Delta Air Lines

INTRODUCTION

Situation Synopsis

Following the inception of the Airline Deregulation Act in 1978 which allowed freedom of pricing and route entry and exit, the airline industry became increasingly competitive with the arrival of low-cost carriers such as Southwest Airlines and JetBlue. In response to this threat, Delta launched Delta Express, a low-fare subsidiary that served Florida leisure markets from non-hub airports in the Midwest and Northeast in October 1996. Although Delta Express achieved its intended purpose during the early years, by January 2002, its profitability had declined significantly, and the subsidiary was being replaced by mainline aircraft. In order to compete with the continuing evolution of low-cost carriers (LCCs), coupled with the repercussions of the 9/11 attacks and the increasing fuel prices, Delta’s management acknowledged the urgency of formulating a comprehensive strategy across functions.

Company’s Current Strategy

Delta Air Lines employs differentiation as its current corporate strategy, primarily due to its brand equity, extensive fleet and worldwide coverage. Delta’s competitive edge lies in its largely non-union workforce, a strong route system and its outstanding operations and fleet.

Problem Statement

Delta Air Lines’ executives must decide how to respond to the threat posed by low-cost carriers such as Southwest and JetBlue. The options considered are: (i) Status quo; (ii) Delta Express may be modified in some manner or reintegrated with the primary brand; (iii) a new low-cost subsidiary could be introduced. However, prior efforts to launch a low-cost subsidiary, by Delta and by other major airlines, have failed in the past. Consequently, is Delta able to devise a better response today?

EXTERNAL ANALYSIS

Industry Structure and Trends

Following the deregulation of US Airlines in 1978, several successful new entrant and low-fare airlines had materialized, resulting in a cutthroat competition ever since. Amidst the...