REV: JANUARY 25, 2005
JAN T. RIVKIN
Delta Air Lines (A): The Low-Cost Transporter Threat
The most dangerous competition we deal with is certainly not United. It can not American or Southwest or Continental. It's cheap competition via companies just like JetBlue or Southwest. вЂ” Leo Mullin, Delta Leader and Leader Officer1
In March 2002, a cross-functional task pressure convened by Delta Air Lines' hq, on the grounds of Atlanta's Hartsfield International Airport. Mark Balloun, vice president of corporate strategic planning and one of squad race leaders, described the situation: The process of cheap competition by carriers just like Southwest and JetBlue have been building for a long time. We had been looking at the condition for a long time, although because Delta is structured by function, solutions aimed at individual regions of the company. The marketing firm provided marketing ideas, the customer service corporation offered customer care ideas, and so on. We failed to have an extensive response to low-cost carriers [LCCs] across features, and pressure from the plank made it crystal clear: we needed one. All of us promised the board we might propose a great LCC technique at their July getting together with. 2 With four weeks left before the board conference, the task power considered Delta's options. Among the list of options available was the probability that Delta would start its own low-cost subsidiary. Almost all of00 the major air carriers, including Delta itself, acquired launched these kinds of subsidiaries in the recent past. Although airlines rarely unveiled the economic results with their subsidiaries, sector observers believed the low-cost efforts introduced to date had been either failed experiments or unsustainable as time passes. " Coming from never found a high-cost carrier transform itself in a low-cost company, вЂќ stated Darrel Jenkins, director from the Aviation Company at George Washington College or university. " They'll still be a highcost jar selling cheap seats. вЂќ3 With or without a cheap subsidiary, Delta would have to discover a way to deal with LCCs and do and so in the midst of one of the most challenging conditions the flight industry experienced faced in decades.
The Airline Sector in the United States
In nearly a century since the Wright brothers' historic flight, the U. S. airline industry had grown huge, moving more than 620 million travellers and collecting over $81 billion in fares in 2001. four Size, however , had not helped bring profitability. Since deregulation in 1978, airline margins were ________________________________________________________________________________________________________________ Professor Jan W. Rivkin and Study Associate Laurent Therivel well prepared this case. HBS cases are developed entirely as the basis for discussion in the classroom. Cases aren't intended to serve as endorsements, types of primary info, or illustrations of powerful or useless management. Copyright В© 2004 President and Fellows of Harvard University. To buy copies or request authorization to replicate materials, call up 1-800-545-7685, create Harvard Organization School Publishing, Boston, MOTHER 02163, or perhaps go to http://www.hbsp.harvard.edu. No part of this newsletter may be reproduced, stored in a retrieval system, used in a spreadsheet, or perhaps transmitted in any form or by any kind of meansвЂ”electronic, mechanised, photocopying, saving, or otherwiseвЂ”without the authorization of Harvard Business School.
Delta Air Lines (A): The Low-Cost Carrier Threat
persistently well under the average to get U. H. industries. five For each of the five major carriers, the standard return on investment within the 1990s was below its expense of capital. 6 The terrorist problems of Sept. 2010 11, 2001, brought disaster to an previously troubled sector. In the awaken of the problems, demand for air travel declined sharply, sending sector profits to a tailspin (Exhibit 1).
The legacy of regulation To get 40 years ahead of 1978, the U. H. airline market had existed within a predetermined set of working rules beneath...