Airline Strategy Analysis

Paper Summary:

In this article, the writer notes that there are two different major classifications of airlines, legacy carriers such as Delta Airlines, American Airlines and United with hub-and-spoke systems and newer low-cost airlines such as Southwest, JetBlue, and AirTran with point-to-point models. The writer notes that armed with lower airfares, low-cost carriers have already captured around 20% of the market and are rapidly gaining an even greater market share. The writer explains that most legacy airlines have at least one central airport that their flights have to go through and from that hub, the spoke flights take passengers to select destinations. This hub-and-spoke system is in sharp contrast with point-to-point models that fly directly between two small markets. The writer discusses that in the past, hubs enabled legacy airlines to provide frequent service to many cities with short layovers, but now many travelers are no longer willing to pay high ticket prices.

From the Paper:

"Because Delta has an expensive hub-and-spoke business models, weak financial performance, anemic consumer demand and higher energy costs, it doesn't make sense for it to try to compete solely on price. Instead, Delta needs to explore price discrimination to find those customers that are willing to pay more for airline services. Given weak demand, increased competition and a flat or marginally improving economy, one-to-one marketing practices are needed to find new customers and to justify their higher prices.
"On the Internet, airlines have access to personal data entered by the consumer (name, address, gender, email, phone, credit card numbers, travel preferences) surfing patterns and purchase history. This type of information provides unparalleled opportunities for price discrimination. Not only can Delta rely on supply-and-demand factors to formulate different prices for the same service, it can now use their wealth of customer data to charge consumer's maximum prices."

Sample of Sources Used:

• Air travel demand elasticities: Concepts, issues and measurement. Retrieved from Web site: http://www.fin.gc.ca/consultresp/Airtravel/airtravStdy_3e.html
• America's airlines, flying on empty (2005, September 6). The Economist. Retrieved from Web site: http://www.economist.com/agenda/displayStory.cfm?Story_ID=4399993
• Bonsor, K. How airlines work. Retrieved from Web site: http://travel.howstuffworks.com/airline3.htm
• Chakravorty, J. (2005, January 4). Airlines shares fall as oil prices rise. Retrieved from Web site: http://yahoo.reuters.com/financeQuoteCompanyNewsArticle.jhtml?duid=mtfh69917_2005-01-24_19-48-44_n24162794_newsml
• Coy, P. and Zellner, W. (2002, August 5). Commentary: The airlines: Caught between a hub and a hard place. BusinessWeek. Retrieved from Web site: http://www.businessweek.com/magazine/content/02_31/b3794112.htm

More papers on Airline Strategy Analysis:

• Term Paper # 105666 : "Airline Demand Analysis"
• Case Study # 106316 : "Delta Airlines Strategic Analysis"
• Case Study # 118935 : "Southwest Airlines Case Analysis"

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