1. How does the experience of Delta Air Lines illustrate the interdependence between strategic decisions of “how to compete” and “with what to compete”? Consider this with regard to both strategy formulation and strategy implementation.

In 1994 top executives at Delta Air Lines faced a crucial strategic decision. Delta, which had established an unrivaled reputation within the industry for having highly committed employees who delivered the highest quality customer service, had lost more than $10 per share for two straight years. A large portion of its financial trouble was due to the $491 million acquisition of Pan Am in 1991, which was followed by the Gulf War (driving up fuel costs) and the early 1990s recession (causing people to fly less). Its cost per available seat mile (the cost to fly one passenger one mile) was 9.26 cents, among the highest in the industry. In addition, it was threatened by new discount competitors with significantly lower costs—in particular, Valujet, which flew out of Delta’s Atlanta hub. How could Delta survive and thrive in such an environment? Determining the strategy for doing so was the top executives’ challenge.
Chairman and chief executive officer Ron Allen embarked upon the “Leadership 7.5” strategy, whose goal was to reduce the cost per available seat mile to 7.5 cents, comparable with Southwest Airlines. Implementing this strategy required a significant downsizing over the following three years, trimming 11,458 people from its 69,555-employee workforce (the latter number representing an 8% reduction from two years earlier). Many experienced customer service representatives were laid off and replaced with lower paid, inexperienced, part-time workers. Cleaning service of planes as well as baggage handling were outsourced, resulting in layoffs of long-term Delta employees. The numbers of maintenance workers and flight attendants were reduced substantially.