Competing in a Low Cost Environment
DELTA AIRLINES COMPETING IN A LOW COST ENVIRONMENT
The airline industry is highly cost-driven creating an extremely competitive environment in which to operate. The majority of customers prefer an inexpensive and hassle-free airline experience; for those business customers who previously paid for the extra features, such as first class, the ability to reduce costs has become more important causing them to consider finding lower priced business class seats or flying coach instead. This trend is referenced in Exhibit 1. The airlines which have focused on building their business model to provide a unique or exceptional flight experience in the past must now consider ways to reduce costs in order to appeal to a market which is increasingly demanding more affordable prices. The larger airline companies, such as Delta, have been historically able to enjoy economies of scale and reasonably control prices, but are now being threatened by newly entering companies built on lower cost structures. The competitive problem which Delta Airline's currently faces involves their strategy to appeal to those customers looking for a better experience, despite the fact that most customers are focused on finding the cheapest airfare. As the industry grows to favor low cost leaders, Delta struggles harder in its attempt to compete as a product differentiator. COMPANY BACKGROUND
Delta Airlines, Inc. is an air carrier company competing in the "low cost" dominated market of airlines whose business structure consists of three major business divisions: passenger, cargo and other. Delta is the largest competitor in the cargo division, in terms of revenue, among US passenger airlines. The "other" division of the business unit focuses on providing maintenance, repair, and overhaul (MRO) services, pilot training, travel packages, staffing services, and other various support activities. The problem is focused primarily within the passenger segment of Delta's services. The airline provides its customers with more than 13,000 daily flights to 313 destinations within the US, as well as within 58 countries; their services are offered on all 6 populated continents operating through 10 hubs located in Amsterdam, Atlanta, Cincinnati, Detroit, Memphis, Minneapolis-St. Paul, New York-JFK, Paris-Charles de Gaulle, Salt Lake City and Tokyo-Narita. Delta also utilizes their membership in the SkyTeam global alliance giving them access to many major international airlines, but also giving those competitors access to their routes as well; additionally, they have multinational marketing alliances with many other international airlines outside of the SkyTeam. Delta also offers the SkyMiles frequent flier program, which is the world's largest airline loyalty program, the Business Elite service, and more than 50 Delta Sky Clubs in airports worldwide. These services offer customers who choose to participate the ability to earn mileage as a reward for frequently flying on Delta Airlines. HISTORY OF DELTA AIRLINES
The airline company was first founded as a crop-dusting service under the name of Huff Daland Dusters in 1924 in Macon, GA; and by 1928 they had moved to Monroe, LA. Huff Daland Dusters was bought by CE Woolman, along with two of his partners, and established as Delta Air Service. The first passenger flights offered under the new airline were flown between Dallas, TX, and Jackson, MS. In 1953 they acquired Chicago and Southern Airlines (C&S), the first airline for Delta, and flew passenger flights under the name Delta C&S until 1955. Over the course of the past 60 years, Delta has acquired, merged, and formed alliances with several large international, domestic, and regional airlines in its efforts to increase the number of routes and the size of the business. The most significant developments were the acquisition of PanAm's European flights and PanAm Shuttle,...
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