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Southwest Airlines and Delta Airlines: Comparative Analysis
A business must choose an efficient strategy in order to thrive in the present and in the future and it is “important to explore several strategic options, investigating each one carefully before making strategic choices” (Mahdi et al., 2015,) Looking at two organizations, Southwest Airlines and Delta Airlines are analyzed by looking at the external environment in which influences the company. The airline industry is a hyper-competitive industry and not all airlines are having fruitful finical performances due to some of these factors of gas prices and more competition. Another element to consider are is politics as this can play as a big piece to the operations of an airline. After the horrific terist attacks that took place back on the eleventh of September in two-thousand and eleven changed the way we travel. Security was heightened which has created longer times to get to your destination. The reason for this boost in security is due to the mandated policy from the government which has a cost associated to keeping these resources. One last thing that there is not much that can be managed is economic shifts. One example is the 2008 economical down fall that the United States went through which many people were not only losing their jobs, but their homes and had no extra money to do fun things, in which “the profits of major airlines were not only affected, but thousands of people were laid off” (Hagmann et al., 2015). One item that is a technology that must be evolving and keeping up with the times
For airlines that are slow to innovate, failure would be unavoidable, especially considering the fact that the aviation industry is not immune to economic pressures, both locally and internationally (Zou et al., 2014; Choi et al., 2015).
Social factors, such as holidaying abroad, changes in the nature of work (flexibility), aging population, and concern over the environment, continue to influence the nature and value of strategic management in the airline industry (Goetz & Sutton, 2017). Over the next three years, the popularity of international holiday destinations will rise due to an increase in disposable income, and greater awareness of foreign destinations will lead to a more diverse customer market. This means that airlines will be obliged to prioritize diversity in hiring and other human resource management activities. Changes in the nature of work will lead to increases in revenues as the number of premium travelers continues to rise with improved pay and living standards. An elderly population will mean that airlines must make the changes deemed critical when it comes to helping the elderly book flights and board them easily. Seats should be made more ergonomic. A growing concern for the environment is global warming, given that the airline industry is responsible for 3.5% of climate change, which might result in an overall increase in the demand for eco-friendly airlines (Hagmann et al., 2015; Baumeister & Onkila, 2017).
Technological factors, including information technology developments, developments in fuel efficiency, and product innovation and service excellence, have had a notable impact on both local and international airlines (Zou et al., 2014). Advances in information technology have made it possible for airlines to reach a large number of consumers and minimize the cost of marketing, such as the case with social media marketing and online booking (e-tickets) (Baumeister & Onkila, 2017).
The emergence of ticketless travel has been made possible by rapid advances in information technology, and it is expected that within the next three years, the emergence of new technologies like Internet of Things (IoT) will make it easier for airline companies to increase ticket sales via the internet, thus, minimizing operating costs related to ticket sales. It goes without emphasizing the fact that technological innovations continue to enable airlines to increase fuel efficiency, and it is expected that over the next three years the fuel bills of major airlines will be lower than 20% of operating costs. Fundamentally, technological innovation will result in a relatively lower cost of airline operations and improved efficiency (Baumeister & Onkila, 2017).
· How will these changes likely impact the companies you have chosen for analysis?
Delta Airlines is regarded as one of the best-performing airlines, and it is mainly known for its customer care, luxury, as well as a customer base comprising of upper-middle-class and business travelers. Southwest Airlines is known for its low-ticket prices, which have helped the company to expand to new market segments as well as increase its market share (Ward, Edmondson, & Matthews, 2017). Political factors shaped by recent trends in terrorism are more likely to impact both Delta and Southwest airlines since both operate within a highly regulated political environment. Stricter regulations and security measures will result in improved consumer confidence since compliance with the regulations will translate to an enhanced perception of safety among consumers, notwithstanding the high compliance costs within the industry (Hagmann et al., 2015). Price wars can prove costly for both Delta and Southwest since lower ticket prices will force the companies to cut costs using innovation and product development (Baumeister & Onkila, 2017).
Product development as a grand strategy involves a business modifying existing products to meet the needs of current consumers, for example. On the other hand, innovation entails a business creating customer acceptance of a new product or service through increased investment in R&D to introduce new products or services that meet unique needs (Pearce & Robinson, 2011). For both Delta and Southwest Airlines, product development and innovation will point toward to making massive investments in research and development. Regardless, with a strengthening economy, coupled with rapidly falling fuel prices, the operating profit margins of Delta and Southwest Airlines are expected to be over 15% within the next three years (Goetz & Sutton, 2017).
A strengthening U.S. economy will translate to favorable earnings to airlines like Southwest Airlines and Delta Airlines (Harzel, 2018). It is expected that a combination of low fuel prices and improved quality of service delivery will also allow Delta and Southwest airlines to deal with the rapidly changing economic conditions. Fuel prices are expected to comprise less than 20% of the airlines’ total operating costs over the next three years, but this only be achieved if the companies will be quick to innovate and develop its products and services (Choi et al., 2015).
Southwest Airlines and Delta Airlines operate predominantly within the domestic market, but social factors like holidaying abroad (increasing popularity of international holiday destinations) and changes in the nature of work (flexibility) will impact the firms in the sense that they have to dedicate more of their flights to foreign destinations. Also, increasing disposable income and greater awareness of international destinations will allow the firms to access a more diverse customer market (Hagmann et al., 2015). This means that airlines will be obliged to prioritize diversity in hiring and other human resource management activities. As noted above, the airline industry is responsible for 3.5% of climate change (Hagmann et al., 2015). It is for this reason that a growing concern for the environment due to global warming will force Southwest Airlines and Delta Airlines to adopt eco-friendly strategies, such as eco-friendly fuel usage and eco-friendly sources of energy to power their facilities (Zou et al., 2014; Baumeister & Onkila, 2017).
Both Southwest Airlines and Delta Airlines have in the recent past exhibited reliance on information technology and product innovation and service excellence. Advances in information technology will make it possible for the two companies to reach a large number of consumers as well as minimize the cost of operations, such as the costs linked to ticketing. Ticket-less travel and e-ticket coupled with the emergence of new technologies IoT will provide an excellent opportunity for companies to lower their operating costs. Technological innovations will enable the airlines to increase fuel efficiency further reducing their fuel bills, besides augmenting operational efficiency in a manner that helps improve the profit margins of the companies (Hagmann et al., 2015).
· Analysis of the chosen industry using one of the models presented in an article by Bereznoi (2015).
According to Bereznoi (2015), a business model as a “concept amounts to more than an arbitrarily constructed understanding of the basic mechanism through which a particular company operates” (p. 16). It can be well-thought-out as competitive tools that a business uses to curb the adverse impacts of competition within an industry. A model that best suits the airline industry is the innovative business model. This model is a particularly powerful tool with importance that has been highlighted by the failures of other companies, such as Kodak. The innovative business model puts greater emphasis on innovation, which entails a business creating customer acceptance of a new product or service (Pearce & Robinson, 2011). Based on this model, companies in the airline industry, such as Delta and Southwest should strive to be more innovative. Innovation is the beating heart of the airline industry (Hannigan et al., 2015; Bereznoi, 2015).
Since the Wright Brothers’ time, increased investment in R&D has enabled companies in the airline industry to innovate their products or services and enhance the efficiency of their operations, primarily by introducing new products and services that meet new needs of consumers who look beyond the price of a ticket (Hannigan et al., 2015). In a world struggling with global warming, airline companies must innovate to lower the percentage of their contribution to the problem, for instance, through green power. One of the most exciting innovations is electric-powered flight, which is expected to help airlines to minimize fuel costs (Hagmann et al., 2015).
Other innovations include the use of smart materials to boost aerodynamics as well as make planes faster, fuel efficient, and more durable, very high flying to reduce fuel consumption by minimizing drag and accommodating the use of smartphones to enable passengers to adjust light levels in their vicinity through the use of in-flight apps. These innovations are mainly aimed at augmenting customer experience, especially by accommodating both existing and new needs and expectations.
· Strategic choice recommendations for companies to successfully deal with the forces operating within the industry at the present time and in the near future.
Taking into account the forces in the remote environment that are likely to impact the aerospace industry within the next three years, Southwest Airlines and Delta Airlines should prioritize growth within the global tourism industry to enhance their market position (Hannigan et al., 2015). This would be an excellent approach to strengthening market share across the globe while taking advantage of new opportunities in emerging markets. Strategic alliances will allow the companies to access to international markets, thus, translating to enhanced competitive advantage (Ward et al., 2017).
Another recommendation entails minimizing operating costs through innovation and outsourcing (Ward et al., 2017). A combination of these approaches will allow the airline companies to deal with the high fuel prices that contribute to increased operating costs. An innovative business model will augment the companies in the airline industry to minimize the challenges linked to the remote environment (Goetz & Sutton, 2017).
Recognizing how strategic management encompasses a “set of decisions and actions that result in the formulation and implementation of plans designed to achieve a company’s objectives” (Pearce & Robinson, 2011, p. 7), firms in the airline industry should take into account the influence of political, legal, economic, social and environmental, and technological factors in formulating and implementing their strategic plans. In this regard, the management of both Delta Airlines and Southwest Airlines ought to consider factors like the strengthening U.S. economy, fuel prices, growth within the global tourism industry, and technological innovation to enhance market position as well as enhance the efficiency of their operations.
References
- Baumeister, S., & Onkila, T. (2017). An eco-label for the airline industry? Journal of cleaner production, 142, 1368-1376.
- Bereznoi, A. (2015). Business model innovation in corporate competitive strategy. Problems of economic transition, 57(8), 14-33.
- Choi, K., Lee, D., & Olson, D. L. (2015). Service quality and productivity in the US airline industry: A service quality-adjusted DEA model. Service Business, 9(1), 137-160.
- Goetz, A. R., & Sutton, C. J. (2017). US Airline Industry. Low-Cost Carriers:’ Emergence, Expansion and Evolution, 199.
- Hagmann, C., Semeijn, J., & Vellenga, D. B. (2015). Exploring the green image of airlines: Passenger perceptions and airline choice. Journal of Air Transport Management, 43, 37-45.
- Hannigan, T. J., Hamilton III, R. D., & Mudambi, R. (2015). Competition and competitiveness in the US airline industry. Competitiveness Review, 25(2), 134-155.
- Hazel, R. (2018). Airline capacity discipline in the US domestic market. Journal of Air Transport Management, 66, 76-86.
- Mahdi, H. A. A., Abbas, M., Mazar, T. I., & George, S. A. (2015). A Comparative Analysis of Strategies and Business Models of Nike, Inc. and Adidas Group with special reference to Competitive Advantage in the context of a Dynamic and Competitive Environment. International Journal of Business Management and Economic Research, 6(3), 167-177.
- Pearce, J.A. & Robinson, R.B. (2011). Strategic management: Formulation, implementation and control (12th ed.). New York: McGraw-Hill.
- Ward, C. B., Edmondson, D. R., & Matthews, L. M. (2017). Delta Airlines: Not Exactly’ Flying High’. Journal of Critical Incidents, 10.
- Zou, B., Elke, M., Hansen, M., & Kafle, N. (2014). Evaluating air carrier fuel efficiency in the US airline industry. Transportation Research Part A: Policy and Practice, 59, 306-330.
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