The Mission of Delta Airlines - Case Study Example

Delta Airlines The mission of Delta Airlines is to provide with high quality service and safety measures. Delta Airlines set out to create arange of high-quality products that are distinctive in type. The main customer groups include low and middle income customers who cannot pay a premium price. Vision is to get and keep a customer. Also, Delta Airlines is aimed to achieve competitive and sustainable competitive creating value for their customers, select markets where they can excel and present a moving target to their competitors by continually improving their position. Three of the most important factors are innovation, quality and inventory reduction. Core values include: safety, high service quality and customer wants and needs. In order to improve logistics, the company is aimed to concentrate on doing business with other carriers which allow it to involve larger orders. Goals and objectives are aimed to improve its current position on the market and increase profitability. A continuum of resource sustainability is to compose resources and capabilities characterized by their durability and imitability. Financial goal is to increase sales and liquidity of business. The policy of safety adopted by airlines will be the main strategic criteria over the next years (Delta Airline News, 2006; Dove-Morse, 2004). Macro-Environmental Analysis Control of interest rates influences the extent of consumer credit and hence the size of an individual's budget, as will levels of taxation. During periods of high inflation the government should well introduce measures to control prices on flights. The main factor is that airline industry operates on the international arena and a major influence on price is the currency exchange rate which fluctuates according to the state of the economy. Increasing tariffs and quotas force carriers to find new ways to reduce transportation costs which lowing quality of their service. With profit margins collapsing, competitors are struggling to adjust. Unemployment rate is high in airline industry: approximately 7,4%. During the period of recession unemployment rate was doubled reducing buying capacity of potential market (Delta Air Lines.2006). Technological forces generate problem-solving inventions. Airline target is on average as dependent on reliable information technology as any other businesses. Improvements in cargo ships and handling equipment, increasing containerization, applications of IT to scheduling and controlling shipments and to customs procedures, new plains, and a host of other technological advances and innovations have reduced the costs of services and information. On the other hand, airline technology cost is one of the highest among other industries. The culture and structure of Apple develop over time and in response to a complex set of factors. Today, customer service in airlines relies on reputation and trustworthiness and this no less true in the new forms of system-service. In fields such as package delivery and money management, consumers are seeking indications that their risks will be minimised or eliminated. For these kinds of consumer acts, customer service plays an essential role in assuaging the fears of consumers by projecting an image of trustworthiness and expertise. Delta Airlines has competitors, but they do not have a great influence on the company's revenue. The presence of substitute services like trains, ships or automobiles transportation can lower service attractiveness and profitability as well as the price levels. The events of 11/09 and recent crashes of Boeing planes occurred these years reduce the attractiveness of airline industry. "The company has lost some $6.1 billion since the start of 2001 from its airline operations, according to First Call, which tracks corporate earnings"(Isidore, 2005). Many potential passengers prefer to use alternative transport even if it takes more time to get to the place of destination. In this case, the bargaining power of customers is crucial. In spite of the fact that demographic environment changes over time it has no a great impact on Delta Airlines profitability and company's performance. The nation getting older and more and more families are not able to buy high priced products. Their target market is not validated that create the main problems for the company. The changes in the environment are changed the demand, but they do not have a significant influence on customers' purchasing power. The threat of population shift will not have a great impact on sales (Delta Airline News, 2006). The air transport industry is already well in the throes of deregulation. The apparent benefit to USA consumers of deregulation of US airlines is supporting the move towards a deregulated European airline industry where monopoly exploitation is eradicated and customers, at last, will witness price cuts in European air travel. This means that services can be barred access on the grounds that they infringe local rules on safety and environmental protection. To meet international and local requirements, additional spending and increase total costs are required. Bankruptcy of such carriers as Northwest and Delta airlines, tight competition and high fuel costs suggest that profitability of the industry is problematic. High fuel prices become a real threat for airline industry. For instance, airlines lost about $4 billion in 2004 due to high fuel costs. "Every $1 increase in the price per barrel of oil costs large carriers an average of $40 million per year" (Leveraging Technology, 2005). Industry Analysis New entrants to an industry can raise the level of competition, thereby reducing its attractiveness. The ultimate aim of customers is to pay the lowest possible price to obtain the services that they require. The high fuel prices become a real danger for airline industry's profitability. The rivalry between existing competitors is strong. "The low-cost carrier [like Delta Airlines] had managed to survive the majors' competitive wrath by, in the words of one analyst, "running between the legs of the giants." (Marks, 2006), The main forces which drive changes in the industry is the bargaining power of suppliers and the bargaining power of customers. "The airline's growth strategy is partly enabled by its ability to control fuel costs better than other major carriers" (Too many seats hurting the airline industry', 2006). The cost of printing and distributing tickets is high. It was estimated that it costs about "$30 in total cost to originate an airline ticket" (Market Analysis Summary, n.d.). To save costs, some airline companies add these fees to the actual cost of a ticket. According to the recent analysis, airline industry suffers from overcapacity. Partially, this problem is caused by terrorists attacks which force potential customers to use alternative transport, and by seasonality. Customers drive down profitability in the industry, gaining leverage. To maintain its competency against global competition airline industry employs competitive rivalry on both a price and a non-price basis. Non-price competition takes form of branding, advertising, promotion, and additional services to customers. In relation to minor competitors, Southwest airline provides comparable buyer value but perform the activities more efficiently so as to attain a cost advantage, or perform the activities in a unique way which raises the value to the consumer and thus allows them to command a premium price - the concept of differentiation. An increasing role of unions forces Delta Airlines to spend much cost on labor resources increasing wages and social provisions. High labor cost results in decreasing revenues and profitability of the industry (Meyer, 2003). On the other hand, new technologies and automation allows airlines to decrease prices and improve service quality. "The industry continues to suffer from high taxation, fees and security costs levied by the government and regulatory agencies" (Leveraging Technology, 2005). The dominant economic features of the industry include acquisitions and consolidations strategy. "Airline industry is highly influenced by the political and legislative conditions of countries, including the European Union. Ownership of many airline companies is shifting from government to private hands. The carriers form strategic alliances as the pace of industry globalization increases. The importance and dominance of the alliances is that they allow one company to book seats on flights operated by company airline if the two are partners. The primary target market of airline industry is business travelers who have to change planes and carriers while en route to a particular destination. The high level of security is another important feature of the industry. Life cycles depends a lot on the informal social organization in the undertaking. On individual production work variety provides interest and workers have some control over quality. On continuous process work there tends to be a high ratio of managers to operatives who work in smaller groups and thus closer relations develop. In production work, work groups may be large and difficult for supervisors to control closely; there is little opportunity to control quality and the worker is under continued pressure, as productivity usually depends upon speed of working. "The secondary seven daily cycles in Delta Airline were : 10, 17, 26, 41, 56, 70 and 85 days. The seven primary daily cycles were 108, 148, 250, 345, 502, 724 and 1241 days. There is also a longwave cycle around/beyond 1800+ days but this dataset was not long enough to sufficiently resolve its phase" (Rinehart, 2005). For Delta, success factors include high service quality and low price level. Many companies have a very low level of service quality, that is why the next strategic movement of Delta Airlines will be towards maintaining customers satisfaction and increasing customers loyalty (Delta Air Lines, 2006). The key factors for future competitive success is care more about reliable service and confidence than about the lowest price. Some companies like Delta Airlines are known for creating unique cultures that get the most from the employees (through teamwork) and are difficult to imitate. Teamwork and cooperation are two pervasive for ensuring an organized workforce. Internal Analysis In contrast to pervious decades, sophisticated technologies and computerized systems require high qualifies staff. In order to meet these requirements, airlines have to spend millions of dollars on training and retraining of staff. To improve customers' loyalty, spirit Airlines encourages repeat purchases introducing flexible price system for frequent flyers: bonus programs and paid free services. Customers buy services because they seek the benefits derived from them, not their inherent features. In this sense, services are problem-solvers. New transportation technology significantly reduces the level of prices. The costs associated with physical distribution-both in terms of money and time-have been greatly reduced as well. The per-unit cost of shipping automobiles from Japan and Korea to the United States by specially designed auto-transport ships is less than the cost of overland shipping from Detroit to either U.S. coast (Delta Airline News, 2006). Without new qualitative service airlines companies will not be capable to achieve the overall objectives, that is why the main objective of a company is to maintain the level of service quality and develop strategies to improve services. Service concepts are based on understanding the unique environment in which a particular firm operates. Delta Airlines views people are a source of competitive advantage which means that employees capabilities and contributions cannot be copied by others. Marketing and Selling As every company, Delta Airlines has a layered organization which consists of technical, management and community levels. Delta Airlines target is on average as dependent on reliable information technology as any other businesses. They care more about reliable service and confidence at the lowest price. Airlines industry depends on advertising revenues and sales agents. Non-price competition are based on public relations, brand promotion, advertising tools. Especially, it concerns low-cost carriers like Delta Airlines. Today, airline industry represents price sensitive travel market influenced by vigorous IT environment and IT related industries. Nevertheless the integration and unification trend is in motion and to many that trend seems unstoppable. On the other hand, sales in other sectors such as travel industry has a great impart on increasing (decreasing) number of flights. Seasonality is the main feature of this industry influenced by travel and holidays arrangements. In addition, considerably low cost helps airlines to add perceived customer value. Also, strong brand image and publicity support the goals of the company in this field (Rinehart, 2005). Innovation in production technologies and computerized system of supply chain is the main opportunity for Delta Airlines. Internet is another tool which helps Delta Airlines to reach its potential buyers without additional spending on promotion and advertising. The threat is that investment in new technologies requires additional finance that Delta Airlines does not have. Even if investment is made, it will not guarantee immediate success and return of investments. An essential part of the HRM process is that proper attention should be given to the personnel function. The effectiveness of Delta Airline depends upon the efficient use of resources, in particular human resources. Within Delta Airline, team effectiveness is a complex notion which depends upon different strategies including scheduling and decision-making. A team-based approach is successful because it performs effectively influencing a spirit of unity and co-operation, which is achieved through scheduling and decision-making. It is important for Delta Airline, because team members should are aware of the tasks they perform, they are involved in decision-making process and are aware of the terms. Usually, the most consistently successful teams comprise a range of roles undertaken by various members. Delta Airlines employs formal communication which is created to achieve specific organisational objectives and are concerned with the co-ordination of work activities. In this company people are brought together on the basis of defined roles within the structure of the organization. The nature of tasks to be undertaken is a predominant feature of Delta Airlines. Goals are identified by management, and certain rules, relationships and norms of behavior established. Commitment to excellence is a top-down management philosophy that focuses on the needs of the customer. It comprises a quality plan which offers a structured, disciplined approach to quality and incorporates a number of tools and techniques. Particular emphasis is given to the collection and analysis of information and to employee training. Delta Airlines is culturally based with involvement as a core philosophy. One of the major changes deals with the specification of goods which may be considered in terms of their design features and performance characteristics. Together these measurements define what the item is and how it is intended to perform its purpose. Also, the specification of a transport may be expressed in terms of its "design" and performance. In this context for Delta Airlines design i.e. the nature of the transport, movement may be expressed in terms of the origin, destination and route of movement. Financial Analysis Financial objectives, while being essential measures of the desired performance of a company, are of scant practical help, since they say nothing about how the results are to be achieved (Dove-Morse, 2004). Basing Delta plans on a combination of forecasting and budgeting systems can only work if the future is going to be the same as the present or the past. Internal factors obviously affect profitability, or the achievement of other types of objective, and should consequently have an equal influence on the practice of marketing. In contrast to competitors, Delta Airlines has low revenue and profitability level which resulted in its bankruptcy. Report states that in 2006 "Passenger revenue yields for Delta Air Lines and United Airlines have lagged behind the other network carriers for the past seven quarters" (First Quarter 2006, 2006). SWOT Alliances have been formed between KLM and Northwest, Lufthansa and United, and British Air and USAir, and among Swissair, Delta, and Singapore Air. In theory, alliances should enable carriers to offer better customer service and lower fares. The alliances are designed to cut costs by reducing the number of aircraft in use, pooling maintenance staffs, and jointly purchasing fuel and other supplies. This tendency shows that Delta Airlines is able to react to changing economic conditions and increase sales volume which is about 17.0% a year. The main threat is high prices for fuels that have a direct impact on operating costs and expenses. "The final cash crisis came when the bank that was processing the airline's Visa and MasterCard ticket purchases started holding back money as protection in case of a bankruptcy filing" (Isidore, 2005). The strengths are high service quality and organisational culture. The opportunities include: potential to growth and profitability; promotion to other divisions; continue a global expansion and penetration into European markets; safety and high service standards. The main threat is high fuel and material costs (printing, agent services). Terrorist attacks and customers prejudice have a great influence on revenue, raising costs wages. The main weaknesses are seasonality, high competition among world leaders. Development and Evaluation of Strategic Alternatives Taking into account the information mentioned above it is evident that international expansion (the Caribbean, Central and south America) proposes great opportunities for Spirit's growth. Strategies should integrate technology refresh provisions early in the design process of major systems and components to allow upgrades during development, production and system operation. In order to expend internationally, Delta Airlines should create a core of loyal supporters based on their behavior patterns. This strategy is important because "Delta has less international traffic than the nation's other big carriers" (Isidore, 2005). To increase sales, behavior segmentation will focus on whether or not people buy and use a product, as well as how often, and how much they use or consume. Consumers can be categorized in terms of usage rates. Delta Airlines can segment consumers according to brand loyalty: potential users, non-users, ex-users, regulars, first-timers, and users of competitors' products. Globally, Delta Airlines has many competitors, and only a new direct-marketing strategy help the company to raise its revenue. Airline industry characterized by high fixed costs is always under pressure to keep production at full capacity to cover the fixed costs. Taking into account the present day situation, the best strategy to ensure long-term success in the local and international market should be based on brand loyalty, non-price competition and middle income market segment. Alternative plan can be based on increasing productivity level through continuous optimization of service mix, and reducing the price level in order to attract new customers and compete on the price basis. To implement this plan, Delta Airlines will need to invest about $50, 000'000 in new services, and substantially increase the number of employees and workers. Taking into account the current situation, this can lead to great financial problems for Delta Airlines, because they have no free assets and money to invest in production facilities. Current financial situation does not allow the company to compete on the price basis, because it will threaten the business in general. Future Strategic Plan In order to improve situation, Kitchen Made Pies should accept a new marketing tactic taking into account: benefits, consumption patterns of a particular target group, demographics (including income and size of local population), and psychographics (values, attitudes, and lifestyles). For the next three years, marketing plan will include aggressive marketing campaigns in the South and sustaining strong market position and competition rivalry with US based companies. The new target audience will include students form the South and pensioners. Also, it will be oriented on traditional group males (18- 60): blue collars and white collars. Cultural fit will be achieved by specific service (menu, booking, etc) developed for Asian countries. The Future of Organization In the next three years the company will not obtain its dominant position. Its new technology achievements and overall business strategy, potential and capability to support high performance environments are the key elements for the next five years. It is possible to predict that in ten years the company will retain its market position and succeed globally. The critical success factor include technology and high service quality. In short-term, the company will increase its customer target group, but remain unprofitable. In long-term, it will be able to increase its revenue through cost reduction measures and improved technology. References 1. Delta Air Lines. 2006. Available at: http://www.continental.com/web/en-US/content/company/alliance/delta.aspx 2. Delta Airline News. 2006. Available at: http://www.topix.net/com/dal 3. Dove-Morse, S. Delta Air Lines Eases Bankruptcy Fears. Available at http://www.thehilltoponline.com/media/storage/paper590/news/2004 /11/02/BusinessTechnology/Delta.Airlines.Eases.Bankruptcy.Fears-791455.shtml'norewrite200611030935&sourcedomain=www.thehilltoponline.com 4. Isidore, Ch. Delta Air Lines files for bankruptcy. Available at: http://money.cnn.com/2005/09/14/news/fortune500/delta/index.htm 5. First Quarter 2006 Airline Financial Data. 2006. Available at http://www.bts.gov/press_releases/2006/bts029_06/html/bts029_06.html 6. Leveraging Technology To Save Airlines Money. 2005. Available at: http://www.eds.com/news/features/2552/ 7. Market Analysis Summary. 2006 Available at: http://www.bplans.com/spv/3217/4.cfm 8. Marks, A. Airline industry is poised for shakeout. 2006. Available at: http://www.csmonitor.com/2005/0916/p03s01-usec.html 9. Meyer, J. Labor and the Airline Crisis. 2003. Available at: http://www.laborresearch.org/story.php'id=282 10. Rinehart, S. Delta Airlines from 1988 to Present. September 30, 2005. Available at http://www.financialsense.com/fsu/editorials/rinehart/2005/QL/0930.html 11. Too many seats hurting the airline industry' 2006. Available at: http://msnbc.msn.com/id/9830631/ Read More