International Business by Delta Airline - Case Study Example

Introduction International airline industry was badly hit after the events of 9/11 as it was the directly affected by the events that unfolded. Whatis also significant to understand that airline industry not only suffered at the international level as international travelers reduced their travelling due to security issues however, domestic travelling decreased too. The fluctuation in the international oil prices was another important factor that contributed towards the increasing cost that airliners have to face. High cost of operations as well as low traffic was top reasons as to why the firms started to face strict conditions to operate. Apart from this, the current financial crisis seems to have taken their toll on the airline industry too as the general business environment was not conducive because of the credit crunch. International travel again started to decline as more and more businesses were focusing on curtailing their costs and focus on revamping themselves in the midst of one of the most sever economic crisis in the history of the modern world. However, despite this, Africa remained one of the most preferred destinations for most of the firms as generally the traffic to the continent increased as well as the overall size of the operations. Many firms decided to make an entry into the market which was costly however, profitable because increased traffic and number of passengers. This article also discusses the same phenomenon wherein the overall passenger traffic has increased in African region. Further, it discusses the attempt made by Delta Airline to enter the market. This paper will therefore provide an strategic analysis of the same. External Analysis In order to perform a comprehensive external analysis, PEST Analysis will be used to assess the environment. Political Environment Political environment of Africa as a region is not conducive as there are relatively hostile governments as well as countries. The overall environment is mostly undemocratic in nature with dictators ruling in most of the countries. Apart from this, there are also civil wars in most of the poor countries that are already facing an uphill task of managing their affairs with little or no external interference. (Jurgen). Countries like Nigeria, though are rich in natural resources i.e. oil, however, corrupt governments does not allow the economic benefits to trickle down to the masses. Economic Environment Africa is the poorest region in the world with overall economic environment and prospects of economic growth are low due to unstable political environment. Though there are countries which are relatively rich i.e. Nigeria, Venezuela, however, the benefits or fruits of economic growth are not trickled down to the public. High population as well as extreme poverty mars the development and growth prospects of the region which can otherwise prove as one of the most growing economic regions of the world. (OECD) Social Forces Overall social environment is also poor in the region as the mortality rates are high, education and literacy levels are really low. Apart from this, the availability of basic necessities such as clean drinking water, health and education etc are also not adequately provided. This makes Africa as one of the backward regions in the world with low ratings on almost every social aspect of living. Further, the poor health conditions make the available labor supply as a less attractive option because of their inability to perform physical jobs for longer period of time. Technological environment Due to poor physical infrastructure as well as the low level of education, technological progress of the region is slow too. Apart from few countries such as South Africa and Nigeria, technology is not as common as people generally are poor and do not have the access to the technology that is prevalent in the modern world. However, due to influx of the international businesses, it is possible that some technological transfer take place and overall technological base of the region improve with the passage of time. Industry Analysis In order to perform the industry analysis, five forces model will be used to discuss the industry dynamics. Barriers to entry Industry is dominated by the high cost of entry as entering into airline business requires extensive capital expenditure to incur. High cost of entry therefore restricts new players to enter the market however, existing players in the market tend to gain more size and economies of scale due to their consistent focus on cost cutting as well as operating more efficiently. What is also important to note that the high technological sophistication required creates natural barriers to entry also. Threats of Substitutes Though as such service offered is generic in nature however, traditional substitutes such as train services as well as road services. However, due to their traditional weaknesses they may not fully replace air travel. Buyer Power Buyer power is relatively low because of the low cost involved in the travel since most of the airliners offer low cost travel due to extreme competition. Further due to large number of buyers and few firms servicing them, buyers tend to have less power over them. Supplier’s Power Since this is a service industry therefore the power of suppliers is really minimal. However, supply side is dominated by business 2 business marketing therefore there exists a substantial negotiation power with suppliers of air crafts. Rivalry Due to emergence of more lean and smaller airliners, industry is now facing strong rivalry between the existing players in the market. Most of the competition exists in pricing wherein prices are set as low in order to attract the customers. This is mostly due to the fact that the overall air travel is declining and as such firms are competing on prices to maintain their competitive edge in the market. Internal Analysis Internal analysis of the firm will be performed with the help of SWOT analysis Strengths 1. One of the largest domestic airline in US 2. Covers largest domestic as well as international network. 3. Strong market alliances with other firms to offer comprehensive package Weaknesses 1. Extensively covers only domestic network Opportunities 2. Large African market to serve 3. Diversify into light air travel for private use i.e. corporate use. Threats 1. Strong rivalry among the existing players. 2. Threat of new entrants’ specially offering air taxi services through light weight airliners. Recommendations Based on above discussion and analysis, it is clear that the firm must follow a market development strategy. It is already planning to enter the African market and as such it will be a better option if the firm enters this market. Successful market development however, requires that the firm must take into consideration what the competitors are offering and as such it is most important that the firm must diversify its services by covering more destinations as compared to others. Initially, the operations may be unprofitable however, as the company gains more knowledge of the local market, it can achieve the economies of scale. Another important strategy that firm can follow is to penetrate the market with the help of price cutting. Since Africa is already a poor region, it is important that the airline offers relatively cheap domestic and international travel within the region. This will encourage the local population to consider air travel as a viable and less expensive alternative which can save them time and cost. Firm can penetrate into the market and focus on the local as well as international businesses to consider the airline as a cheap and efficient alternative to travel to the region. Market penetration will require offering the services at low cost. Bibliography 1. Jurgen. "A Critical Look At South Africa." 2010. Escape Artist. 01 June 2010 . 2. OECD. "Africa’s economy: Aid and growth ." 2005. OECD. 01 June 2010 . Read More