BACKGROUND Delta Airlines is an innovative, creative company and a well-established and res pected airline. It is also the oldest and largest air passenger carrier in the w orld as at September 2009, after acquiring . Since its incepti on in 1928 Delta has built a reputation of offering consistent superior customer service to its passengers. For four decades, Delta held the reputation of being the most consistently profitable airline, however with the US Federal Airline D eregulation Act of 1978, coupled with the recession of early 1980s saw the Airli ne suffering its first financial loss in the early 1980s. The company however managed to turn the defeat around and was again profitable w ell into the 1990s. Delta constantly faced challenges - economic downturns, comp etition from low cost carriers (domestic) and other international airlines compe ting for US international travellers. By the time Delta entered the 21st century it was faced with new challenges; such as the crippling of the airline industry in 2001 - a direct result of the terrorist attacks of September 11th, the const antly rising fuel prices, and the economic downturn in 2009. Delta eventually fi led for bankruptcy in 2005, when it was no longer able to meet its financial obl igations. Industry analysts typify the airline industry as unattractive, unstable and cycl ical in nature. Delta operates in an intensely competitive environment, which is still struggling to recover from the most recent recession. Efforts to compete with low cost carriers have not met with expectations. A pioneer of the hub and spoke model which it uses to map its destinations, Delta‘s competitive edge is bei ng the airline of choice for international travel. Through strategic alliances w ith other international and domestic airlines, Delta offers more options to trav ellers in choosing airlines to take them to their destinations. Currently Delta airline flies to over 60 countries and is the only airline to fly to all six [fu lly populated] continents. The challenges facing Delta have significantly impact ed the organization‘s financial stability. Despite the many financial obstacles, D elta‘s cash flow has remained positive. While it is on the road to recovery, the c ompany must find creative ways to stimulate growth in a struggling airline indus try [and by extension the economy] if it is to maintain strong financial health, and remain viable. 1 HISTORY In 1928 C. E. Woolman and a group of investors from Monroe, Louisiana developed a passion for passenger air travel. Formerly Huff Deland Dusters an aerial Crop Dusting Company, Woolman purchased the Crop Dusting Company and renamed it Delta Air Services. In 1934 the company was awarded a mail contract from the US Post Office, and Del ta flew its first passengers on August 5, 1934 from to . The compa ny ‗took off‘ and in 1941 relocated its head office from Louisiana to Atlanta in ord er to access the facilities of the city and the Atlanta Airport as well as to ta p into the growing market of business travellers. The company began expanding, o vertime acquiring struggling Airlines like and Southern Airways in 1953 and Northeastern Airlines 1972, thus adding more routes. Delta‘s growth continued well into the late 1970s; by 1978 the company ranked 5th in the industry transpo rting some 3.3 million passengers, earning revenues of approximately US$2 billio n dollars. However the Federal Airlines Deregulations Act of 1978 had a game cha nging impact on the Airlines industry, especially legacy carriers like Delta. Th is era saw the emergence of new Low Cost Carriers (LCC), resulting in a more com petitive environment. The company continued on its growth path and in 1990 Delta held the no. 3 position, moving 67.2 million passengers with total revenue earn ings of US$8.5 billion. When folded in 1991, Delta assumed ownership of t he once iconic air line acquiring routes in the Central America and the Caribbea n regions. Delta was now transformed from a regional carrier to a competitive Gl obal carrier. The results were also evident in its profit margins, which ultimat ely earned the company a reputation as the most consistently profitable one in t he industry. Delta also earned the reputation of the best paying airline in the industry. Delta‘s employee rewards system resulted in a motivated and dedicated wo rkforce and a high staff retention rate. Notwithstanding, Delta Airlines had its share of challenges over the years. The problems of the late 1980s and early 1990s – the recession, rising fuel prices and the war in the Middle East severely affected the airline industry. Although the airline industry at that time was described as unstable and unpredictable, the early 1990s saw the emergence of smaller low cost airlines, expanding the airlin e industry, and resulting in an intensely competitive environment. In 1996, Delt a Express was launched to compete against these airlines. A financial failure, D elta Express 2 operated until 2003 when it was divested and replaced by , a unique low-cost subsidiary airline, which has also been divested. The terrorist attacks of Sept ember 2001 affected the already struggling US Airline industry, as all the major airlines suffered huge financial losses. Delta operated under bankruptcy provis ions for two years (2005 – 2007). During this period, it returned to having a posi tive cash flow. Its purchase of Northwest Airlines in 2008 has resulted in a mor e favourable financial position, as the Airline recuperates from its financial d emise. Currently Delta Airlines operates an extensive domestic and international air ca rrier serving over 160 million persons each year, in markets in North America, S outh America, Europe, Asia, Africa, the Middle East, the Caribbean and Australia . In 2001, Delta formed a global called SkyTeam with Air France , Areomexico, and Korean Air. To date SkyTeam is the second largest air alliance in the world and have 13 members and growing. Delta‘s strong employee relations, focusing on its core business (air-transportation), its commitment to providing superior service and employing prudent financial strategies, are the pillars on which Incorporated grew and developed. Over the years Delta‘s CEOs have been ‗home grown‘, promoted through the ranks. Richard Anderson, the current C EO was however recruited from United Health Group having had previous experience with Continental Airlines and Northwest Airlines. Delta in Delta directly employs six persons in Jamaica. Five persons are stationed at the Sangster‘s International Airport– three in the areas of passenger servi ce, and two in marketing. One individual in the area of passenger service is sta tioned at the Norman Manley International Airport (Kingston). Additional staff i s provided on a needs basis by AJAS. Delta operates up to 10 flights daily from the Sangster‘s International airport, and one from Norman Manley International Air port (D. Harold, telephone interview October 25, 2010). On June 30, 1997 Delta a nd Air Jamaica signed a letter of intent to pursue cooperation in marketing and other services, including a codesharing agreement (Air Jamaica, 1997). All agree ments have since been rescinded. 3 COMPETITIVE ANALYSIS SWOT ANALYSIS OF DELTA Strengths Reputation: SkyTrax, the world's largest Airlin e and Airport review site ranks Delta a 3 star airline. The 3 Star ranking signi fies a "satisfactory" standard of core product across most travel categories. Within this decade, a study was conducted by Harris Interactive of airline reput ations, By measuring the attitudes of over 20,000 consumers, the Airline Reputat ion Quotient (RQ) study rated domestic and foreign airlines on issues ranging fr om safety and trust to customer service and food. Delta was graded with an RQ of 70, bettered only by one airline in the and nine airlines worldwi de (Hucko 2000). Geographical Coverage: Delta is the only US airline that flies to all continents , excluding Antartica. They are a founding member of Skyteam, the world‘s second l argest airline alliance that provides flights and easy connections for their cus tomers. Workforce: In September 2009, Delta was the recipient of the "Better Way " award offered by the Air Transport Association (ATA) in association with the F ederal Aviation Administration (FAA). The award recognizes government and airlin e industry employees who work together to advance the inspection and testing of aircraft structure, components, or systems. In July 2010, U.S. airlines reduced overall workforce 2.3% from a year earlier, according to the U.S. Department of Transportation. Delta was the only airline o f seven network carriers to increase its staff complement (4). The Atlanta compa ny has had few labor problems compared with most major airlines — the last strike was a mechanic's walkout in 1947. Entrepreurial Orientation: Joining with other major airlines in the industry to form a global alliance called, SkyTeam. The Sk yTeam alliance results in cost savings by sharing cargo and passenger terminal f acilities, integrating frequent-flyer programs, consolidating sales, 4 maintenance and administrative operation, combining information technologies, an d engaging in joint procurement where feasible (Corridore, 2003, p. 7). Innovation effectiveness: Delta contionuously incorporates and upgrades technolo gy to enhance customer experience. For example, in 2008 Delta installed the Airc ell mobile broadband network, Gogo. This enabled their customers traveling with Wi-Fi enabled devices, such as laptops, smartphones and PDAs, to access the Inte rnet. Weakness Customer Satisfaction: Delta has been consistently slipping in customer satisfaction ratings. In the J.D. Power and Associates 2010 North America Airli ne Satisfaction Study, Delta was ranked 4th of 7 traditional airlines, slipping from third. The recent merger with NorthWest airlines has not helped, as NorthWe st had significantly low customer service ratings (Yamanouchi 2010). Financial S tability: Delta filed for bankruptcy protection in 2005, having $20.5 billion in debt. They have since exited bankruptcy, but still have a significant debt to c ontend with. For the past 2 years, Delta has been operating at a loss, of up to $8.9 billion. Pricing: Delta‘s pricing structure has struggled against low cost ca rriers such as SouthWest, JetBlue and . They have some of the hig hest fares in the US airline industry. Opportunities & Threats Political and Legal environment: Airline union rules: Un ions can now be certified if they win a majority of votes cast. Before, they cou ld only be certified if they won the votes of the majority of workers. Delta is currently a nonunionized airline, one of only a few. This will change the way De lta relates to its staff. (Threat) Passenger laws: Proposed laws to penalize air lines who bump passengers. Also, to allow passengers to cancel or change reserva tions within 24 hours without a charge. Airlines would have to refund baggage fe es if the passenger arrived without luggage. (Threat) 5 Deregulation: Allows easy entry of competitors into the airline industry. (Threa t) Fuel Pricing: The Obama administration is proposing laws to develop a consist ent fuel pricing mechanism (Hunt 2010). (Opportunity) Economic environment: Emerging Markets: Markets in emerging economies, mainly BR IC nations (Brazil, Russia, India & China), are expected to sustain growth over the next 20 years. Their economies and demographic developments are realized by air travel. (Opportunity) Recovery from the recession: The International Air Tra nsport Association (IATA) has tripled its projections for 2010, anticipation a p rofit of $8.9 billion up from $2.5 billion (ZIR 2010). (Opportunity) Oil Price Volatility: While oil prices over the past two years have not reached the dizzying $147 per gallon heights of 2007, prices are expected to rise slowly in 2011 as global economic growth leads to higher global oil demand. (Threat) Social and Cultural environment: Public acceptance of low fare concept: With a r eduction in disposable income worldwide, low cost airlines have gained in popula rity. (Threat). Customer Awareness: Public has increased the use of the internet to shop around, with a premium on safety. (Opportunity) Technological environme nt: Emerging technologies. This allowed Delta to be the first U.S. airline to pr ovide onboard Wi-Fi for domestic fleet. Also allows them to offer flat seat bed and on demand digital experience (Delta 2010). (Opportunity) Unducted F an driven aircraft: Aircraft technology being touted to result in planes vastly improved in fuel effieciency. (Opportunity) 6 Natural environment: Alternative energy sources: Airlines are castigated for the ir contribution to global warming, despite data suggesting they contribute just 2%-3% of Carbon Dioxide emission worldwide. Nevertheless, Deltas main fleet supp liers, Boeing and , are developing 787 and A380 airplanes that run on fuel from algae and other bio fuel sources (Hamilton 2007). (Opportunity) Competitiv e: Short haul travel: On short routes (less than 600 miles), Delta competes not only with other airlines, but automobiles, buses and railroads. Reduction in dis posable income made more persons opt for longer but cheaper travel. (Threat) Low Cost Carriers (LCC): LCCs enjoyed huge cost advantages over legacy carriers lik e Delta. LCCs offers stripped down, no frills travel, the interest being to get the traveller from point A to point B. This, in recent years, is an increasingly popular travel option. This is the model used by SouthWest, Jet Blue, Spirit am ong others. (Threat) Other Legacy Carriers: Traditional airlines constantly seek to improve, merge or join airline alliances. Chief amongst these are the One Wo rld alliance airlines, headed by . Porters Five Forces New entr ants in the industry: This is a strong possibility in the industry, with the 197 8 deregulation of the industry and access to bank loans allowing for easy entry, in an already competitive field. Even with the current weak state of the airlin e industry, it has remained very ‗hot‘ with numerous startup airlines emerging world wide. Threat of Substitutes: Only a threat on the domestic front. There are no r eal substitutes for planes in international travel. Buses, private motor vehicle s and trains offer a low cost alternative to flying. The tradeoff is the time to travel. Bargaining power of suppliers: Only two companies, Boeing and Airbus, s upply aircrafts to Delta and most of the other airlines. Most airlines use the s ame model planes. This is an oligopoly, but there is no sign of collusion betwee n the actors. 7 Bargaining power of customers: This is surprisingly weak. The high costs of swit ching from one airline to another makes this not a popular option. Options to pu rchase tickets on the airlines website or in advance can result in lower prices. Competitive Rivaly: This is very strong amongst airlines. There is hardly any s egmentation in the airline industry. The low cost carriers go after everyone, an d markets everywhere. This has resulted in airlines cutting fares to remain comp etitive. Only airlines that can adapt and change will survive in the airline industry. Th e industry is marked by intense competition. Delta is achieving a competitive ad vantage in terms of its reach. It is virtually unmatched in the number of gates it flies to worldwide. Its employee model, whereby only its pilots are unionized , allows for staffing flexibility. Delta is known to be one of the highest payin g airlines, which helps to keep staff motivated. Delta has continued to be innov ative in its efforts to halt the slide in its customer satisfaction ratings. Wit h the power of the prospects, wherein their reviews have a wide reach, Delta had been innovative in its approach. The flat seat bed and the development of the w orld's most sophisticated single-aisle in-flight entertainment system, represent s efforts to put smiles on their customers faces. While Delta has been making a loss, the loss is attributable to debt repayment. Delta‘s cash flow has been posit ive for the past two years. This suggests that the company is on its way to prof itability. Delta over the years has attempted to meet the advent of the LCC head on. In 1996, Delta introduced Delta Express on the low cost model. This offshoo t was abandoned in 2003, and replaced by Delta Song, a direct competitor to JetB lue and SouthWest. Song folded after three years. None of the attempts at a low fare subsidiary was financially successful. Indeed, it served to detract from, r ather than contribute to Delta‘s success and reputation. Delta continues to spend time and money in researching the low cost market to find the right fit for the company. The LCCs are Deltas biggest threat and highlights a major weakness. By including features that an LCC cannot match on their flights and continuing to f ind ways in successfully re-enter that industry space, Delta is turning those th reats into opportunities. 8 CORPORATE LEVEL STRATEGY – The Marketing Plan The Delta Mission Statement: Since t he founding of Delta Air Lines, our company has stood for safe and reliable air transportation, distinctive customer service, and hospitality from the heart. Ou r vision is for Delta to build on its traditions and always to meet our customer s' expectations while taking service to even higher levels of excellence. We are a leader in a business we know best-airline transportation. We intend to be an even greater company and will focus our time, attention, and investment on build ing that leadership. We are dedicated to being the best airline in the eyes of o ur customers. We will provide value and distinctive products to our customers, a superior return for investors and challenging and rewarding work for Delta peop le in an environment that respects and values their contributions. Delta employs a four pronged corporate strategy: 1. Differentiation 2. Customer Satisfaction and Rewards 3. Employee Retention and Rewards 4. Marketing and Prom otion Differentiation: Despite the negative publicity generated by falling into bankru ptcy, Delta has persevered. One reason is the strength of the Delta brand that s ets it apart in the industry. This is primarily built on its extensive flight se rvice. When United and US Airway attempted aggressive takeovers, they asserted t hat the new company would take on the Delta name. It was also one of the conditi onalites of the NorthWest merger. Delta branded its low cost carrier Song in ord er to protect the equity of its brand (Kotler, and Keller.2009. p. 257), as it d id not want to associate the name Delta with the entity in the event that it fai led. Maintaining the integrity of the Delta brand was a part of the reason for d ivesting the Delta Express and Song brands, which served to water down the Delta name. Through acquisitions and mergers, starting in the 1950s, Delta has the widest ga te span of any airline. Merging with Chicago Airlines and Lines in 1953, in 1987 and in 2008 with NorthWest, have seen Delta‘s fleet capacity superior to all. Additionally, 9 Delta‘s purchase of virtually all of Pan Am transatlantic flight in 1991 ensured t hat for over twenty years, Delta has a very strong claim to being the world‘s fore most global airline. Customer Satisfaction and Rewards (The Product): Delta is committed to keeping i ts customers happy by finding innovative ways to enhance their flying experience . Its reward programs are amongst the best in the industry. In the "Best of Busi ness Travel Awards" from Business Traveler Magazine (January 2008), Delta was ag ain recognized in three categories: Best Frequent Flyer Program, Best Airport Lo unges and Best Airline Web Site. The foundation of Delta's differentiation is it s customer service throughout the travel experience, premium in-flight offerings and rewards programs for frequent flyers. The airline is looking to become one of the top three ranked airlines for customer service, on-time performance, bagg age handling and cancelled flights as part of its turnaround plan. NorthWest Airlines was consistently low in customer satisfaction, and this affec Delta ratings immediately after the 2008 merger. Delta has since been able t o get back to ratings it enjoyed prior to the merger. Employee Retention and Rewards: The airline industry is highly labor-intensive, and it is vital for Delta to keep its workforce motivated and satisfied. Pilots are the only unionized group. They represent 17% of Deltas more than 75,000 memb ers of staff. Indeed, Delta staff in 2008, voted to reject overtures from the As sociation of Flight Attendants (AFA). This prompted the AFA to unsuccessfully ch arge Delta with ‗harassment and intimidation‘. Compensation and benefits to all categories of workers have always been top of t he industry. A part of Deltas strategy has always been to offer fantastic benefi ts, including health benefits, 401(k) plans and free travel. The company strives towards providing job security and a ―promote from within policy. As a result, Del ta‘s staff is among the most loyal anywhere. During the period of bankruptcy, Delt a team members took a voluntary pay reduction, and mounted a ‗Save our Delta‘ campai gn. In 1982, they presented the company a brand new , named ‗The Spirit of Delta‘. 10