Strategic Management Perspectives - Delta Airlines - Case Study Example

341318- STRATEGIC MANAGEMENT PERSPECTIVES Delta Airlines General Information Delta airline is popularly known for its safe and reliable air transportation, distinctive customer service, and hospitality from the heart. The company’s vision is to build on its traditions and always to meet customers' expectations while taking service to even higher levels of excellence. Delta considers itself a leader in the airline transportation business and intends to be an even greater company with a strong focus on time, attention, and investment on building that leadership. The airline’s strength lies in its dedication to serving the customers in the best way possible and to become the he best airline in their eyes. They strive to achieve this objective through providing value and distinctive products to their customers, a superior return for investors, and challenging and rewarding work for Delta people in an environment that respects and values their contributions. Delta is not only America’s fastest growing international airline but also the world's leading carrier between the United States and Europe with flights to 29 trans-Atlantic destinations. External Micro Environment High fixed costs and expensive labour after the deregulation in the country had led major airlines to strive for high load factors. Delta had to ensure safety, reliability and convenience for its customers besides food, entertainment, amenities and service quality while price still remained the overriding concern of one-third of all the passengers. Heightened security mandates after September 11 attacks and high insurance costs had added to the costs of the airline. Benchmarking Competitors Railroads, buses and automobiles all competed against delta on shorter routes while competition on longer routes was considered external to the industry. The Chairman of the company was not afraid of competition from the big airline companies of the country including United, Continental, American or Northwest but feared the low-cost competition from Southwest and Jet Blue. Jet Blue’s strategy was quite transparent. It bought rather than leased jets. Secondly, it kept its costs low by using electronic ticketing system instead of paper. Furthermore, meals were not served in Jet blue. Delta is the second-largest airline in the world behind American Airlines and in terms of total operating revenues; Delta is the fourth-largest airline in the world. SWOT / Core competencies Delta offers a variety of attractive services to its customers which have enabled it to develop a strong relationship with them and hence be competitive with the other major airlines of the country. For instance, it has recently announced that coach travelers in the United States who have a flight longer than four hours will have on-demand programming on all those flights starting in 2007 at their main hubs in New York, Salt Lake City, and Atlanta. This will enable it to counter entertainment offerings of other airlines like Jet Blue Airways. The company also claims to offer the leading in-flight entertainment system in the United States including live programming and MP3 music and movies. In addition to a strong relationship with its customers, Delta is also known for its good employee relations. Its respect and recognition for employees as well as providing incentives have resulted in a very low employee turnover and a high level of employee loyalty towards their work. This was visible when at the time of its merger the employees started wearing "Keep Delta My Delta" buttons and campaigning to raise public awareness of their opposition to the proposed takeover. Thus, as expected, On December 19, 2006, Delta rejected US Airways Group's proposed merger. Later, Delta Air Lines was speculated to be in talks with Northwest Airlines and United Airlines to fend off the possible US Airways merger. Till yet, nothing has been confirmed as regards this merger. The company seems to be at a competitive positioning and can continue to be profitable by following its business and corporate level strategies. Competitive advantage Delta’s competitive advantage lies in its serving routes where others have not yet ventured. For instance, the airline including its subsidiary and regional service carriers serves 240 domestic cities and is the only airline to host operations in all 50 U.S. states. It also serves Puerto Rico and the U.S. Virgin Islands, in addition to 57 countries. In addition to that, Delta is the only airline in the world to serve over 300 destinations. Corporate-level strategy Since corporate strategy refers to the “overarching strategy of the diversified firm” and answers the questions such as “in which businesses should we compete? and “how does being in one business add to the competitive advantage of another portfolio firm, as well as the competitive advantage of the corporation as a whole?" Delta’s corporate strategy is to serve the customers best in the air transport and provide value-added services. Extreme competition in the industry compelled Delta Airlines to cut their prices but unfortunately, it had to sacrifice their excellent employee relations to cut their costs at the same time. At present, business travelers prefer the ultra-low fares of Southwest Airlines (Bradford. R). Market Penetration Strategy Delta operates on various routes using its subsidiaries and also offers lower fares to its customers and thus use other marketing techniques as well to acquire a greater chunk of the market. Growth Strategies Vertical Forward Integration Strategy Delta Express, the airline’s subsidiary is a clear example of Forward integration since it offers the same transportation services but on different routes with different priorities. Vision Vision for Delta is to build on its traditions and always to meet customers' expectations while taking service to even higher levels of excellence. Goals Delta aims to offer safe and reliable air transportation, distinctive customer service, and hospitality from the heart. Leadership Style It is essential to that a team leader be chosen with utmost care since his “actions really do spell the difference between team success and failure” and it is also observed that “a leader’s style may in many circumstances be as much a consequence of members’ behaviors as it is a cause of that behavior”. Employees were kept motivated at delta which was the major reason behind the company being successful in almost all aspects whether it be becoming cost-effective or providing attractive and value-added services (Opportunities). Business Level Strategy At the business level, Delta Express is expected to be either modified in some manner or to reintegrate with the Delta brand itself. It can also be expected from Delta to launch an entirely new low-cost subsidiary but this would require careful deliberations as it would require tens of millions of dollars of up-front investment. Though Delta would ultimately be able to bear this burden but to explain the move to the shareholders, industry analysts and other stakeholders would be another hassle. Delta’s board of directors eagerly awaited the task force’s recommendations. Functional Level Strategy The Functional Level Strategy is in line with the company’s strategies since a task force has been formed to complete a task and work towards accomplishing the organizational objectives. It also aims to penetrate in the market further by way of low fares and its subsidiaries serving different routes. Organisational structure and control mechanisms A cross-functional task force had been convened in delta’s headquarters. It was led by Balloun of corporate strategic planning, Kamik of network and revenue management, and Jim, senior vice president and treasurer. A steering committee consisted of chief financial officer, Chief Marketing officer and a COO. The task force included a roughly equal mix Delta personnel and McKinsey consultants. Future scenario Now the question arises as to what should Delta do next in terms of its strategic directions on both corporate and business level? Recommendations By the beginning of 2002, Delta’s management had determined to cut costs so as to combat hub-and-spoke competition and Delta’s industry-leading position in regional jets could adequately defend its share in mid-sized markets. Delta launched Delta Express as its low-cost subsidiary to survive the competition and separated its routes. The company gave its aircrafts a maintenance overhaul for Express and expensed it immediately, thus giving it low apparent maintenance costs in future. Older Boeings were used that served only light snacks which led to major cut in the costs. In addition, distinct labor arrangements and negotiations with the pilot’s union resulted in sizeable pay cuts. Delta Express was successful in achieving economies of scale in the beginning but unfortunately, it could not sustain it for a long time. By the year 2002, its profitability had deteriorated considerably but it had been lucky to survive as a low-cost subsidiary after the September 11 attacks. Bibliography Robert W. Bradford. Understanding Your Value-creation Advantage. Course and Direction, The path to Strategic Success. Centre for Simplified Strategic Planning, Inc. 2005. Change management experts excited by Delta’s business model transformation. iProceed, Better Strategy, Better Business. Available at www.iproceed.com PART III OPPORTUNITIES. Imperatives for Leaders. Available at http://www.leadingteams.org/pdfs/chpt07C.pdf Read More