1) What is the main problem (apart from the general financial issues) facing Delta in this case?
2) What is Song’s overall guiding policy and what do you think about that policy? Was it the right one to choose, given the competition?
3) How is the actual implementation of that policy going? Is the implementation consistent with the guiding policy? What did they do right? What did they do wrong? 4) What about any HR-related issues and their outcomes?
1) The main problem facing Delta in this case is a strategic issue. The original problem, however, resulting in the design of a new subsidiary, is the threat to Delta’s bottom line by low-fare airlines who occupy important market share in that low-cost segment. Delta initially failed the establishment of Delta Express as a major low-fare airline and was not able to compete with JetBlue or Southwest Airline. The attempt to establish its own low-cost airline had not worked out as the Express line had not properly been seperated from the Delta mainline and still was too intertwined with the mainline to be considered a successful subsidiary. The combination of poor seperation and unclear differentiation was the main problem facing Delta in this case, resulting in the introduction of Song to become competitive in the low-fare segment again.
2) From what the case describes, the overall guiding policy of Song seems to be an integrated strategy which aims at both differentiating the low-fare airline from competitors and offering this service at lower cost than competitors. By introducing
Song, Delta tries to distinctively separate and distinguish the spin-off from the mainline and to position the subsidiary as number one choice for the mass market of budget travelers.
Using Michael Porter’s generic strategies to best evaluate the type of strategy Delta chose, one realizes that the guiding policy designed by Delta’s management is not as straightforward as it should be in order to be able to gain significant marketshare in the low-fare segment. Porter states that unless a company follows a pure cost leadership-, focus- or differentiation-strategy it is prone to get “stuck-in-the-middle” which is the case here, in my opinion.
Given the competition and taking the initial goal of Delta to compete in the low-fare segment of the airline industry into account it would only make sense to follow a costleadership strategy which requires rigorous cost-saving measurements in order to be successful.
In my opinion, Delta failed to see that the two single most important traits customers in the low-fare segment care about are safety and price; two basic characteristics that are sufficient to satisfy the need of a budget-traveler. Following a low-cost strategy in
the airline industry requires targeting these budget-travelers who look for the cheapest way to safely travel from point A to B. Extra features to improve the experience such as the enhancement of the service level or comfort are secondary, if necessary at all.
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