Delta Airlines understands it faces its most dangerous competition from low cost carriers

[LCCs] like Southwest and Jetblue and therefore needs to respond in creative new way, unlike it
has in the past. If Delta continues to operate without doing so they will undoubtedly lose market
share, profits, territories, and customer loyalty to LCCs as they have been to Jet Blue and
Southwest for a while. Ever since Airline Deregulation Act in 1978, fares prices have decreased
and profitability hinged on the fraction of its flown seats that were occupied by paying customers
or load divided by the costs required to fly one seat (CASM). The large airline carriers like
Delta and others reacted by shifting to the hub-spoke model which meant that smaller planes
were used from lightly traveled cities to feed passenger hubs in major cities and route them in
larger plans between hubs. This allowed major airlines to achieve high load factors and enjoy
market power in the hubs they dominated but sacrifice smaller markets.
Opportunity was seized by LCCs to operate from smaller traveling cities on routes
shorter than 600 miles. LCCs lowered their prices to compete with cars, railways, and buses but
still maintain high load factors. During peak of business cycles, larger airline companies were
slightly profitable than LCCs, but much less profitable during troughs. By 2002, LCCs were
gaining market share, earning higher long-run profits and expanding territory. On top of that,
regional airlines were eating away at Deltas traffic in midsize markets and making significant
inroads into Deltas Florida market which accounted for 30% of their revenues.
Delta in 1997 decided to counter with the development of a subsidiary to prevent
Southwest from expanding in the Florida market named Delta Express. Such strategy that Delta
and other large carriers have done to create a low-cost subsidiary to compete with LCCs have not
been historically successful simply because high-cost carriers have been unable to sustainably
transform themselves into low-cost carriers. Cutting labor and operating expenses for large
carriers that have large organizational structure is not easily feasible in a subsidiary. Also,
customers tend to get confused about the airline brand and it could create internal competition
within the subsidiary and mother company. In 2003, Delta Express was eliminated due to it no
longer being a profitable venture.
Part of the success of LCCs has been that they have been able to reduce their cost per
available seat mile (CASM) and still be able to offer basic foods items, providing in-flight
entertainment, great customer service, all coach-cabin seats, flexible work rules, and an
enthusiastic workforce that helped in reducing turnaround times and high aircraft utilization.
Also, LCCs do not employ yield management regarding pricing in order to avoid disgruntled
groups of passengers like the coveted business traveler group that might feel they are being
exploited or the bargain hunters who wondered if there are paying the lowest prices. Such yield
management techniques must change if Delta is to compete with LCCs as the internet and
technology now allow customers to compare prices and have more access to travel information
than before. Delta must aim to be transparent in its pricing. Delta must be able to improve load
factors in smaller markets in order to compete with LCCs and also improve its turn-times closers
to its smaller competitors. In 2002, Southwest had the best time averaging 27 minutes.
Lastly, Delta Airlines, as one of the top five American airlines, has a very large
organization with various internal departments that is organized by function and solutions
focused on individual parts of the company. If they plan to compete with smaller agile LCCs
they must improve their internal decision making process and be coherent within departments
working together to develop united strategic planning to confront strong competition threats from
smaller LCCs.
Be more agile and coherent that in the past to meet market demand and opportunities.
Improve load factors employ more 737 pg 8