Category: Delta AirLines

Abstract

The topic of the paper is the strategic management after the airline deregulation. The aim of the paper is the analysis of Delta Air Lines strategies and business models and the identification of its weaknesses and strengths. Delta is one of the longest-running US carriers. For nearly a century of its existence, it faced many challenges but ultimately achieved great success. To understand the factors defining Delta’s efficiency, the environmental background, as well as such practices as pricing, route and hub strategies, employee motivation, and internalization, will be reviewed in the paper. The findings of the analysis will be used to make appropriate recommendations for Delta’s further growth.

Delta Air Lines

Before the Airline Deregulation Act of 1978 was passed in the USA, the government was responsible for granting airline operating certificates, allocation of routes, and selection of ticket prices. At that time, airlines served merely a limited number of domestic routes, and flying was available to a small group of people with higher income. However, technological development and other environmental shifts in the early 1970s resulted in significant financial losses in the industry and revealed that the regulation did not meet the public interest any longer (Cook & Goodwin, 2008).

In the unregulated environment, ticket prices significantly dropped allowing more people to enjoy air traveling and simpler onboard services. Over time, a greater number of new entrants appeared in the market trying to grab a share of profits, the industry became associated with fierce competition and, nowadays, it is challenging for airlines to sustain in the business as never before. To succeed, they have to adjust to environmental influences and implement various strategic techniques that may help develop competencies and advantages effectively. In this paper, we will analyze different strategies that airlines can use by evaluating and discussing the performance of Delta Air Lines, one of the longest-running US airline carriers. Since the moment of its establishment in 1924, the company has become a world leader in air travel, operating the routes to more than fifty countries, and working at one of the biggest domestic hubs (Baumwoll, Howland, Kruse, Lamb, & Shepherd, 2008, para. 1). Although because of the increase in fuel prices and adverse effects of 9/11 terrorist attack, the organization’s debt increased, and it had to declare bankruptcy in 2005, Delta continued to operate and, due to smart strategic decisions, could gain profits shortly after the crisis.

The paper will focus on the analysis of Delta’s strategic orientation including such areas as pricing, route, and hub management; international business models; and employee loyalty. The discussion will be supported by research evidence and relevant theories retrieved from recent credible resources. Afterward, the findings will be summarized, and appropriate recommendations for performance improvement will be made.

Strategic Orientation

After deregulation of the airline industry and with increasing accessibility to air travel, companies strive to differentiate themselves from one another and develop a unique identity and set of competencies needed to sustain in the market. Baumwoll et al. (2008) define market change, direct competitors, threats from substitutes, buyers’ interests, and capabilities as major factors affecting financial returns, risks, and strategic orientations in the industry. The way how Delta responses to these environmental influences are reflected in its pricing, route, and hub strategies.

Pricing

Pricing is a core aspect of the business. An intelligently selected price can help attract new customers, expand profit margin, and stimulate the positive perception of the brand and service quality (Jiang, 2016). In the US airline industry, there are two types of enterprises − legacy carriers and low-costers − that attach different prices to their products. Legacy carriers including Delta, which operated on the interstate routes before the deregulation took place, usually charge $200 or more per a cost position (Baumwoll et al., 2008). This price is higher than the industry’s average. Conversely, low-cost carriers’ rates are below the industry average and may range from $100 to $160 (Baumwoll et al., 2008).

The selected pricing strategy will largely define value creation and delivery (Jiang, 2016). In the case of Delta, premium pricing implies that the company focuses on the quality of service. Moreover, like any other legacy carrier, it offers services to most demanded and distant destinations which are usually out of low-costers’ reach because of high operation costs induced by flying there (Baumwoll et al., 2008). In this way, premium pricing allows Delta to differentiate its products from those offered by the majority of domestic airlines, create value, and contribute to a better perception of the brand.

It is true that many customers choose airlines based solely on price. However, many people will also pay more for comfort and excellent service, especially if they are flying far. Such complementary properties are inherent with premium pricing, and it may signify that Delta has a well-developed value chain. As stated by Kristianto, Ajmal, and Sandhu (2012), the value is a ratio between all benefits and costs associated with the product. Delta’s customers get more functional and emotional benefits, and his/her experience compensates for the expenditures. Thus, the airline achieves a greater level of customer satisfaction.

Route and Hub Strategies

Airline companies choose routes to operate based on their profit potential. The US legacy carriers serve multiple regions, while low-costers usually do not go beyond the domestic market and a very limited international flight schedule (Baumwoll et al., 2008). Therefore, although Delta may cede in price competition against such airlines as JetBlue, etc., it certainly wins in service differentiation by selling tickets to diverse destinations. Currently, the company serves about 300 countries across the globe. As Baumwoll et al. (2008) note, Delta was also the first large US carrier flying to Africa.

One of the busiest airports in the country, Hartsfield-Jackson Atlanta International Airport, is the primary Delta’s hub. By serving 56% of the airport’s total number of passengers, the enterprise controls its competitiveness as it prevents other airlines to increase the output (Baumwoll et al., 2008). Moreover, to achieve greater operational efficiency when flying to a large number of destinations and serving millions of people each year, Delta employs a smart route management system − Hub and Spoke (H&S). Compared to a point-to-point system that implies boarding at the flight origin and taking off at the destination, H&S requires passengers to make a transfer at the hub before flying to the destination (Cook & Goodwin, 2008, p. 52). The given approach is associated with greater flexibility as it allows passengers to travel from any place to any part of the world by making just one connecting stop. At the same time, with this strategy, Delta achieves greater cost efficiency because the smaller number of aircraft is required (Cook & Goodwin, 2008).

International Business Model: Joint Venturing

After the limits on the entry to new markets were reduced and some previously controlled routes became accessible, Delta started to expand its reach across the globe. Currently, Delta has joint ventures with such business giants as Air France and Virgin Australia (Banstetter, 2015). Moreover, it continues to invest in partnerships with leaders in the industry from different parts of the world including China Eastern and others. As Banstetter (2015) notes, international collaboration is regarded by Delta’s management as “a major competitive advantage” (para. 1). This statement seems valid because these partnerships opened new opportunities for the airline’s success.

According to Greenwald and Kahn (2005), compared to the domestic market, the global market has no boundaries and allows companies to pursue various goals. However, it is much more difficult to sustain competitiveness in the non-restricted economies because new entrants trying to “grab a share of the profits” will continuously appear (Greenwald & Kahn, 2005, para. 1). As the researchers observe, to dominate its rivals, not only should the international company remain flexible in its moves but also localize its strategies (Greenwald & Kahn, 2005). It means that every player in the global market should pay attention to the situation in the hosting environment to understand the actions of local competitors. In this way, one may attain “privileged access to customers or suppliers” and consequently earn superior returns (Greenwald & Kahn, 2005, para. 1).

Among all possible entry modes, joint venturing can be regarded as one of the most beneficial because the strategic alliances established by using the given model are meant to improve the long-term competitiveness of both parties. Moreover, they are rooted in the idea that “each party has something unique to contribute to the partnership” (Gunnarsson, 2011, p. 14). For instance, Delta’s partnership with China Eastern pursues mutual benefits and is associated with shared control. It is possible to assume that by using joint venturing as the primary internationalization technique, Delta avoided significant financial losses and reduced the costs linked to entering a culturally distant market.

In support of this assumption, Gunnarsson (2011) claims that, compared to sole venture mode or direct investment, an indirect way of investment in the market induces lower financial risks. However, joint venturing could significantly slow down Delta’s expansion progress and lead to difficulties in the development of relationships with local customers due to reduced brand recognition. However, slow temps of expansion may benefit the organization in the accumulation of necessary experience and the learning about customer preferences. Thus, Delta’s cautious approach to internalization can be regarded as a smart strategic decision-oriented towards long-term goal achievement.

Employee Culture as a Factor for Financial Success

It is possible to say that, employee satisfaction is another major Delta’s goal in its strategic management. Recently, the company was included in Fortune’s 100 Best Companies to Work For − the list of international enterprises acknowledged for their leadership quality, excellent relationships among staff members, and high level of job satisfaction among employees. Although the airline industry is seen as one of the most stressful and turbulent, employees at Delta seem to love their jobs. According to Roberts (2017), a unique reinforcement and motivation system is the reason for this. For already a few years, the company implements a profit-sharing program and pays large monetary bonuses to its staff members, i.e., 10% of annual pretax revenue (Roberts, 2017). It shows that Delta values its personnel and, moreover, links employee interests to its financial success. In this way, the company became efficient in motivating team members to integrate the major corporate values, such as empathy for customers, humbleness, and a sound attitude to competition, into day to day professional practice.

It is possible to say that rewards paid to employees play an essential role in improving organizational productivity and efficiency. As stated by Wei and Yazdanifard (2014), extrinsic rewards as salary, promotion, and other financial bonuses, and intrinsic rewards including empowerment and recognition are core to positive reinforcement and elimination of undesirable behaviors in personnel. The researchers observed that when the reward system is directly affected by the employee and overall organizational performance, as in the case of Delta, not only the financial indicators can be improved but also employees’ commitment to their job duties increases proportionally (Wei & Yazdanifard, 2014). Thus, by receiving highly competitive salaries, Delta’s staff members feel valued, and the feeling of recognition is that what makes them work harder, comply with professional standards, and contribute to the company’s improvement and thriving.

Recommendations and Solutions

The findings demonstrate that Delta has both strengths and weaknesses. The extensive international flight service and a good employee reward strategy are among the strong aspects of the performance, while such a company’s core competency as luxury and provision of amenities does not generate too many advantages for Delta even though attracts some specific customer groups. Up-scale service does not allow the airline to enter into a variety of markets and compete based on price. Moreover, it can be easily imitated by competitors (Baumwoll et al., 2008). However, Delta’s current strategic orientation will likely not allow it to be successful in the low-cost market. Therefore, in the future, the company should rather focus on the development and exploitation of its unique employee and customer culture, as well as international expansion.

Since 2007, shortly after the bankruptcy event, Delta managed to become one of the leaders in return on assets in the industry (Baumwoll et al., 2008). Mainly, it happened because international flights are more profitable than domestic ones. Thus, it can be recommended for Delta to continue to invest in international partnerships and avoid competition with low-cost carriers at the domestic market. The further diversification of the enterprise’s international capacity can be considered a major factor for its sustainability.

Marketing promotion and the use of the company’s core competencies in the advertising campaign can be recommended for Delta as well. By focusing on quality, the airline makes it clear that it values customers and aims to increase their satisfaction. Additionally, it appreciates employees by treating them fairly and sufficiently rewarding them. Since Delta strives to establish positive relations with diverse stakeholders and add value to business operations, in promotion activities, Delta should refer to the fact that it aims to contribute to the welfare of people in general. It also can focus on an exceptional commitment of employees to customer satisfaction and quality, and emphasize its ability to create unique experiences for customers.

Conclusion

Despite all previous difficulties, Delta achieved great success and became one of the leaders in the US airline industry. An innovative approach to service, focus on customer value, and employee motivation, efficient route structure, as well as an extensive differentiation of international capacity, helped the company to get out of the grip of bankruptcy and significantly improve its financial performance. Although Delta cannot control a highly turbulent and ever-changing environment in which it operates, its experience shows that, throughout the time, it was able to differentiate itself from competitors. In the current management vision, the airline provides excellent customer service and continues to grow in the international market. If it can foresee all possible risks that may occur in the overseas market, there are all chances that Delta will thrive for a long time.

References

Banstetter, T. (2015). Investor Day: Delta lays out strategy for sustained success.Delta News Hub. Web.

Baumwoll, J., Howland, B., Kruse, J., Lamb, S., & Shepherd, J. M. (2008). Delta Airlines: An analytical view. Recommendations to succeed in the airline industry. Web.

Cook, G., & Goodwin, J. (2008). Airline networks: A comparison of hub-and-spoke and point-to-point systems. Journal of Aviation/Aerospace Education & Research, 17(2), 51-60. Web.

Greenwald, B., & Kahn, J. (2005). All strategy is local.Harvard Business Review. Web.

Gunnarsson, A. (2011). The selection of entry modes when penetrating a foreign market –A research study on the education institutes choice of entry mode. Web.

Jiang, L. (2016). Introduction to the pricing strategy and practice. Web.

Roberts, J. J. (2017). How Delta landed on the 100 Best Companies to Work For list.Fortune. Web.

Wei, L. T., & Yazdanifard, R. (2014). The impact of positive reinforcement on employees’ performance in organizations. American Journal of Industrial and Business Management, 4(1), 9-12. Web.

Delta Airlines, Inc. is one of the fastest growing global airlines. Recent data indicates that the airline is a prolific profit earner (Jones, 2013). It employs over 80,000 workers worldwide and has a turnover of about $ 277.6 billion. The company has many classy and luxury aircrafts.

Every year, Delta Airlines expands and gains international acceptance. The company’s operation and management plans have attracted millions of clients making it the top the largest carrier of passengers with approximately 348 destinations worldwide (Jones, 2013). Delta Air Lines has won several excellence awards. Its workforce is diverse as its employees come from different countries across the six continents it operates.

The success of the company is attributed to the hiring of diverse and experienced workers. Besides, the company has greatly motivated its employees through better remunerations.

The Company has gone an extra mile in promoting the employee’s skills and expertise. The above is achieved through training seminars and allowing workers to further their education. Another factor is the conducive and fascinating working environment offered by the company. The article below focuses on the human resource management programs of the airline.

Recruitment, selection, and orientation

The company has put in place appropriate sourcing policies that attract a diverse variety of high-performing candidates (Jones, 2013). The approach has made the company to be a competitive employer internationally. The company has also implemented a transparent hiring procedure, which guarantees objective selection using pertinent criteria.

Through this, the company has been able to attract competitive and competent candidates (Volberda, 2012). Delta Airline’s orientation processes guarantee that new employees are informed about the company’s values, objectives, key policies, and measures.

Performance management

The company has installed a cyclical performance management system (Jones, 2013). The platform enables the firm to assess and rearrange performance targets between employees and supervisors. The system also aligns performance assessment principles with approved research success factors.

The airline’s management understands that extreme regulations or rules imposed with poor verdict are counterproductive. As such, the company’s vision, mission, and strategic objectives are some of the boundaries guiding the company’s employees.

Staff development

In Delta Air Lines, employee development is connected with performance management procedures (Jones, 2013). The company also conducts regular training and seminars. Similarly, employees are given scholarships to encourage them to further their education.

In Delta Air Lines, training is conducted to inform the employees about the company’s goals and objectives, changes in airline standards, and ways of surpassing customer expectations. Training helps the company to move forward and aim at their objectives. It also encourages employees to increase their productivity, reduce their turnover, decrease the need for supervision, improve safety measures, and increase their capabilities to use new technologies.

Remuneration and rewards

The airline acknowledges that recruitment and hiring of new employees contribute to the increase in operating costs (Jones, 2013). Therefore, the company has adopted a competitive reward scheme to reduce the employee turnover. Because the firm is among the top airlines in the world, the company’s reward system is competitive in the airline industry.

As such, the airline’s reward scheme indicates the individuals to be awarded and the reason behind the rewards. The practice has enhanced individual performance and firm’s outcomes. The reward scheme balances with the organization’s culture.

Areas that require improvement

Following the current economic situations in the aftermath of 2008-2009 recessions and increase threat from terrorism, the airline industry acknowledges that undue and poorly controlled risk could result in financial damages (Siegel, 2015). In this respect, the airline should come up with a custom-made risked management system.

The program should comprise of risk documentation, risk evaluation, risk monitoring, and risk control. Comprehensive risk management plans will enable the airline company to take risks knowledgeably, decrease risks where suitable, and endeavor to plan.

References

Jones, G. (2013). Delta Air Lines. Charleston, S.C.: Arcadia Pub.

Siegel, D. (2015). Special Issue of Strategic Organization. Strategic Organization Journal, 13(2), 163-165.

Volberda, H. (2012). Strategic Flexibility Creating Dynamic Competitive Advantages. Oxford Handbooks Online, 14(3), 23-34.

Introduction

Delta Airlines is one of the oldest American airlines that was founded in 1924 as a small aerial crop dusting operation (“About Delta” par. 1). Nowadays, it is a large global airline with more than 160 million customers using its services annually. Like many other airline companies, Delta faces the challenges caused by the changes in fuel prices, the frequency of terroristic attacks in the air or airports, and the necessity to stay competitive in the market. Any successful manager should understand the importance of a properly chosen strategy in the company and the worth of all actions taken and the decisions made.

In this report, Delta will be analyzed in terms of its strategic alignment, competitive advantage, marketing achievements, customer value, and profit propositions to clarify if its business model and current strategy are successful enough not to change it but promote its development.

Current Strategy of Delta Airlines

Delta Airlines spends much time and effort to analyze its current situation and the changes it can be promoted regarding the actual state of affairs. The latest reports of the company show that Delta, as well as other airline companies in the USA and the whole world, faces the problem caused by the changes in jet fuel prices. Even if these prices fell at the end of 2014 (“Delta Air Lines INC: Form 10-K” 4), fuel expenses remain one of the main problems for the company.

Therefore, Delta tries to focus its strategies on the improvement of the situation and the creation of control over such types of expenses. For example, the idea to own a refinery to contain fuel costs seems to be a unique strategy introduced by the company because Delta can manage its fuel costs in a variety of ways (Cederholm 10). For example, Delta’s attempts to purchase agreements and practice fuel hedging are not new, but the idea to operate a refinery makes it unique and competitive. Also, Delta is involved in numerous activities to reengineer the business model to promote high employee engagement and gracious customer service (“Richard Anderson: Chief Executive Officer” par. 2).

Strategic Alignment

The VRIO framework is the tool to be used to comprehend if the company under analysis succeeds in choosing actions, articulating its goals, and making the decisions that influence the quality of life of the company. Regarding the question of value (Frynas and Mellahi 121), Delta continues extending its reach to customers using partnerships with Alitalia and other trans-Atlantic joint ventures (“Richard Anderson: Chief Executive Officer” par.3) and developing the refinery strategy that helps to reduce fuel costs (Cederholm 10). Regarding the fact that not many companies can use the same strategies, the question of rareness gets a positive answer because the resources of Delta are competitive indeed. Besides, its activities are hard to imitate due to the way the company is organized and focused on the goals to be achieved.

Competitive Advantage

To stay competitive, Delta tries to distinguish it from its competitors. The idea to buy a refinery is one of the most powerful decisions made by the company because it helps to increase fuel supply, reduce fuel prices, and stay confident in the quality of fuel used (Cederholm 10). Cooperation and the establishment of productive relations with customers are the other aspects of the work done by the company. Delta has already implemented a flyer program with the help of which customers can get benefits and enjoy the opportunities offered. This program introduces the incentives to customers and increases their desire to travel on Delta (“Delta Air Lines INC: Form 10-K” 5). All these decisions and the abilities to combine the financial benefits, customer satisfaction, and employee motivation underline the efforts of Delta to resist the power of its main competitors that are Southwest, United, and American.

Market Achievements

The results that have been achieved by Delta show how effective and responsible the company can be. The demonstration of sustainable positive financial results, investments in healthy communities, and the protection of natural environments help to not only satisfy the legal obligations but also to provide Delta’s stakeholders that are all investors, employees, customers, and partners with clarity and confidence (“Corporate Responsibility” par.1).

Risk Activities

Delta has established a framework that aims at addressing and analyzing risks in the form of the ERM process (“Delta Corporate Responsibility Report” 13). Therefore, the company protects itself against the activities and unethical decisions that may put the company at risk. Intense competition, fuel prices, and dependence on the North American market are the main risk factors that should be considered. Besides, Delta has some problems with its reputation, and its brand and image have been considerably worsened during the last several years. Therefore, it is necessary to focus on customers and their possible contributions to the company.

Company’s Viability

Successful leadership, attention and respect to customers, and investigation of fuel price policies should help Delta achieve high results, overcome the challenges, and introduce the services that can impress people and save the company’s money.

Leadership

Richard Anderson is one of the successful examples of leaders in the company. His abilities to combine his personal aviation experience with the needs of the company are impressive. When he joined the Board of Directors and became CEO, he made several changes to underline the role of customers in the company and the necessity to think about cost control (“Richard Anderson: Chief Executive Officer” par. 2).

Works Cited

About Delta n.d. Web.

Cederholm, Teresa. “Delta’s Unique Strategy: Owning a Refinery to Contain Fuel Costs.” Market Realist. 2014. Web.

Corporate Responsibility n.d. Web.

Delta Air Lines INC: Form 10-K (Annual Report) 2014. Web.

Delta Corporate Responsibility Report 2014. Web.

Frynas, Jedrzej, George, and Kamel Mellahi. Global Strategic Management, New York, NY: Oxford University Press, 2015. Print.

Richard Anderson: Chief Executive Officer n.d. Web.

Delta Air Lines is the biggest commercial airline in the world, considering its capacity and the number of airplanes it operates. The company is the oldest commercial flight airline that is still in service in the world, with the first flight taking off a few years after invention of the airplane. This airline started as a pest controller. It owned one airplane used to spray pesticide on farmlands.

The pest control operations began in 1924, and lasted for a short while before the company turned into a commercial passenger flight airline in 1929. The airplane used for pest controls was turned into a single passenger plane, and was operated in the southern region of the United States (Jones 9). Delta airlines metamorphosed into a modern airline after the Second World War. Comprehensive assessment determines that the airline is the biggest company in its line of business.

Delta Air Lines has undergone rebranding several times throughout its life. The company was founded as Huff-Dalland Dusters, a company specializing in pest control using airplanes. In 1928, an American entrepreneur purchased and rebranded the company. She named the new company Delta Air Service. The company’s name has remained much the same, with little variation even after merging with other companies (Jones 52).

The chief executive officer of the airline is Richard Anderson, while Edward Bastian is the president. In addition, the company is governed through conventional board of directors consisting of thirteen members. The company has a corporate management and particularly avoids combative approach in dealing with its employees (Szurovy 140).

Since the airline owns a number of other smaller companies, it is essentially a conglomerate (Mouawad 14). Hartsfield Jackson international airport serves as the head office for the Delta Air Lines. However, the airline operates other hubs in the United States and most of Europe.

The company gets most of its supplies from the American aircraft manufacturer, Boeing, which supplies most of the aircrafts used by the airline. European plane maker, Airbus, comes second as a supplier. MacDonnell Douglas, which merged with Boeing in the late nineteen nineties, was also one of the major suppliers for the airline. The airline has several other companies supplying foodstuffs and other in-flight requirements.

Delta Air Lines specializes in the aviation business, and has not ventured into any other business line on a major scale. However, the airline has recently ventured into petroleum business after buying a refinery in Pennsylvania. The company cited rising fuel costs as the major incentive that motivated the airline to venture into fuel business.

The fuel business is a processing plant business rather than a manufacturing business. Frequent fuel crises and fluctuating prices have affected the airline’s management and planning. The company is slowly switching to its own fuel supply.

Problems Faced by Delta Air Lines

Delta Air Lines serves all continents and has major operations in Europe, separate from its operations in North America. In the last decade, after the September 2001 terrorist attacks using hijacked aircraft, a combination of factors led to difficulties in the airline marketing (Jones 33). In addition, pilots in have been involved in confrontations over salaries with the airline management.

This problem was compounded by the company’s history of commitment to paying high wages to its staff. However, the airline is a good performer in service provision and employee relations (Szurovy 144). Due to its commitment to its employees and customers, the company does not make as much profit as its size suggests.

For several times, some of the airline’s employees have tried to form unions. To avoid frequent confrontation between the management and the employees’ unions, the company leadership decided to continue to enhance its commitment to the relationship between the employees and the company. The airline exposes itself to a risk of insolvency in case of a major crisis.

Recommendations

Decentralization Of Company Operations

In 2001, most companies affiliated to Delta Air Lines had the word, “Delta”, in their brand name. It is important for the airline to divide its large enterprise into smaller semi-autonomous companies with different brand names.

Justification

In case one of the companies is experiencing financial difficulties arising from the effect of an unpopular brand name, it will not affect the whole enterprise. This will also help to avoid mass defection of loyal customers such as that experienced in 2001. In this case, profit will be generated separately.

Harmonization of Labor Policies

Employees acquired from mergers have their own labor policies. If Delta Air Lines harmonizes the policies that it uses to deal with all employees, it can avoid frequent confrontations between the management and the pilots.

Justification

If one policy is negotiated for all employees, disparities in the relations between the management and sections of the employee community can be avoided. This is because most of the disagreements arise from disparities in the way the employees are treated.

Diversification of Services

To establish security for its stability, Delta Air Lines needs to diversify its services such that its different sections offer varying services to different customers.

Justification

Services offered throughout Delta Air Lines are uniform. In case of poor demand for these services, the company risks insolvency. Diversification and differentiation of services can protect the airline from extreme fluctuations of the level of demand in the commercial airlines industry (Mouawad 16).

Works Cited

Jones, Geoff. Delta Air Lines: 75 years of airline excellence. Charleston, SC: Arcadia, 2003. Print.

Mouawad, Jad. “.Delta-Northwest Merger’s Long and Complex Path.” New York Times 1.May (2011): 16. Print.

Szurovy, Geza. Classic American airlines. Osceola, WI: MBI Pub. Co., 2000. Print.

Economic analysts viewed Delta Airlines’ resolution to acquire the Trainer refinery as a risky endeavor. The experts predicted that the airline would not succeed from the diversification measure. The refinery had closed business in September 2012 due to high operating costs. Delta decided to engage professionals in the airlines industry in order to realize its integration project.

The airline did not have prior experience in the energy industry. It had to conduct an empirical study in order to measure the worth of the diversification procedure. The company decided to change its operations strategy in 2012. It resolved to shift from the adoption of a business plan to a corporate one. The airline began to experience progress after the integration.

A corporate strategy involves diversification and integration mechanisms. These plans incorporate the organization’s scope of activities. Delta Airlines decided to buy an oil refinery from ConocoPhillips at $150million. The diversification strategies seemed appropriate for the airlines in terms of helping it to gain competitive advantage in the industry. The company hoped to increase its profits through its diversification strategy. The airlines would manage its risks efficiently and expand its markets.

The organization’s acquisition of the oil refinery would cater for future increments in the prices of jet fuel. The company envisioned that it would save $300million annually once it started running the refinery. Delta Airlines intended to meet its diversification costs in a cost effective manner. The business estimated that the costs of entry would be below the envisaged profits. The airlines would have to purchase 60 new narrow-bodied planes that would cost about $2.5billion. This aspect would reduce the costs of fuel for the airline company.

Delta Airlines contracted BP to supply it with crude oil. The airlines planned to exchange petroleum products from its newly acquired refinery for jet fuel. The company incorporated the idea into its vertical integration mechanisms. The concept of vertical integration refers to the purchase of a supply chain of a given company by another related group.

The two businesses must however produce similar products in order for them to achieve their business goals. The acquisition of the refinery would thus help Delta Airlines access cheap jet fuel. This paper evaluates the fuel costs of an airline company to be a third of its total operating expenses in a given fiscal period. Delta Airlines would gain a competitive advantage over its rivals by $40billion.

Delta Airlines may benefit from the vertical integration. The company may gain from the economies of scale due to the reduced costs of inputs and raw materials. The business may reduce its transaction costs of deals with small firms, taxes, regulations and specific investments. The vertical incorporation may help the company achieve monopoly of trade in the airlines industry. This aspect may be enhanced by the low fuel costs that the Delta Airlines may incur as opposed to its business rivals.

The fuel savings may be used by Delta Airlines for other productive investments. The airline may however incur certain costs due to static technology. The team may need to adopt new technologies in order to cope with the diversification project. New technologies may bring about different scales of operation at every stage of the integration process for Delta Airlines. The uncertainties of the integration procedure may bring about losses for the airlines due to unforeseen costs. The divergent scales of operation may create management issues like new departments to cater for the refinery challenges that may include costs and differentiations.

The adoption of diversification plans by Delta Airlines may enhance the spread of risk due to the creation of new operational and management objectives. The combination may cause inflexibility in coping with demand patterns and technological innovation. Delta Airlines may need to develop new software for its diversification venture. The organization may also create new plans to cope with increased numbers of customers.

Delta Airlines may face the risk of failure in its diversification initiative. The share value of the group may have increased by 11% in 2012 due to investors’ confidence in the integration. The refinery must be managed by experts. This approach may boost the success of the integration due to professionalism. Diversification strategies that involve acquisition of assets may at times reduce shareholders’ value of particular companies. The mechanisms may only satisfy the decision makers of the organization in the initial stages.

Investors appreciated Delta Airlines’ acquisition of the Trainers refinery. This aspect meant that the diversification plan increased shareholders’ value. The integration passed Porter’s three tests. It passed the aspect of entry test that stipulates that the cost of purchasing the refinery and the take-over for the Delta Airlines must be met by the airlines’ profits. The diversification passed the better-off test that dictates that the refinery achieve competitive advantage over other refineries in the market due to its association with Delta Airlines.

Delta’s diversification decision will be appropriate. First, the Trainer refinery will obtain financial synergy in which the probability of failure of the refinery will be minimal. The sales of the plant will increase hence creating profits for the unit. Delta Airlines will gain a competitive edge over other airlines. The production of gasoline for exchange with jet fuel for Delta Airlines will boost the operation costs of the airlines.

Delta Airlines and the Trainer refinery will pay minimal taxes due to the integration effort. Their values will be merged and taxed as a single income. Delta Airlines will assume control of the market because it will dictate prices of air transport. The organization will also create stiff competition for all airlines. Other airlines will strive to control the industry. Delta Airlines and the Trainer refinery will benefit from shared human resource personnel, ideas and profits.

The companies will also gain from tangible resources like distribution channels, and data. Delta Airlines will benefit from substantial economies of scale like general management issues, purchase of primary inputs for the refinery and reduced transactions’ expenditure and access to data.

The airline may encounter administrative challenges that may derail its operations management. The difficulty may result from the harmonization of departments of the two organizations. The units may also adopt different strategies of profit maximization. The executive boards of the two companies may need to streamline their human resource and decision making processes.

The decision to acquire the Trainer refinery was an appropriate one for the Delta Airlines because the two companies would benefit from the integration process. The companies may resolve challenges that may arise from the diversification process at the level of the management of the two businesses. The airline may need to continue conducting research on ways of improving the business integration process.