Delta Airlines
Industry Environment Analysis (5 Forces)
Threat of New Entrants
Due to high rate of barriers to entry, there is a minimal threat of new entrants in Delta Airlines. The government regulations which are provided by organizations such as Department of Transportation are copious and complex and also the operating costs in airline industry is high and this hinders the threat of new entrance (Ireland et al, 2012). Civil Aviation Requirement has regulatory requirements which cause restrictions to entrance in new markets. For example, the domestic scheduled operators must have an equity requirement of INR 200 and five aircraft and many firms cannot meet the requirement capital needed (Ireland et al, 2012). Other restrictions are provided by FDI and firms are unable to acquire high-cost capital, access to technology and expertise. On operating cost, a huge capital is required and also strong customer base in order to make profit. Due to huge amount of money in Airline tickets, customers avoid using unknown firms and so they stick on firms which they trust for safety issues. The entry of new entrants is also lowered due to the high requirement of plane experience which needs at least a one year license. According to market research, airline industries in 21st century has less than one-third of market share. This means that for many years there have been less growth and entrance of airline industries in the market (Ireland et al, 2012). In addition, Airline industry controls the economies of scale efficiencies and this hinders the entrance of threats. New entrants meet challenges based on distributing channels. Some of the airlines have hubs and high volume and this makes it hard for new entrance to have effective management in airports. Due to excess capacity which provides empty seats helps the airline industry to have many booking customers and this hinders the establishment of new entrance.
Power of Suppliers
In Delta Airline, airplane manufactures are the main suppliers. Boeing and Airbus are the key manufactures and there is input standardization in the industry. The high bargaining power is as a result of low forward integration as many suppliers are unable to afford the high capital required in research and production (Hill & Jones, 2010). The planes are almost the same and so the difference only occurs in amenities. It is not possible for Delta airline to switch suppliers since they usually form a long term contract, credit term and loan agreements for acquiring products of high capital. Due to the high amount of capital and experience needed in the manufacturing industry, only few suppliers can manage to enter into the industry. Suppliers in airline industry have low bargaining power as they are provided with income by the airline firms. The power of suppliers is high as they take part almost 92% in the Delta airlines market (Hill & Jones, 2010). Due to higher power, there is less industry intensification and lack of rivalry. However, as the external environment is required for labor, fuel and aircraft manufactures, there will be an adjustment in power of suppliers. For example, there is a fluctuation of fuel in the global market caused by geopolitical factors. This makes the Delta airline to hedge fuel in order to reduce cost and avoid market fluctuation. Labor also causes costly demands in Delta airlines due to unionization in airlines. However, the power of supplier will become weak due to the various competitors such as Comac of China, United Aircraft who are entering in commercial aircraft suppliers (Hill & Jones, 2010).
Power of Buyers
The bargaining power of buyers is high and this is due to the low switching costs. Consumers often choose a flight from a various selection of airlines and the price is sensitive due to consumer’s perspective. The emergence of trip-booking websites has made customers to compare rates and to choose the cheap airline (Hill & Jones, 2010). Delta airlines perform a market research in third-party platforms and offers low prices. The company also strengthens the rapport with credit card firms and provides their customers with reward programs. Customers have travel options for long-haul distances and they may be willing to use airlines for that matter. The high bargaining power is also led by low substitute threat. There are few substitutes and consumers often use the airline for faster transportation. To maintain the high power of bargaining, Delta uses some strategies in booking and it makes itself unique from other competitors through silent auction program (Hill & Jones, 2010). Delta also ensures that passengers book the later flights and smaller airline faces challenges as Delta has uses mergers and acquisition.
Product substitutes
Technological advances have brought in new efficient transportation method which has led to greater threats. Due to high prices of fuels, Delta airline has raised its transport cost and this had provided other options for customers’ transport. Delta airlines face challenges in substitute threats which occur in different form. For example, train automotive is a strategic substitute although automobiles are overlooked in longer destinations (Belobaba et al, 2016). Due to the technological advancement, the substitute products become threatening in terms of money savers, productivity among other factors. Substitutes in Delta airlines become a real threat due to the low cost and this is increasing the switching rate from one means of transport to another. Even though the substitute with lower cost uses a long travel time, customers opts to use the lower time with low cost so save money in poor economic periods (Belobaba et al, 2016).
Intensity of Rivalry
Competitive rivalry in Delta airlines is high due to the fact that many planes fly from the same airports for the same prices and to the same places. There is no quite difference in amenities offered and also all airlines have the same seats. Example of Delta airline competitors are JetBlue and United. Competitions are high because customers have no option in terms of travel experience as all airlines have the same expertise level (Belobaba et al, 2016). However, Delta uses strategic ways to deal with its competitors such as performing marketing campaigns on brand awareness. It is not possible for customers to make any difference between airline carriers as industries are stagnant. The competitors in airline industry stay for a long time with fixed cost and this makes the industries to keep on competing. Thus, Delta puts effort in finding unique traits which will improve the services and this will help to take advantage (Belobaba et al, 2016).
SWOT Analysis:
Opportunities
Delta airlines Inc. is very well known for its customer satisfaction and on-time performance. The company is well positioned to enjoy benefits of the economic outlook in America. Due to the company’s operational metric and a strong balance sheet, it will have a strong upside within the next few years. There is a high demand of the jet in the airline market and this means that the Delta airline has the opportunity to expand its operations and increase it revenue. The rate of customers who will access their services will increase in a high rate due its low price and quality branding. According to the CNN survey, there will be an increase of air traffic by 50% and this means that the low price will help the company to get many customers (Cento, 2009). Since the company has online services, it will have opportunity to catch more customers online and this means that the company is growing in a remarkable rate and this will help to maintain its competitive advantage and profitability. Delta airline also have a travel agency which provides customers with travel services and business and this will increase the income level. Due to the reduction of oil price, the company will not count losses but rather it will be in a position to increase its operating margins. As a result of operating cash flow, the company will achieve its 2016 target of $5B net debt (Cento, 2009). Due to the competition reduction caused by industrial consolidation, the company will be able to raise its load and yield factors and both factors will positively affect the capacity management. Delta airlines are well known for offering overhaul and maintenance and this shows that the company will capitalize on American airline industry and expand its opportunities in worldwide markets.
Threats
After September 11 attacks, the company was highly affected in terms of security expenses and from that incidence the company has not yet recovered and so it fears security issues. There is a threat in low oil prices which give rise to expansion of discount carriers and this in turn will affect the company’s profitability and margins as well. Due to the low-prices, Discount carriers such as Spirit Airlines have shown efforts of offering low operating costs thereby affecting the company’s capacity expansion (Cento, 2009). Discount carriers competitors will enjoy the benefit of market share and they will integrate in the international market. The discount carriers will select routes and offer “no frills” with low cost. Not only will the discount carriers threaten the Delta’s marker share but it will also threaten its margins. The labor cost will have a negative impact as a result of pilot shortages and this in turn will affect the company’s management goal. The international route of the company will also be affected by the competition of US dollar by subsidized carriers (Cento, 2009).
Strength
Delta airline is the largest airline globally with 10hubs in U.S major cities such as New York, Detroit among others. The company is well known for its capability to expand its hubs globally. According to the statistics, Delta airline is the only company which has many aircrafts and only 1 accident has been experienced since 1996. The company has 449 airplanes with series named Boeing 737, 777 among other series (Cento, 2009). Delta airlines is the only company which makes a high gross revenue and this is a result of its quality services to customers and high level of expertise. For example, in December 2007, the company had managed to correct $19,154 million and as compared with previous years 2006, the revenue had raised up by 9.3% (Cento, 2009). Other strength with this company is that it started a private business known as Song Airlines in 2003. The purpose of the private business was to minimize the competition growth and reduce the fuel prices. The company is also part of Skyteam alliance which helps it to unite with other airline companies in market sharing, networking among other areas.
Weaknesses
On 2015, Delta airlines faced financial issues which were caused by bankruptcy. The bankruptcy has impacted its logistic activities and has caused many company layoffs. The company spent millions of dollars for team-building and the financial problems also affected the company management (Cento, 2009). Due to the company infallibility, there was rise of undisciplined pursuit which made the company to meet a distinct denial from other airline companies. For many years, the company has misused its valuable time while trying to cope with U.S competitors such as Southwest. The websites in Canada Regional Jets shows Delta connections websites and omits the carry-on luggage and this mean that customers will have to check other things in regular baggage (Cento, 2009). Despite the effort of the company in starting Delta express, there was no succession due to high fares and perception problems from Delta’s image.
Reference
Ireland, R. D., Hoskisson, R. E., & Hitt, M. A. (2012). Understanding business strategy: Concepts plus. Mason,
OH: South-Western Cengage Learning.
Hill, C. W. L., & Jones, G. R. (2010). Strategic management theory: An integrated approach. Boston, MA:
Houghton Mifflin.
In Belobaba, P., In Odoni, A. R., & In Barnhart, C. (2016). The global airline industry.
Cento, A. (2009). The airline industry: Challenges in the 21st century. (Airline industry.) Heidelberg: Physica-
Verl.
