For this case, you are to determine an external threat/opportunity to the company from the case material. This will be your Key Issue(s) for your case analysis. Each of your 'External Analysis Tools' should focus on your chosen opportunity/threat. Each of your 'Internal Analysis Tools' should focus on how the company aligns with that chosen opportunity/threat. You are to use the course 'Case Submission Template' in its entirety.

THIS IS AN EXAMPLE:

DELTA AIR LINES INC.

PURPOSE OF THE CASE ANALYSIS

The purpose of this case analysis on Delta Air Lines is to examine the key issue of competition in the airline industry.More specifically, this analysis will examine both internal and external factors affecting Delta Air Lines in the light of this issue in order to arrive at possible solutions and to provide recommendations to implement these solutions.

COMPANY BACKGROUND

Delta Air Lines was formed in the 1920s as a small crop-dusting company, Huff-Daland Dusters, the first commercial agricultural flying company. Purchased in 1928 by C.E. Woolman, the company was renamed Delta Air Service in honor of the Mississippi Delta, their service area at the time. Over time the company grew to include mail delivery, package service, and passenger service. Over the decades the company grew larger, especially as air traffic increased. In the 1960s, the crop-dusting services ceased and Delta focused entirely on expanding their passenger service, increasing their routes, and providing excellent customer service. Today, Delta Air Lines is a major U.S. company providing daily flights to 275 destinations on six continents serving more than 200 million people each year.

KEY ISSUE TO BE ADDRESSED

The key issue that this case analysis will focus on is competition in the airline industry. In the 1970s, the airline industry was deregulated by U.S. President Jimmy Carter. Prior to 1978, airlines were guaranteed returns on provided flights.Deregulating the industry did away with these protections for the airline providers at the time and allowed for other airlines to enter the market, increasing competition. Also, in the 1970s, the first low cost budget airline, Southwest Airlines, began offering low cost alternatives to the major airlines and in the ensuing decades, these low-cost companies (LCCs) have proliferated, further grabbing market share away from major airlines like Delta.

DISCUSSION

External Analysis

PESTEL

A PESTEL analysis is an external analysis that examines the political, economic, sociocultural, technological, environmental, and legal factors that act on a company. In this analysis, I will focus the analysis on these factors as they relate to competition that Delta faces.

Political

As previously mentioned, Delta Air Lines was politically affected in 1978 when the U.S. government deregulated the airline industry. This took away the governmental regulation of air fare prices, routes, and service, an attempt to allow other airlines to enter the market, increase competition, and drive down prices. In modern times, Delta Air Lines must contend with the governments in the countries it provides service to, therefore it may face regulations, tariffs, pricing rules, or increased tax rates from foreign governments who seek to limit Delta's service in the country in order to support a domestic airline.

Economic

With regards to competition, Delta Air Lines is also affected by economic forces.In a time of high inflation, stagnant wages, and/or high unemployment, consumers may be forced to become more price conscious or travel less. In times of economic hardship, consumers who want to or need to travel would be more likely to shop around for the best price or to fly with a LCC. While for most companies, rising fuel costs would also be a major concern while trying to remain competitive, Delta has expanded into the fuel industry with its purchase of a refinery from ConocoPhillips in 2012, which allows it to control fuel costs.

Sociocultural

While sociocultural forces might not be as important as political or economic factors within the scope of competition, Delta Air Lines must be conscious of its image in comparison to its competitors and to be sure to be sensitive to the needs and feelings of various societal groups as well as their employees.Bad publicity of any kind in the social sphere could send consumers to the competition.

Technological

Technologically, Delta Air Lines must remain competitive which includes investment in the most fuel efficient, luxurious, and modern airplanes possible.Currently Delta Air Lines has one of the oldest fleets of any airlines in the U.S. with an average plane age of 14.8 years.

Environmental

Similar to sociocultural forces, Delta Air Lines needs to operate in a culture where environmental concerns are increasingly important, especially to the younger demographic. Considering the age of the firm, they need to maintain their commitment to modern ideals as they compete with much younger airlines.

Legal

The one legal factor that Delta Air Line has faced is their issues with labor.In times of economic hardship for the company, their employees have faced pay cuts and Delta Air Lines clashed with unionized pilots in the merger with Northwest Airlines. Delta is mostly non-unionized which could affect their image in today's climate and send consumers to a pro-union competitor.

Five Forces Model

The Five Forces Model, developed by Michael Porter in the late 1970s, helps business leaders analyze the profit potential of an industry by examining five forces: the threat of entry, the power of suppliers, the power of buyers, the threat of substitutes, and rivalry among existing competitors.

Threat of Entry

The threat of entry for comparable airlines to Delta is low as it is an expensive industry to break into. However, the rise of LCCs does pose some threat. While it is still expensive to enter the market as a LCC, it is much more expensive to enter as a major carrier in a hub-and-spoke model, as Delta and the other large airlines are.

Power of Suppliers

The threat from suppliers is low in the industry.There are a number of airlines and they all supply similar products with little differentiation. There are a large number of suppliers to choose from making similar products so Delta has to compete for suppliers in the same way as the other airlines.

Power of Buyers

The power of buyers in this industry is fairly high.As there is little product differentiation in the industry, buyers have a lot more power to choose their airline.Much of the buyer's decision comes down to price and availability. This poses a threat to Delta as they compete with LCCs and other major airlines.

Threat of Substitutes

The threat from substitutes is moderate in this industry.Substitutes would be other modes of transportation, like cars, trains, and boats, and other modes of transportation cannot completely be substituted for all destinations. There are many destinations for which an airline flight is the only option.

Rivalry among Existing Companies

The threat from other airlines is very high in the airline industry. There are a few large airlines comparable to Delta, and a number of smaller LCCs offering more affordable direct flights. There is a lack of product differentiation, meaning that most of the airlines offer a similar product with similar levels of customer service and amenities going to the same destinations. Depending on the demographic of airline traveler a particular company is looking to attract, the difference may come down to price.

External/Internal Bridge Tool

SWOT Analysis

External

Opportunities

Millennials are poised to become the largest group of airline travels. The size and resources of Delta give them the opportunity to market their offerings to capture this market share away from their competitors. Also, the profitability of the company gives it the capital to expand into lower cost routes in order to compete with LCCs.

Threats

With respect to the key issue under discussion, the largest threat Delta faces is other airlines, both the large carriers they compete with directly, and the lower cost budget airlines, especially now that LCCs are entering the market internationally.

Internal

Strengths

Delta is a financially strong and stable company, which gives it the capital to invest in new routes, offerings, and marketing.Delta also has a large network of routes, which allows it to offer flights to destinations that not all of its competitors may be able to offer. Also, the addition of a refinery to offset fuel costs gives Delta an edge over its competitors who are subject to fluctuating oil prices.

Weaknesses

Delta has a strong presence in North America, and with the addition of budget airlines offering direct flights between major hubs, Delta may find itself losing market share between certain destinations to these LCCs.

Internal Analysis

Core Competencies

Delta Air Lines is a huge company with extraordinary brand recognition. It is considered a safe, reliable airline servicing hundred of destinations. While other major airlines felt that LCCs were a unique threat to their hegemony, Delta has committed to serving its higher paying customers first, its "bread and butter," and adjusting to the competition by offering a lower cost Basic Economy fare. Delta has focused on customer service, their amenities, and the interiors of their older planes, which continues to satisfy their traditionally higher fare paying clientele.

Resource-based View

Tangible Assets

With regards to its competitors, Delta Air Lines has the second largest fleet in the world. In addition, the firm has a refinery that allows it to cut its fuel costs, an advantage that other airlines do not have. Finally, Delta is the second largest airline in the world with major hubs in nine cities including Atlanta, Boston, Detroit, Los Angeles, Minneapolis, New York-JFK, New York-La Guardia, Salt Lake City, and Seattle, with international hubs in Amsterdam, London-Heathrow, Mexico City, Paris, Seoul, and Tokyo. The gates that Delta maintains in these airports are tangible assets.

Intangible Assets

Airlines declare their routes and slots at various airports as intangible assets, as well as the trade alliances they form with other airlines. Both of these could give Delta an advantage in competition as Delta has the second largest network in the world. Another intangible asset that helps them stay competitive is their brand name and reputation.It is a widely recognized name in the airline industry and has been so for decades.

VRIO Analysis

The size of Delta's fleet is a resource that is valuable, imitation is costly, as airplanes are an expensive investment, and it is organized to capture value. Although the fleet is older, Delta has an excellent system in place for the maintenance of its fleet. The refinery that Delta has invested in is also valuable, costly to imitate, and organized to capture value. The hub network that Delta has built is valuable, rare, costly to imitate, and organized to capture value. As to its rarity, there are only so many gates available at the airports of the world, and purchasing these gates can run into the millions of dollars.

The routes and slots that Delta has would be considered valuable, rare, and organized to capture value. It is not hard to imitate because other large airline firms have developed similar hub-and-spoke models as Delta and there is some overlap at these large hubs. Delta's brand name and reputation could be considered all four in the VRIO framework.

ACTIONS TAKEN BY THE COMPANY

Over the decades, Delta Air Lines has focused on its customer service, offered various tiers of rewards and frequent flyer level programs, expanded its amenities, increased its routes in its hub-and-spoke model, especially when it acquired Northwest Airlines, made alliances with other airlines to expand its international routes, and when threatened by budget airlines known as LCCs, offered a Basic Economy package to offer reduced rates to budget conscious customers.

INTERPRETATION OF ANALYTICAL POINTS

One of the most alarming areas of weakness for Delta Air Lines is the age of its fleet, as well as the operational costs of purchasing new planes. While Delta has done a great job of maintaining its aging fleet, the age may give pause to some travelers and any kind of accident would be devastating for the company and drive customers to any competitor that can promise safety.

Delta Air Lines faces strong competition from the proliferation of low budget carriers, known as LCCs, especially as this market expands internationally. While Delta's hub-and-spoke model is extensive, they cannot offer all travelers the direct, inexpensive flights that some LCCs can.

RECOMMENDATIONS

Purchasing airplanes is expensive, but maintaining older aircraft must also be expensive. The company should commit to updating its fleet over time to take advantage of newer technology that can offer long plane life combined with fuel efficiency and the most up-to-date safety standards. The company already sells off parts of retired airplanes in order to recoup some of the cost. The company should dial into this program further and include the process of updating, recycling, and repurposing into its marketing in order to speak to younger generations who are more concerned about environmental impact.

While Delta has introduced a Basic Economy rate in order to cater to more budget conscious travelers, Delta could expand their low-cost options to create more tiers of pricing beyond just Basic Economy, and could offer a range of amenities on a sliding scale in order to attract budget conscious travelers who may want the extra touches and are willing to pay a little more for them. Delta could also initiate lower-cost, target marketing to appeal to infrequent travelers, many of whom are more likely to fly with LCCs, to attract them to try flying Delta. Honing in with social media campaigns is an effective tool to reach a younger demographic and infrequent travelers.

CONCLUSION

Delta is in an excellent position, and is ranked one of the best airlines in the world. Small tweaks to their operations and marketing could pay off with large dividends in their competition with the other big-name airlines and the LCCs that have proliferated in recent years.

REFERENCES