What is Delta Air Lines weakness?
Delta Air Lines of America is among the leading flight companies in the United States, with a capacity of ferrying over 200 million passengers every year and a workforce of over 80000 people all over the world. Nevertheless, the fact is that even some of the major and influential international airlines, for example, Delta company, have certain weaknesses in their business strategies and management.
Here are some of the main weaknesses of Delta Air Lines:
High Operating Costs Some scholars argue that legacy network carriers such as Delta Airlines have a particular problem with maintaining low operating expenses. Its operational cost per available seat mile (CASM) remains higher compared to other low-cost airlines, such as Southwest. A major part of Delta's expenditure includes labor expenses, maintenance costs, and the cost of aircraft. It has attempted several strategies, including aircraft acquisition, particularly newer and more efficient ones and improving productivity to lower unit costs. However, it has not been effective in dealing with the structural cost problems, and as such, Delta is disadvantaged in comparison to the leaner Airlines.
Commodity Dependency A significant share of Delta’s operating costs is oil and jet fuel, which are volatile costs easily affected by market changes. The nature of airline’s prices of commodities is highly cyclical, thus resulting in high fluctuating margins. Although Delta has put in place hedging strategies concerning fuel acquisition in a bid to minimize risks, it, like all the other airlines, is at the mercy of the global energy markets. The fluctuations in the prices of a commodity may greatly affect its earnings in terms of sales within a specific period.
Unionized Workforce Through this analysis, it is evident that many employees within the domestic operations of Delta are members of a union, which limits the amount of control that management has in containing the costs of human capital. Some of the past occurrences have included employee strikes and protests by pilots and flight attendants threatening to strike over better pay and other aspects of employee remuneration. These also affect consumer perception negatively and result in non-operating expenses, which erode profit.
Contract renegotiation with the unions has significant economic costs to Delta in the long term.
Dependence on Strategic Partnerships To support worldwide operations, Delta heavily depends on codeshare and interline agreements with global partners. These strategic associations with Air France-KLM or Virgin Atlantic, for example, may be altered or discontinued, which may impact Delta’s capacity to provide a global network. Its dependency on partners also implies a limited amount of control over passengers’ experience concerning Delta-coded international flights operated by partners. Anything that goes wrong with the strategic allies is also considered wrong with Delta as well.
Inconsistent Service Metrics Speaking of the passenger experience, Delta performs quite well in some areas, such as on-time arrivals, but far worse on other factors, such as mishandled bags and denied boardings. According to DOT reports, Delta denies passengers boarding without decent reason and handles checked baggage poorly compared to industry standards. Such figures are counterproductive for Delta, with its ticket prices being higher than those of many other airlines, thereby eroding its brand image. They suggest that the airline is experiencing challenges in the provision of efficient services due to a mix of traffic on one hand and issues of quality on the other.
Constrained Airport Access As compared with its rivals like United & American, which have airline hubs in various strategic airports in the USA, Delta lacks competitive airline hubs in certain strategic airports like Washington, D. C., San Francisco & Los Angeles. This restricts the company from arranging a seamless connection of domestic and international flights with such airports. These missing central airport locations limit Delta’s focus and attractiveness to business traffic within transcontinental routes. It also increases operating expenses because of the expenses involved in operating small hubs spread across the network.
Technology Limitations Even though Delta has stepped up its technology game in the recent past with initiatives such as biometric check-ins and personal device entertainment, the systems within Delta are outdated. Delta lacks modern airline IT applications as the company still uses old computer reservations and check-in procedures. Since the travel agency employs older technology, it is unable to integrate with other systems that enable many of the modern expectations of new-age flyers. It is even said that Delta still employs a reservations system from the 1960s. It also means that aged systems are laden with cybersecurity threats and also act as a barrier to innovation.
Significant Debt Burden Delta has heavily relied on long-term debt, which far exceeds its revenues and equity base, mostly due to aircraft and ground facilities acquisitions in the past. Delta reported $9. 8bn of net adjusted debt in 2018, and the company’s debt/EBITDA ratio was relatively high compared to other industries. Sustaining such large debt levels affects Delta Airways’ cash flows in ways that are not healthy for its growth. For Delta, it means that in periods of softer travel demand, it cannot control its very problematic debt costs, especially during the cyclical downturns for this industry.
Budget Carrier Competition In domestic markets
In many ways, the competition is much worse for Delta due to the entry of low-cost players like Spirit and Frontier, whose base airfares are significantly lower than Delta’s. To combat them, Delta has to rely on the segmentation of services and product features as its key strategic weapon. Nonetheless, the presence of low-cost airlines remains a restraint on Delta’s pricing strategy and long-term capability to cross-subsidize other routes. Ultra-low-cost carriers, namely Spirit, are also rapidly growing within Delta’s geography as well. Delta will need operational adjustments to address this intensifying competitive threat posed by lean, low-cost airlines in the decade ahead.
Therefore, despite Delta being one of the ‘big four’ airlines with a vast network, it is imperative to note that it has its vices. Some of the major strategic issues for Delta are high fixed cost, unstable external environment threats such as fuel prices and debt, tackling rigid human resource management, maintaining service quality across different functions, airport access to established domestic networks, addressing the budget airline fare war, and enhancing technology standards. By addressing these vulnerabilities for both cost structure and customer experiences, Delta will be equipped to stay ahead of the storms in the aviation industry.
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