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STRATEGY AND HUMAN RESOURCE MANAGEMENT

OF

A CASE STUDY
Presented to
The Faculty of Master of Business Administration (MBA)
University of Mindanao
Davao City

In Partial Fulfillment of the Requirements for the Subject


Human Resource and Global Management
2nd Semester S.Y. 2016-2017
Professor : Dr. Evelyn P. Saludes

By:

May S. Sabanal
Judith S. Cotic
Marites L. Casas
Anna Rae Orque

February 2017
Strategy and HRM of Delta Airlines

I. Background / Rationale
Delta's history can be traced back to 1924, when Huff Daland Dusters, an
aerial crop dusting company, was set up in Georgia (USA) by B.R Coad
(Coad) and C.E Woolman (Woolman), who were associated with the US
Department of Agriculture. In 1928, Woolman bought out Coad's stake in the
airline and renamed it Delta Air Service. In 1929, Delta diversified from crop
dusting and made a foray into passenger airline services. The first passenger
flight flew from Dallas (Texas) to Jackson (Mississippi) in the same year. In
1934, the airline's name was changed to Delta Air Lines and subsequently, in
1941, its headquarters were moved from Monroe in Louisiana to Atlanta in
Georgia. In 1945, Delta was officially incorporated as Delta Air Lines Inc., with
Woolman as the President and general manager, and the airline continued to
expand through the late 1940s.
In 1953, Delta merged with Chicago and Southern Airlines, thus adding
more routes, especially in the upper Midwest and Caribbean regions. Delta
pioneered the hub-and-spoke flight system in 1955, where passengers were
brought to a hub airport from various smaller places and then connected with
other planes to their final destinations.
In the late-1950s, the airline adopted its logo of a red, white and blue
triangle resembling the swept-wing appearance of a jet. Woolman died in
1966 and was succeeded by Charles Dolson (Dolson). Soon after Dolson took
over, the crop dusting division of the company was shut down, and Delta
began focusing on passenger services. In 1970, Delta entered the wide-body
jet era with the purchase of Boeing 737 aircraft, which could carry more
passengers farther, and at a cheaper overall cost. In 1971, W.T. Beebe
became the Chairman and CEO of Delta. In the same year, the company
started Delta Dash, a cargo service for small packages. In 1972, Delta
purchased Northeast Airlines, which strengthened its presence in the
northeastern parts of the US.
II. Issues and Concerns
Delta Air Lines was the third biggest airlines in the US in the early 2000s.
After the September 11 attacks, which led to the decline of the airline industry
in the US, many of the major carriers in the industry went bankrupt. Delta was
one of the few major carriers that managed to stay afloat. However, in mid-
2004, the airline announced that it might have to file for bankruptcy protection
if it failed to obtain pay cuts of $1 billion from its pilots, who were the only
unionized employees at the airline. The case discusses the problems at Delta
and their role in the financial decline of the airline. Issues like the pilot union
impasse, increasing operational expenses and legacy costs, falling yields and
severe competition from low cost airlines are discussed in detail. The case
also outlines the restructuring plan of Delta, and the future of Song, the
airline's low cost subsidiary.

III. Statement of the Problem


Deltas main issues and problems are the following:
Rising Operational Cost like:
labor cost

taxes and security fees


rising prices of fuel
labor management mistrust
Large executive perks
Declining profits and market share resulting from:
9/11 attack, war in Iraq, and SARS
Low-cost carriers stealing market share
Customer service
Poor morale

IV. Point of View


Delta competes in the increasingly unattractive airline industry. While there
are many variables in the airline industry, it is also a business where the end
product is essentially the same regardless of what airline provides the
services. It does not matter whether you fly on a Delta or United jet; odds are
in your favor that you and your baggage will arrive to the destination city in a
reasonable fashion. This fact makes it imperative that each airline attempts to
find those traits on which the other airlines may need improvements in and
then trying to take advantage of the situation by setting yourself apart from
your competitors.
Due to competition from low-cost airlines, the negative effects of 9/11 on
travel and skyrocketing fuel prices, the company held over $20 billion in debt
as of September 2005 and declared bankruptcy.
Delta was able to emerge from bankruptcy in 2007, achieving profitability that
same year. In April 2008, Delta announced its intention to purchase
Northwest Airlines; the two companies combined would create the world's
largest airline.

V. Objectives
Based on issues and problem, Delta aims to:
To appreciate the issues facing airlines in the early 2000s, which were
thought to be the most difficult years in the history of airlines
To analyze the problems facing a major full service carrier in the US
airline industry
To understand the power of unionized labor in the US airline industry
To study the increasing power of low cost airlines in the US and the
sources of their competitive advantage
To examine the restructuring plan of an airline on the verge of
bankruptcy and to analyze its potential efficacy in restoring the airline
to profitability

VI. Areas of Consideration

Areas of consideration in Delta's problems were primarily a result of the


airline's bloated cost structure and extremely high cost of labor. The operational
elements of the airline were also more suitable to a time when people were willing
to pay a premium for quality air service, and had become obsolete in the early
2000s.

Deltas pilots were the only category of employees that were unionized.
They were the highest paid in the industry, earning on an average,
between $100,000 and $300,000 a year. Besides, they enjoyed more
generous work rules, benefits and furlough protections than pilots at other
airlines. Excessively high pay and benefits for pilots were the main reason
for the high labor costs at Delta.

VII. Alternative Courses of Action


Cost Saving Strategy
Fuel Hedging Program
Rising fuel costs, deferred fleet additions, older less fuel efficient
fleet
Operational Improvement
Effective flight scheduling, maximizing crew resources, improving
maintenance processes, and reducing aircraft turn-around times.
Forward Integration
Orbitz & Worldspan (on-line reservations)
Delta has partial ownership in both
Discounts:
3-5% discount for purchasing via internet (e-ticketing)
2% discount for check-in using self service kiosks
Double Sky Miles promotion (6-12 months)
Delta saves $25 per e-ticket issued vs. paper
Labor-Management Relations
Investment in employees
Training seminars (semi-annually)
Specialized job training (40 hours / year)
Executive compromises
o Cap on executive compensation & pensions
Bonuses based solely on performance
Labor Concessions
Proposal:
o 20% wage cut for all pilots
o No wage increases next 5 years
Incentives:
o 3% increase above industry (2008-2013)
o 3% increase in Profit-sharing package
o Signing bonus of 100 shares of company stock
o $1,000 Delayed Retirement bonus
o Two seats on BOD for pilots union (10 currently)
Increase Customer Loyalty
Delta needs to set itself apart
V.I.P seating in every row
Sensitive to Special Needs
o Special seats for obese travelers
o Free chocolates & cocktails
A La Carte Food Service
o Order from a menu when booking flights online
o Collaboration with theme restaurant giants such as Hard Rock
Reduce fees & penalties
o $100 to change a ticket
o $25-80 for overweight bag
o $80 for oversized bag
o $40 for extra bag
Technologically Innovative
In-flight Entertainment:
o Seat-back video in all classes
o Pay-per-view movies
o Interactive video games
o Live TV
Telecommunications:
o Server technology
o High Speed via satellite
o Wireless Access for laptops
o In-seat power outlets
Other actions
Elimination of some use less jobs
Elimination of unnecessary costs
Adding more flights
Work culture be more flexible
Need some strong relations with partners

VIII. Recommendation
At Delta Air Lines, customer satisfaction is and always has been top
priority. Delta believes that the firm can make flying an experience like no
other. One recommendation deals directly with Delta's past-the fact that
this airline is the longest-running, founded in 1924. In the 1930's and 40's,
flying was a privilege, an event that often required a patron to dress up. At
that time, airlines ran almost 100% on-time and customer satisfaction was
part of the purchased ticket. We propose that Delta Air Lines return to its
heyday and make flying an extravagant event to be experienced. This
attitude change would not need to affect ticket prices by any noticeable
margin. It could essentially start out in business class, and work its way to
regular coach as a short-term (10-18 months) promotional investment.
With focus back on the "class" of flying, patrons that fly Delta Air Lines will
feel as if they are living in opulence when they fly and will be reminded of
the pleasures of taking flight in the skies! This strategy will require some
employee training in proper etiquette, to ensure the portrayed brand image
lines up with the experience of customers.

IX. Plan of Action


The future of Delta Air Lines appears to be bright. There has been a
great deal of turbulence within the domestic airline industry during the last
decade, but Delta has weathered the storm with the most success
compared to their competitors. Delta has been an innovator of several
customer-friendly features (self check-in kiosks) and has not hesitated to
use their bankruptcy proceedings to take a more defined look within the
organization with regards to their strategy, route structure and other
business practices.

While rising fuel and labor costs may be cause for financial concern, these
are market factors felt throughout the entire industry. Despite the limited
ability to control these costs, Delta should able to continue differentiating
itself to the flying public by continuing the legacy of superior customer
service at a comparable rate.

Management's vision to see potential growth on the international stage


with an anticipated increase in overseas market share, and the pending
acquisition of Northwest, give a feeling of excitement, anticipation, and
hope that has not been widespread in the airline industry for a long time.

With the changes and plans previously outlined in this paper, Delta Air
Lines has been cleared for takeoff back into the black but investors
beware, you may want to keep your seatbelt securely fastened as the
airline industry as a whole appears to be headed for a very bumpy ride.

References:
Business Strategy | Case Study in Management, Operations, Strategies, Business
Strategy, Case Studies

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