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Delta Case Analysis - Identify the Important Facts Surrounding the Case

Essay by   •  April 21, 2011  •  Case Study  •  1,945 Words (8 Pages)  •  2,097 Views

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Identify the important facts surrounding the case

Delta does business globally in 503 cities in 94 countries and is the third largest airline in the United States. In 2003, Delta's daily needs included 7.3 million gallons of fuel, 109,000 meals and snacks, 151,000 bottles of water, 87,000 cans of soda, and 219,000 pounds of ice. Its daily operations also required large amounts of information relating to such areas as flight schedules, gate information, baggage handling, customer service, and tower operation. To be competitive in the airline industry, Delta required an efficient flow of operations. However, accurate advanced planning is nearly impossible because of such elements as changing economic realities and weather conditions, and unexpected maintenance issues.

Delta Air Lines operates in a competitive industry. Amongst its competitors, its two largest were American Airlines and United. To survive in the industry it was necessary to employ and maintain technologically efficient and cutting edge systems. However, Delta systems of operations were mainly paper based; they still used pneumatic tubes to move information and they made little use of the internet. As a result, the company lacked a competitive edge. The technology it had was based on various departments independently purchasing the technology they needed and hiring their own IT staff. In 1996, Delta was still known for its expensive airfares, poor service, limited leg room on flights and use of out-dated inefficient processing systems.

The airline industry became increasingly competitive with the arrival of the low-cost carriers, such as, JetBlue, Southwest, and Airtran. These competitors were taking customers away from the major airline companies. Delta projected that 40 percent of their customers chose low-cost carriers, which was a higher percentage than any other airlines. During 2002, 80 percent of Delta's New York to Florida market was taken away by JetBlue. Eventually, Delta's monopoly over the Atlanta and Los Angeles route was lost due to the entrance of AirTran and JetBlue. On January 29 2003, Delta tried to segment its market even further when it announced the formation of Song, an independent subsidiary. Song's objective was to provide the same type of no-frills, cut rate service as Southwest and the other low cost carriers. Delta however fell short of its plan and so Song was dropped.

After September 11th, 2001, the airline industry experienced a significant drop in travel. The reasons for the airline industry downfalls also included a weak U.S and global economy, a tremendous increase in fuel costs, fears of terrorist's attacks, and a decrease in both business and vacation travel. Even though the airline industry endured a lot of hardship, after September 11th Delta's financial condition appeared better than that of most major carriers.

Delta's management had acknowledged that their strategies were not as competitive with the other airlines in the industry. Delta hired an expert Charlie Feld, who assisted them in implementing a modernized information system infrastructure that would be more advanced than that of their competitors. In 1997 Delta, under Feld, developed the Delta Nervous System (DNS) which would allow them the use of telecommunication technology to connect its applications and databases, so the data would flow simultaneously to wherever they are needed. This new information system and infrastructure would allow them to compete with industry competitors and save millions of dollars.

Identify the key issues

Delta needed to revamp and restructure its business strategy as a whole. It had to change the way it conducted its business in order to maintain market share and profitability. Delta's key issues include the economic effects of September 11th terrorist's attacks, their maintenance of low-cost services, and the improvements in their information systems and infrastructure to gain some competitive advantage in a highly competitive industry.

The events of September 11th had tremendously affected the airline industry. Prior to those events, the industry was already facing challenges due to a weak economy. Fuel cost had risen sharply, and had therefore increased the operational cost of Delta and the airline industry on a whole. Consequently, long distance travel has significantly decreased since September, 11th. Companies started changing the way they do business. Instead of face to face meeting, companies either chose to conduct their business through video conferencing and/or teleconferencing. Another reason why business travel experienced a reduction was because of lower travel budgets of companies. In fact, with the lower travel budgets, companies had to find cheaper means of flying. Companies that chose to fly to transact their business were more often choosing discounted airfares and use of the internet to find low cost flights. Thus, as travelers chose discounted airlines for business travel, smaller carriers such as Jet Blue, Southwest, and Air Tran were all striving at the expense of Delta and the other major airline companies. The September 11th, 2001, terrorist attacks and threat of further terrorist attacks caused a decline in vacation travel. In the years after September 11th, the Iraq war and health concerns such as SARS and the avian flu, were additional reasons for the decline in vacation travel. This accumulated drop in demand for travel, both business and personal, pushed some airlines closer to chapter 11 bankruptcies.

Delta's survival in the industry depends on its ability to maintain a low cost service. Due to Delta's unrelenting efforts to keep costs down and to improve customer service, its financial condition appeared better than most major carriers in the years following September 11th. By implementing the Delta Nervous System (DNS), the overall goals of the company were to cut $2.5 billion in cost by 2005, cut 8000 jobs by mid 2003, and expand online ticket sales by 50 percent by 2005. Delta spent nearly $1.5 billion on technology development by 2003, and had already saved approximately $700 million. Before the DNS, the company incurred large amounts of cost due to lack of coordination and much duplication among it divisions. With the new system, Delta was able to reduce the number of gate agents saving the company almost $486 million per year. Moreover, Delta installed kiosks check-in systems at airports terminals as these kiosks reduces the check-in staff needed. Installing a kiosk cost about $10,000 to $15,000, this was much less than paying an annual salary of $40,000 to a check in cleck. To reduce the cost of ticket sales, Delta utilized the Internet. Sales over the Web cost approximately $6, whereas it would cost as much as $20 through an agent and



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