Delta: An Oligopolistic Market Essay Example

battles by offering the lowest travel costs possible to outperform their competitors. As a result, profits decline and, in certain instances, airlines are compelled to cease operations.

Finally, in 1938, the Congress acknowledged the potential failure of many airlines due to the lack of change in pricing policy. This realization led to the development and implementation of the Civil Aeronautics Act (Bennett & Craun, 2008). The airline industry is commonly associated with its overall elastic nature, although it is important to note two distinct factors: business customers and non-business customers. The demand for air travel is highly responsive to changes in price and therefore considered elastic.

According to Buck (2008), an increase in ticket prices leads to a decrease in ticket sales. This decrease is especially noticeable among business customers, who are less likely to cancel their tickets despite the high prices. On the other hand, changes in ticket prices do not greatly affect the reasons why people buy tickets.

Even though the prices are relatively higher, customers will still have to fly, which adds an inelastic blaze to the product mix. If a business is able to have some tax exemptions to power their pricing policy, they can disregard the price factor. The concept of elasticity of demand is crucial as it leads to a cutthroat competition situation where competitors battle out each other wildly. If the airline industry consisted of business customers, the ideal of cutthroat competition would not be a factor (Daft, 2001).

The air travel industry can experience greater competition when substitutes are available, as there is a flexible demand for air travel. Both business and non-business

customers have the choice to use these alternatives, but they are more commonly used by non-business individuals. This is because business people generally prefer faster modes of transportation. If airline ticket prices rise significantly, passengers would opt for alternative modes of travel due to their lower cost in comparison to airlines (Buck, 2008).

Delta Airlines is a company based in Atlanta that offers air transportation services for both passengers and freight worldwide. As of February 1, 2001, Delta operated flights to 201 domestic cities spanning across 45 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands. Furthermore, they provided their services to an additional 50 cities in 32 countries. Through code share partnerships within the United States and globally, Delta's extensive route network covers a total of 218 domestic cities excluding only two states and extends to encompassing 131 cities across 58 different countries (Delta: Destinations covered, 2009).

When examining Delta's historical financial and operational data, one of its greatest strengths is its position as the largest U.S.-based airline in terms of aircraft/flights departures and passengers traveling on their planes. It ranks as the third largest in terms of operating revenues and revenue passenger miles flown. Additionally, Delta stands as the top U.S. airline in the transatlantic market, with the highest number of daily flight departures, serving the largest amount of nonstop markets, and carrying more passengers than any other U.S. airline.

Delta Airlines stands out as the leading airline globally in terms of passenger count, having successfully transported over 117 million passengers. This remarkable achievement sets Delta apart from its competitors, making it a milestone that no other

company has reached (Delta Airlines: Company History, 2009). The airline's ongoing commitment to cost reduction and meeting customer demands plays a vital role in its success. These efforts are especially crucial in an industry known for intense competition.

Delta airlines has been a competitor in the airline industry, competing directly with major rivals like United Airlines, Continental Airlines, and Northwest Airlines. Delta's low-cost strategy has forced these competitors to adopt a more limited approach in order to survive (Delta and Northwest Merge, Creating Premier Global Airline, 2008). Analysts on Wall Street expect that other carriers will closely watch whether Delta can maintain its business travelers and respond accordingly.

The high difference in prices between last minute and advance bookings on major airlines like United Airlines has frustrated many corporate clients and travelers in recent years. As a result, these travelers have turned to online bookings or budget carriers to manage their travel expenses. Delta needed to have efficient operations to stay competitive in the airline industry.

Despite challenges like changing economic realities, weather conditions, and unexpected maintenance issues, accurate advanced planning is almost impossible. Delta Air Lines operates in a highly competitive industry, with its two largest competitors being American Airlines and United. To stay competitive, Delta had to rely on technologically efficient systems. However, their operations were mainly reliant on paper and pneumatic tubes for information transfer, with little utilization of the internet.

Due to its fragmented technology acquisition and IT staff hiring, the company lacked competitiveness. In 1996, Delta was notorious for high airfares, poor service, cramped seating on flights, and outdated processing systems. The entry of low-cost carriers

such as JetBlue, Southwest, and Airtran intensified competition in the airline industry by luring customers away from major airlines.

Buck (2008) stated that Delta observed a higher percentage of customers, 40%, opting for low-cost carriers compared to other airlines. To stay competitive, Delta's management devised an enhanced business strategy focused on upgrading and enhancing their information system through the integration of advanced technology. This planned system would efficiently transmit crucial data to all relevant systems, meeting the specific requirements of their business.

For instance, modifications like a ticket sale, flight delay, landing time adjustment, or gate change must be promptly communicated to various systems. This ensures that passengers, flight crews, food companies, baggage handlers, control tower staff, and even Delta's executive management are aware of the updates regarding any Delta flight that concerns them. In addition, Delta recognized the need for an advanced telecommunication system due to an average of 200 gate changes on a typical day with good weather.

Delta requires advanced telecommunication technology to connect its applications and databases, enabling data access from any location. To accomplish this, a new information technology infrastructure must be implemented. Implementing the planned Delta information system (DNS) could potentially save Delta hundreds of millions of dollars per year. Moreover, TIBCO was chosen as Delta's messaging software for its high processing speed.

TIBCo reports that Delta employed software in 2009 that could manage 40,000 events per second and 180,000 messages per second. This software acts as a tool for monitoring network traffic, informing applications of significant messages during data entry. It also operates as a system for relaying data, rapidly transmitting it to all

required computer systems for any modifications or transactions. Presently, American Airlines are facing various challenges that will ultimately have an adverse effect on their profits.

Delta Airlines plans to create a new low-cost competitor called Delta Song, which would be the first major carrier to do so. The decision is driven by the dominance of low-cost carriers like Jet Blue in the market for flights between New York and Florida, where they currently hold more than 80% of the market share. The launch of Delta Song will require an investment of $75 million. The main idea behind Delta Song is to use only Boeing 757 aircraft, which will have comfortable leather seats and interactive monitors that allow passengers to watch pay-per-view movies, play interactive games, and shop online.

The operation of song flights will be between specific cities, with shorter turnaround times for song planes at 50 minutes between arrival and departure. The expected daily flight duration is approximately 13 hours, representing a 23% increase compared to Delta's main line. Delta Airlines has consistently highlighted its significant cost advantage, leading to increased demand for bookings and attracting more passengers who prefer traveling with Delta over other airlines.

Delta Airlines, along with other major players in the industry, has suffered significant financial losses during the recession due to decreased air travel demand. Former higher management staff from rival airlines have expressed concerns about the challenging macroeconomic conditions that affect the entire industry. These conditions make it tough for other airlines to compete with Delta in terms of cost and introducing new services, which come with additional expenses on top of recurring costs (Hinton,

2008).

It is widely acknowledged that the airline industry cannot thrive without some degree of regulation. Excessive regulation has already stifled the industry, rendering it inflexible and inefficient. To ensure efficient operations, the airline industry should be deregulated to a large extent. However, certain aspects of the industry still need to be controlled in order to avoid potential issues.