Delta Airlines
Situation Synopsis:
Margins in air industry have been shrinking for decades. Low Cost Carriers (LCCs) such as JetBlue and Southeast have made inroads to Delta’s Florida market which stands for 30% of Delta’s revenues. After 911 Attacks, the demand decreased. DeltaExpress, Delta’s low-cost subsidiary, is launched to respond LCCs threat but it is not as successful as it was thought it would be.
Delta’s current Strategy:
Delta mainline is a legacy airline and competes utilizing its low price and productivity. DeltaExpress tries to build on Delta’s leading position. DeltaExpress is an integral part of Delta and centrally managed in terms of pricing, flight frequency and routing and all the resources are shared. It benefits from the high levels of productivity amongst flight attendants and ground crew.
The relevant strategies for Delta are business level strategies (Cost leadership among Legacy airlines) and corporate level strategies (Diversification to LCC).
Problem Statement:
DeltaExpress’s cost savings such as low labor rates and higher aircraft utilization have not been sustainable. We have to devise a comprehensive strategy to respond to the LCCs ever-increasing market share. We will consider 3 major options of Continuation of Delta express with some modifications, reintegration of DeltaExpress to mainline Delta and launching a new LCC.
External Analysis:
Industry Structure and Trends:
Value chain is composed of: Suppliers, Airlines, Intermediaries (Travel agents, Internet) and passengers (Appendix 1).
Since deregulation, margins are decreasing and LCCs have entered the market. Passengers are price sensitive and business travelers’ major concern is flight schedule and then price. Other factors such as reliability, amenities and in-flight experience are sought by passengers. Demand is cyclical and changes with business cycles.
Out of ten major airlines in the US, except Southwest, all use hub-and-spoke system as well as two LCCs. Entry and
Margins in air industry have been shrinking for decades. Low Cost Carriers (LCCs) such as JetBlue and Southeast have made inroads to Delta’s Florida market which stands for 30% of Delta’s revenues. After 911 Attacks, the demand decreased. DeltaExpress, Delta’s low-cost subsidiary, is launched to respond LCCs threat but it is not as successful as it was thought it would be.
Delta’s current Strategy:
Delta mainline is a legacy airline and competes utilizing its low price and productivity. DeltaExpress tries to build on Delta’s leading position. DeltaExpress is an integral part of Delta and centrally managed in terms of pricing, flight frequency and routing and all the resources are shared. It benefits from the high levels of productivity amongst flight attendants and ground crew.
The relevant strategies for Delta are business level strategies (Cost leadership among Legacy airlines) and corporate level strategies (Diversification to LCC).
Problem Statement:
DeltaExpress’s cost savings such as low labor rates and higher aircraft utilization have not been sustainable. We have to devise a comprehensive strategy to respond to the LCCs ever-increasing market share. We will consider 3 major options of Continuation of Delta express with some modifications, reintegration of DeltaExpress to mainline Delta and launching a new LCC.
External Analysis:
Industry Structure and Trends:
Value chain is composed of: Suppliers, Airlines, Intermediaries (Travel agents, Internet) and passengers (Appendix 1).
Since deregulation, margins are decreasing and LCCs have entered the market. Passengers are price sensitive and business travelers’ major concern is flight schedule and then price. Other factors such as reliability, amenities and in-flight experience are sought by passengers. Demand is cyclical and changes with business cycles.
Out of ten major airlines in the US, except Southwest, all use hub-and-spoke system as well as two LCCs. Entry and