Delta Air Lines (A): The Low-Cost Carrier Threat Harvard Case Solution & Analysis

Delta Air Lines (A): The Low-Cost Carrier Threat Case Solution

Problem Statement

The major problem, which the Delta Airlines is facing is of the sustainability issues in the presence of low cost carriers, which are providing solutions to the customers according to their needs and budget. The company is not able to earn sufficient profits for its real owners, which could contribute towards significant threat for its future.

Industry Analysis

In order to analyze the airline industry, to reveal the real facts that are contributing towards the profitability of any business, the Porter 5 Forces Model is used. It can be seen that the federal government has passed an act, which could help the airline companies to recover from the loss of threat. However, despite of its existence, the margins decline significantly. In addition to this, there were a number of companies in the industry that went bankrupt in the year 2002 coupled with number of layoffs of employees working in such companies. The deregulation act on the other hand also resulted negatively on the profitability of various companies in this industry. The industry was faced with issues in terms of number of complaints from the customers regarding their reservations, boarding, customer services, and their baggage. The overall cost increased significantly in terms of fixed cost as well as labor cost, this overall situation resulted in a shift in the industry’s approach and focus on hub and spoke model, which could provide significant market share in the industry. The effectiveness of this model attracted every player in the market to adopt this model, except Southwest Airline in 2002. Customers were highly attractive to that supplier, who could not only provide quality services but other entertainment alternatives as well. Furthermore, reasonable price was the second most important significant factor. All these issues contributed significantly towards threats for the other legacy carriers. It can be seen from the variety of suppliers in the industry that JetBlue is providing the most attractive services with the least cost, which could be a significant threat for the huge players in the market. The adoption of the advanced technology and the inclusion of internet facility for the customers to book their orders provides quick solutions for its customers.

Porter 5 Forces Model

Bargaining Power of Buyers

Previously when there were no issues economically, the bargaining power of buyers was low and with the help of government regulations, the setting of fares as well as the assigning routes was done very easily. However, after the deregulation act, this power became significantly high because of easy entrance of more players in the market, which could offer various services for the least cost. Moreover, the presence of internet allows customers to shop for travelling within their budget easily. The overall situation negatively affects the legacy carriers in the market.

Bargaining Power of Suppliers

The power of Suppliers has varied significantly from low to high. It can be seen that the major suppliers in this industry are labor unions that have strong power. Other major supplier includes the supply of fuel for the industry. It can be seen that this power is medium for the industry as a whole since the prices increase significantly, which could be managed with the help of other hedging alternatives and by innovative flying techniques. Last but not the least, the company’s supplier is an Air Craft Manufacturer. The power of this supplier is relatively very low since there are a variety of leasing opportunities available for the companies in term of either Boeing or Airbus.

Threat of Substitutes

Substitutes in this particular industry are the presence of Bus, Cars, or Railways that can perform a similar task, but for shorter routes....................

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