Essay On Delta Airlines
Delta Airline Case
1- During the 1990’s, none of the five largest air carriers in the United States earned its cost of capital. Why do such low rates of return on investment persist in the airline industry?
That’s correct, airline companies margins were below the average for US industries for a long time, especially after the 1978 deregulation. For 40 years, prior to 1978, the airline companies had operated under the regulation of the CAB (Civil Aeronautics Board), which was responsible for managing routes and fares, and thus protected companies revenues and, more important, profitability. Protected by cost-plus pricing, airlines regularly assented to labor union demands and in fact didn’t care too much by the costs incurred by the union …show more content…
These companies remained profitable despite all the markets ups and downs, and even after Sept 11/ 2001. Basically, the LCC operated differently from legacy carriers using secondary airports, short turn times, high load factors and different labor costs (flexible work rules vs. profit sharing plans) helping the companies have a much more enthusiastic workforce. All this combined with a different mission and vision, so a different strategic planning is what makes them profitable. LCC don’t use legacy carriers as benchmarks, they don’t even look at them as competitors, because their competitors are cars, buses and other ways of travelling. Even the way tickets are issued is different, and also focused on modern way of life, less burocratic, more self-service and, of course, cheaper. This companies have essential competencies: Values (they created a new way of flying, from the ticket purchasing to to the flying experience), Rare characteristics (they are not regular carriers, they created a whole new market), Hard to copy strategies and operational competency. They launched a new substitute product in an existing market, ending in the creation of a new market, where they have so much competitive advantages that others can’t …show more content…
All big legacy carriers launched low-cost subsidiaries, but none obtained success. Some reasons are written below:
- They launched substitute products in their existing market, but they should have entered the new market, with a new company
- The subsidiaries shared employees with the legacy carriers
- They shared burocracy
- They didn’t have a clear market and also marketing strategy, different from the legacy carriers
- They carried the same costs to operate
In summary, LCC is a total different business than legacy carriers, and can’t be integrated in other business. It has to have its own market strategy, labor agreements, administration, ratios, etc... The only path to success is treating low-cost subsidiaries as a whole different business, inserted in a whole different
1- During the 1990’s, none of the five largest air carriers in the United States earned its cost of capital. Why do such low rates of return on investment persist in the airline industry?
That’s correct, airline companies margins were below the average for US industries for a long time, especially after the 1978 deregulation. For 40 years, prior to 1978, the airline companies had operated under the regulation of the CAB (Civil Aeronautics Board), which was responsible for managing routes and fares, and thus protected companies revenues and, more important, profitability. Protected by cost-plus pricing, airlines regularly assented to labor union demands and in fact didn’t care too much by the costs incurred by the union …show more content…
These companies remained profitable despite all the markets ups and downs, and even after Sept 11/ 2001. Basically, the LCC operated differently from legacy carriers using secondary airports, short turn times, high load factors and different labor costs (flexible work rules vs. profit sharing plans) helping the companies have a much more enthusiastic workforce. All this combined with a different mission and vision, so a different strategic planning is what makes them profitable. LCC don’t use legacy carriers as benchmarks, they don’t even look at them as competitors, because their competitors are cars, buses and other ways of travelling. Even the way tickets are issued is different, and also focused on modern way of life, less burocratic, more self-service and, of course, cheaper. This companies have essential competencies: Values (they created a new way of flying, from the ticket purchasing to to the flying experience), Rare characteristics (they are not regular carriers, they created a whole new market), Hard to copy strategies and operational competency. They launched a new substitute product in an existing market, ending in the creation of a new market, where they have so much competitive advantages that others can’t …show more content…
All big legacy carriers launched low-cost subsidiaries, but none obtained success. Some reasons are written below:
- They launched substitute products in their existing market, but they should have entered the new market, with a new company
- The subsidiaries shared employees with the legacy carriers
- They shared burocracy
- They didn’t have a clear market and also marketing strategy, different from the legacy carriers
- They carried the same costs to operate
In summary, LCC is a total different business than legacy carriers, and can’t be integrated in other business. It has to have its own market strategy, labor agreements, administration, ratios, etc... The only path to success is treating low-cost subsidiaries as a whole different business, inserted in a whole different