Delta Airlines Incorporation was established in 1924 as an aerial crop dusting company. The firm offers air transport to passengers and cargo in the United States and other countries around the world (Delta, 2011, p. 1). The firm was originally called Huff Daland Dusters. The firm’s success can be traced back to 1930 when the United State government awarded an airmail contract. This enabled the firm to remain in business even during hard economic times. Another airmail contract was awarded to the firm in 1934. During World War II, the airline transported troops and other supplies.
With its headquarters located in Atlanta at the Hartsfield Jackson International Airport, the airline has greatly benefited from the strategic location. For example, the airport gives the airline as an opportunity to serve many countries (Delta, 2011, p. 1). The airport acts as the airline’s main hub. The airport is one of the busiest airports in the world serving approximately 994,000 aircrafts and more than 89.4 million passengers each year. For example; Delta Airlines serves more than 57 countries through Hartsfield Jackson International Airport. Fifty six per cent of its passengers come from Hartsfield Jackson International Airport (Delta, 2011, p. 1). This gives the airline a higher competitive advantage over its competitors since it is difficult for other airlines to take control of the airport like it does.
Over the years, the firm has managed to attain a global leadership within the full service carriers. It is estimated that the airline serves approximately 160 million customers annually. The firm has expanded its network over the years. Currently, the firm serves over 356 destinations in more than 65 countries located in 6 continents. The firm has an approximate human resource base of 80,000 employees and a fleet of 700 aircrafts (Delta, 2011, p. 1).
The growth of Delta Airline Incorporation
The firm’s success is associated with its management team’s efficiency in implementing growth strategies. One of the growth strategies adopted by the firm is formation of mergers. For example, in 1953, the firm entered into a merger agreement with Chicago & Southern Airlines. As a result of the merger, Delta Airline expanded its routes across the US and the Caribbean. During the 1950s and 1960s, the airline continued to be the major regional carrier within the US and the Caribbean regions (Delta, 2011, p. 1).
The merger also led to an improvement in the airline’s average load factor and emergence of more coordinated flight services. Additionally, the merger enhanced the firm’s financial stability. For instance, as a result of the merger, the airline experienced an increment in its profitability with a margin of 72 %( Delta, 2011, p. 1). This increase was as a result of increment in its flights with a margin of 32%.
According to Hassan (2009, p.164), the merger enabled the two airlines to reconfigure their networks leading to an improvement in load factor of all the new entity’s flights. In 1972, the firm further acquired Storer Leasing which enabled it to increase its fleet. The merger also enabled Delta Inc. to be dominant within its regional market. This arises from the fact that the merger made the airline to be large and more geographically differentiated. The resultant effect is that it created a barrier to new entrants.
In the 1980s, the firm experienced a challenge as its competitors also started adopting mergers and acquisitions in their operations. Some of the airlines which threatened the firm’s survival include Texas Air, Northwest and TWA. The resultant effect is that the firm’s growth was threatened. In an effort to deal with this trend, the firm enhanced its merger and acquisition strategy. The first strategy was to acquire Jet America at a cost of $18.7 million. However, the deal did not materialize (Delta, 2011, p. 1). Later the firm acquired Western Air Lines which was based at Los Angeles at a cost of $680 million.
The firm’s management team experienced a challenge in their effort to integrate the employees of Western Air Lines into its system. This arose from the fact that Delta employees were non-unionized while those of Western Air Lines were unionized. This culminated into emergence of cultural differences which limited the firm’s operational efficiency.
In an effort to improve its market coverage in the international market, Delta Airline Incorporation has entered into marketing alliances with different foreign airlines. The arrangements of the marketing alliances vary from ticket office co-location; holding joint promotions, code sharing, sharing ticket counters and airport gates (Rueters, 2011, p.1). Code sharing refers to an agreement between airline firms whereby a flight of a particular firm is marketed jointly as one which is offered by other airlines. Through its code-sharing agreement, Delta Inc. is able to sell its seats to more international destinations.
Currently, some of the airlines with which the firm has an international code-sharing agreement include Olympic Air, VRG Linhas Aereas, KLM Royal Dutch Airlines, China Airlines, Aeromexico, Alitalia, Air Nigeria, Royal Air Maroc, Veitnam Airlines, Avianca, Virgin Blue Airlines, China Southern and Korean Air (Rueters, 2011, p.1). The firm has also entered into air service agreements with different domestic regional carriers. These carriers feed the airlines system with passengers from small and medium sized airports outside the airlines route system. The firm has also entered into contractual agreement with 9 regional airlines to enable it operate a regional jet.
Incorporation of advanced technology
Additionally, the firm’s management team recognized that the firm would create value through incorporation of high technology. Over the years, the firm has differentiated itself from competing firms through incorporation of new technology. The airline has incorporated diverse technologies which result into a high level of customer satisfaction. Some of these technologies include incorporation of video and audio entertainment within its aircrafts (Delta, 2011, p. 1).
The firm has also established 2 computerized marketing subsidiaries that is, Datas Incorporated and Epsilon Trading Corporation. The core objective of forming these subsidiaries was to improve the firm’s efficiency and effectiveness in selling passenger seats. Due to incorporation in technology, the firm was able to improve its marketing and hence its customer base.
The firm’s success is also associated with the effectiveness in which it underwent a leadership transition. During their formative years, the leadership style in most airline companies was authoritarian. This limited the firm’s efficiency in adjusting to the changes in the environment. In addition, most of these leaders were shareholders in the company and they did not groom their successors on how to manage the firm after their retirement.
After their departure (which was in most cases through death), the firms experienced a challenge in readjusting to a new management. However, Delta Airline did not suffer from this challenge. After suffering a heart attack, Deltas leader Woolman delegated some of his duties to other board members who assumed leadership gradually until his death (Funding Universe, 2011, para. 7). Delegation of power enabled the firm to undergo a smooth leadership transition to a collective leadership. The smooth leadership transition contributed towards the airline having a management team which was effective and efficient in its planning.
Promotion of strong employee relationship
Over the years, Delta Airlines has developed a positive public image. One of the factors which have contributed to its reputation is the fact that the firm’s executives have established a good relationship with lower level employees. The firm treats it employees as a family which has led to emergence of a high degree of employee loyalty. Only a small percentage of the firm’s work force is unionized. This is a great contrast to other regional airlines whose employees are unionized.
Considering the fact that the aviation industry is labor-intensive, firms within the industry strive to motivate and keep their workforce satisfied. Delta Incorporation has managed to attain this through implementation of a good reward system which the employees are comfortable with. For example, the firm maintains its employee remuneration above unionized competition (Funding Universe, 2011, para. 6).
The firm is ranked amongst the firms which pay a high remuneration to its employees. Other benefits that the firm offers to its workforce include free travel, and full medical coverage. In addition, the firm has given an opportunity to employees to become shareholders of the firm. This has been achieved by setting aside a 4% equity which is owned by the employees. This has enabled the firm to keep a significant proportion of its workers non-unionized.
In addition, the firm has also enhanced employee relationship through maintenance of an open communication. In its decision making process, the firm’s management team takes into consideration the views of the employees. The resultant effect is that the firm has been able to develop a sense of belonging amongst its employees.
The good relationship with the customers has contributed towards creation of a high level of employee loyalty (Funding Universe, 2011, para. 9). For example, in 1982, the firm suffered financial constraints which prompted it to request employees to accept a pay cut. Majority of them accepted voluntarily. This enabled the firm to acquire the 767 aircraft which was the largest aircraft at the time. As a result, the firm become profitable during the following few years. In addition, the firm’s employees resisted a bid by US Airways to undertake a hostile takeover of the firm in 2007. US Airways had promised the employees numerous benefits but they turned down the offer. The employees conducted a campaign which was dubbed ‘Keep Delta My Delta’.
Efficiency of operation
Delta Inc. was amongst the first airline firms to incorporate the hub-and-spoke system in 1955. Under the hub-and-spoke system, airline traffic from different points of departure is concentrated to one airport (the hub) (Kernchen, 2009, p.13). From the ‘hub’ connecting flights link the travelers to their various points of destination. For hub-and-spoke system to be operational, flights are supposed to land at the hub airport within duration of thirty minutes. Its efficiency in scheduling has contributed towards its success by ensuring convenience in passengers connecting to their final destination.
The hub-and-spoke system enabled the airline to attain a greater efficiency as a result of concentrating facilities such as maintenance and refueling to few locations. The resultant effect is that the firm was able to save on costs since it was able to use large and cost efficient airplanes to connect between the hubs and also as a result of high capacity utilization (Kernchen, 2009, p.13). The following is a hypothetical case to illustrate the efficiency resulting from a hub-and-spoke system compared to a point-to-point system. An airline firm with 2 hubs with each hub liking other 10 spokes in different cities can offer a one-stop service through twenty one routes.
On the other hand, point-to-point system would require 190 routes. To benefit from the hub-and-spoke system, the airline may decide to increase its load factor which would culminate to an increment in flight frequencies and hence its revenue. The overall effect is that the firm will be able to serve its market with only a few aircrafts and workers thus attaining cost minimization. The hub-and-spoke system also enabled the firm to attain a high competitive advantage through creation of a barrier to entry. For example, it became difficult for new entrants to obtain gates in addition to landing slots at the airports which acted as a major hub for the airline.
The firm’s operational efficiency was also enhanced by its management style. During the 1970s, Delta’s management style was conservative (Funding Universe, 2011, para. 8). The firm adopted the ‘wait and see’ management policy. As a result, it did not acquire new aircrafts until their efficiency have been proven its competitors. This was relatively costly for these firms. The policy enabled the firm to save a substantial amount of finance.
For example, the firm replaced its 727s Boeing aircraft with the Lockheed 1011 aircraft after it had been tested by its competitors. During the 1980s, Delta Inc. started replacing its aircrafts with new models of Boeing which include the 757, 765 and the MD-88. This strategy enabled the firm to use these aircrafts which were technologically advanced for the next 20 years (Funding Universe, 2011, para. 7).
As a result of its effective management during 1980s, the airline was able to attain a relatively high level of financial stability. For example, the firm managed to maintain its debt-to-equity ratio below 1 to 1. This means that it had a net worth which was more than its debts. This enabled Delta Inc. to finance most of its investments internally.
Customer service and promotion
Delta Airlines appreciates the fact that its success is directly dependent on the effectiveness with which it satisfies its customers. The firm has established its differentiation strategy on the basis of customer service through provision of a unique experience. One of the ways through which the firm has attained this is by offering rewards to frequent fliers in its SkyMiles Program (Osenton, 2002, p.241). The program involves earning credit on the basis of the mileage traveled using the airline. In addition, it is also possible for members to earn credit as a result of using other services affiliated to the airline such as hotels, credit cards and car rental agencies (Reuters, 2011, para. 8).
In addition, the firm is committed at creating and sustaining a high level of customer service. In line with its customer service, the firm invested $2 billion in 2010 which is aimed at improving customer experience. The upgrading is expected to be complete by 2013. This investment will be geared towards upgrading its products such through installation of in-seat video, new full-flat beds, adding new fast class cabins and seats to its regional jets. In addition, the firm will also upgrade its reservation system to ensure that there are no interruptions in the provision of services.
In addition, the firm has also enhances its customer service through inclusion of e-commerce. Delta airline updates its SkyMiles Program members by sending e-newsletters through e-mails which gives them an update on various issues such as fares and other travel-related updates. According to Osenton (2002, p.241), the firm is able to advice the members on how they can effectively use the points earned through the SkyMiles Program. This has greatly enhanced the firm’s marketing capacity. For example, the firm has been able to enhance loyalty amongst members of SkyMiles.
The management team has also recognized that traditional advertisement such as through television, bill-boards and print media is losing taste within the aviation industry. This has arisen from the fact that consumers are increasingly incorporating technology in their consumption patterns. As a result, the firm has appreciated the importance of incorporating innovative channels of market communication. To attain efficiency in marketing the firm is integrating social network communication tools such as Facebook, and YouTube. For example, in an effort to improve its marketing efficiency Delta Inc. has launched a social media network referred to as ‘ticket window’ which allows online purchase of tickets through various social sites such as Facebook (Delta, 2011, p. 1).
Challenges faced by the firm
Failure in establishing subsidiaries
Delta Incorporation experiences a challenge from low-cost airlines such as Southwest, EasyJet and JetBlue. In an effort to deal with this challenge, the firm’s management team made a decision to venture into the low-cost airline industry. The management team spent a substantial amount of time and money in an effort to establish a low-cost airline which could compete with the already established low-cost airlines.
As a result, the firm established the Delta Express a low cost airline in 1996. However, the firm’s low-cost airline strategy was not successful which prompted the management team to shut down the airline in 2003(Funding Universe, 2011, para. 6). The firm established another low-fare airline referred to as Song which was also closed down 3 years later. These failures led the firm to incur a substantial amount of debt. Additionally, its effort to venture into the low-cost aviation industry detracted the firm’s focus from its core business.
Financial crisis, war, terrorism and fuel prices
During the 1980s and1990s, the airline was severely affected by the economic recession and an increment in oil prices. This was further worsened by the war in the Middle East region which led to a decline in air travelers and also inflated costs. However, the firm was able to deal with the situation due to its financial stability. During this period, Delta Inc. also benefited from the failure of some airlines such as the Eastern Airline which served the same route. As a result, the firm managed to acquire 80% of the traffic in Atlanta (Funding Universe, 2011, para. 9). The firm also experienced a reduction in its profitability as a result of 2007 financial crisis. However, with the economy recovering, there is a high probability of the firm regaining its profitability trend.
In line with its expansion strategy into the international market, the firm purchased package of assets worth $1.7 billion from Pan Am in 1991. In this deal, the firm was also required to acquire Pan Am liabilities which amounted to $ 668 million. In return, Delta Airline would acquire a hub in Frankfurt enabling it to increase its European routes. However, the deal was badly timed due to the existing economic recession, high oil prices and the war (Jacobson, 2004, p. 12). This led the firm to incur a loss of loss of $ 506 million. To deal with the situation, the firm’s management team made a decision to undertake salary cuts, downsizing strategy and wage freezes. Decision to reduce its workforce led to increased customer complaints.
Other challenges which the firm experienced in 1999 include overcrowding as a result of poor service and delays. At the beginning of the 21st century, the firm was faced with labor disputes. In May 2000, the firm’s pilot’s contract expired and there were not productive negotiations to deal with the situation. As a result, the pilots reacted by refusing to work overtime. The firm was suffered a financial loss as a result of cancelling 3,500 flights.
In 2001, the airline experienced a decline in air traffic. This was as a result of the 9/11 terror attack. According to Bruck (2007, p.111), the 9/11 attack led to a 50.07% decline in Delta’s Inc. market value. Most investors considered investing in the airline industry to be risky. The decline in market value was persistent by mid 2002.
In 2005, Delta Inc. voluntarily filed for a bankruptcy with the United States Bankruptcy Court. The bankruptcy was filed under Chapter 11 which allowed the firm to continue with its operations while undertaking corporate restructuring (Newkirk, 2005). Some of the reasons which prompted the management team to file for bankruptcy were an increment in labor costs. The firm was also experiencing a high cost of operation due to the rise in jet fuel. At the time of filing for bankruptcy, the firm had a debt of $20.5 billion.
However, the firm was able to come out of bankruptcy in April 2007. During its bankruptcy, the firm developed a strong cost structure to enable it operate efficiently. In addition, the firm has renewed its expansion strategy and increased its global investment.
From the above analysis, it is evident that Delta Airline Inc. current success has resulted from a number of factors. One of t he most prominent factor is its effectiveness and efficiency in management. As a result, the firm has been able to implement investment decisions optimally. Its efficiency in diversifying in various businesses has enabled the firm to attain financial stability. Additionally, the firm’s success has resulted from attainment of operational efficiency for example as a result of effective scheduling. Entering into marketing alliances with other firms in the industry has enabled the firm to expand its market which incorporation of advanced technology has improved its efficiency.
In its operation, the firm has also managed to develop employee and customer loyalty. Employee loyalty has resulted from the firm effort in implementing various reward and benefit program. On the other hand, customer loyalty has culminated from the firm’s commitment in ensuring that its customers derive a unique experience leading into a high level of satisfaction.
Despite this, the threat of collapse resulting from various factors such as economic recession, increased competition from low-cost airlines, threat of wars and terrorism, rise in oil prices and bankruptcy, the firm has managed to survive as a going concern entity.
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