionintheairl
inei
ndust
ryand
toeval
uatetheopport
uni
ti
esthatwi l
lhelptheDel
ta
Air
li
nestocopeupwi t
htheincreasi
nglowcost
competi
ti
oni nt
heairl
i
neindustry.