Delta Environmental Comparison and Discussion Essay

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Delta Airlines

Domestic and Global Environments

Delta operates in the airline industry and competes with other leaders in the industry including brands such as Frontier Airlines, United Airlines, American Airlines and Southwest Airlines. These are the dominant firms in the industry and Delta rates second highest in terms of volume. Delta's overall performance has improved recently compared to previous performances. Yet, there is one customer service issue that has gained publicity which is their propensity to bump people off flights due to overbooking and this practice is fairly pronounced and thus drags them down rating-wise (NY Post, 2014). Customer service is especially relevant because the domestic industry in general is highly competitive and consumers have multiple options for flights. Airlines in the domestic environment typically try to offer differentiation in service to create consumer value and create brand loyalty.

The government tends to regulate the industry mostly in the form of safety requirements and coordination efforts in the airport network. For example, Delta must stay in compliance with the FAA, or Federal Aviation Administration. For the most part, the government let's company decide their operations. However, their practice of over-booking flights at Delta might put them in a position in which there could be future regulations. It is suggested that other options to optimize flight capacity. For example, if there is enough volume to justify new routes to the same city then this option should be explored. However, if there is more demand than seats but not enough to justify additional departures, Delta should still not sacrifice customer service for capacity optimization. Indeed, profit maximization and marginal cost are important but so are customer service standards and the negative publicity associated with negative consumer perceptions for not meeting these standards.

Because of restrictions in the airline industry, airlines are barred from servicing domestic routes in foreign countries. Therefore, the domestic U.S. market is effectively closed to non-U.S. airlines for travel between American cities; also Delta, and other U.S. firms, cannot expand to routes that do not include an American city in the flight plan. However, on international routes, Delta must still compete with the other major U.S. airlines, and whatever foreign carrier that may also service the same route. For example, the New York-London route is served by several American and British airlines flights, and competition on such routes is high. Delta has the opportunity, however, to service other niches. For example, it is the only U.S. airline to fly to Johannesburg, South African. Other carriers also fly to the U.S. from South Africa, but not to Atlanta similar to Delta. Nevertheless, trade restrictions on airlines in the global market are some of the strictest in the world, which is a fact that influences the ability of Delta to gain profitability through global expansion.

Technology at Delta

Delta Airlines relies on a number of elements of hard and soft technology in its business. Hard technology includes aircraft, materials (baggage) handling facilities, airport facilities and telecommunications technology. Soft technology for Delta includes the scheduling software, which is critical to maximizing uptime for the company's aircraft, and for determining how often the company should fly which routes. Furthermore, pricing algorithms help Delta to achieve the optimal balance between ticket prices and passenger miles flown, all of which contribute to the company's ability to be profitable in a highly-competitive market. There are also algorithms that help the company to determine how much fuel it should hedge. Much of the critical software that Delta uses is not developed internally, but rather by third parties like Sabre, which makes schedule management software (Sabre, 2015).

It was identified that Delta does not have a strong technology management strategy. Delta has not invested a significant amount of resources into developing its own proprietary technology, and has borrowed heavily from the industry standards. For example, the company typically adopts third-party technology that is common in the industry. There have been, however, examples in the past of Delta seeking greater control over its technology. In 2014, the company acquired one of its third-party technology providers, Travelport LP, as a means of gaining control over critical technology innovations (Carey, 2014). These innovations could potentially provide a measure of service differentiation for Delta.

There are several recommendations that can be made for Delta to improve the way it manages technology. First, there is little to choose from among major airline service offerings, so technology that influences the quality of the service offering has the potential to be a key differentiator in the market. Thus Delta should consider an increase its investments devoted to in-house technology development.

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It is also recommended that technological development focus on aspects that are relevant to the customer experience, a tactic that has worked well for companies like Amazon in the past. Finally, another recommendation is to license any in-house technology, maybe to partner airlines around the world, as a means of recouping the investment costs associated with the development of such technologies.

Political and Legal Barriers

Delta Airlines is headquartered in the United States where the domestic airline industry is heavily-regulated, in particular where public safety is concerned. The airline industry was also transformed in the late 1970s by market deregulation, a process which has opened up competition and created the conditions for the industry consolidation that is still ongoing today (The Economist, 2013). Most of the legal/political environment for Delta stems directly from the FAA, or Federal Aviation Administration. This is the body that governs the airline industry, and sets the standards by which airlines must operate. There is no discrimination between airlines by the FDA. The Department of Justice is also a factor, because that department governs the mergers between airlines in order to ensure a competitive market. Thus far, airline mergers have been permitted, and there are still protections from the FAA with respect to foreign carriers and their ability (or lack thereof) to operate on domestic U.S. routes.

In general, the political environment can be considered to be largely neutral. The restrictions placed on the industry, such as increased costs and safety regulations, have been applied evenly. Airlines have also largely been able to merge, but competition in the industry has made it difficult for many airlines to operate profitably with any sort of consistency after such mergers. Non-aviation operations are much less stringently regulated than the aviation regulations, so in that sense Delta does have some flexibility with respect to how it handles its businesses operations.

There are other aspects to the legal environment for Delta. The company was able to declare bankruptcy in order to restructure its pension obligations, something that has helped the company to remain in business this long (Foust, 2009). Its merger with Northwest was also critical development in the company's history. Thus it can be said that Delta exists today because of a favorable political environment that the company leveraged roughly ten years ago. The legal environment also governs such issues as labor laws; there are rules regarding hiring, firing, unions and other variables that the company must comply with. The government is also involved with regulating health and safety of employees, through OSHA, which can also drive up the costs of human resources.

So for Delta, the key issue is access to expansion, either through organic route expansion or through the ability of the company to merge with another major airline. However, there are limited opportunities for such movements in the short-term. The international political environment with respect to airlines is not going to change any time soon. The airline industry is beginning to have less competition due to larger industry players and there is genuine risk that the Department of Justice will not allow any further mergers among the major airlines. Without the ability to grow through acquisition or to expand internationally, Delta will have difficulty finding growth opportunities through traditional channels. Furthermore, Delta will face diminishing returns in its in domestic routes due to price competition, though there may be some international routes that still hold possibilities for niche development.

Sociocultural Factors

Airlines provide a service that is highly standardized the world over. Where there are consumer perception differences, these are reflected in the service-price dimension primarily. In some countries, consumers prefer to pay more to get a better in-flight experience. This is true of Japan for example. By contrast, in the United States the market is different. U.S. airline consumers typically prefer low cost above all other considerations and prefer the low price leaders.

According to Hofstede's analysis (2015) the U.S. is a highly individualistic culture that is moderately masculine in nature. This manifests in a competitive business environment in customers who wish to be expressive, and who are somewhat indulgent. The U.S. has low power distance, which has significant implications for management, in that managers are not viewed more significantly different than frontline employees, and are expected to demonstrate competency in order to justify their management positions. The time orientation is fairly short, which in business means that there is an….....

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