Southwest V Delta Strategic Differences and Evaluation
Introduction
The airline industry remains a growing and large industry that facilitates economic development, international tourism, trade and investment. The industry is fundamental to the globalization that occurs in scores of other industries. A strong debate emerged concerning the regulation of the airline industry. Many people claim that deregulation of the industry instigated a downturn of the industry that has altered the temperament of the industry. Following deregulation of the industry, airlines began competing because of ticket pricing, an aspect that triggered bankruptcy of weak airlines companies. Moreover, deregulation instigated mergers and acquisitions of weaker airlines by the strongest and most successful airlines. Only a few airlines remained operational in the United States after deregulation.
Delta Airline Company held the longest history. The company survived through all the years of the airline industry turbulence and lousy economy. Southwest is another airline that came into the airline market since the deregulation, and it has remained strong in the air market. Southwest has achieved a competitive edge through its competitive strategy that entails corporate culture and point-to-point system. Delta airline also adapted a positive corporate culture and change in the airline industry. These factors have helped the company to remain strong and operational in the airline industry. With respect to the U.S. airlines ranking, Delta and Southwest airlines tie position 6 of the most successful airlines. This brief overview compares Delta and Southwest airlines’ corporate and competitive strategies that enhance their success in the industry. The paper focuses on the companies’ corporate culture, union structure, flight system, carrier types, service types and management system and their effectiveness.
Deregulation of the Airline Industry and Its Effects
According to the NPT (Normative analysis and positive theory), regulation of the airline industry does not correspond to the empirical evidence given that the industry does not hold an apparent market failure prior to the regulation. Peltzman’s theory of regulation does not support deregulation of the airline industry. Peltzman claims that there was no need of deregulating the industry since it was making high profits. He confirms the lack of apparent market failures such as a significant drop in prices or overall profits to warrant deregulation. Regulation of the industry was beneficial because pilots received an attractive pay package. This is because regulation allowed highly priced tickets that led to increased income in the industry. In addition, regulation of the airline industry allowed only certain airlines to travel to specific destinations. Given that only limited numbers of airplanes was assigned to different hubs, companies competed on services, as opposed to prices.
However, following deregulation of the industry, companies no longer fly to specific routes or hubs. In this regard, companies in the airline industry embraced competition relating to ticket pricing. Deregulation instigated lowering of ticket pricing as a strategy of luring customers, an aspect that comprised quality of services in the airline industry. This aspect led to weakening of services in the airline industry accompanied by reduced profitability and productivity of the industry. Deregulation of the airline industry triggered low salaries for pilots and other employees, poor quality services and reduced industry revenue. In this view, the industry should not have been deregulated, as deregulation is detrimental to the industry and to all its stakeholders.
Southwest and Delta Airlines
Deregulation instigated price competition in the airline industry. Low-cost carriers started to emerge after deregulation of the industry. Given the emergence of these low-cost carriers, the leading airline carriers started to compete with low-cost carriers such as Southwest airline. Even though, Southwest started as low cost carrier, it became one of the most successful airlines in the airline industry. Southwest airline focuses on the provision of short-haul flight, but following deregulation the airline survived in the airline market and competed with leading airlines. Other airlines provided services that focused on making long distance and international flights. Southwest is popular because of its powerful low cost carriers and employees’ union. It might seem ironic that Southwest has the strongest union yet most successful. However, the strong workers’ union is a crucial asset to the airline as it comes with considerable benefits. The initial focus of the Southwest airline was to offer low cost flying services.
The low cost flying services enable people to fly a short distance rather than driving. The low cost flying services had to market themselves to be more efficient than driving. The low cost carriers focused on scores of the businesspersons as well as their customers who have to get to the meetings’ venue early in the morning and go home on the same day. Such people embrace low cost flights that are time saving and effective in saving operational costs. Southwest marketed its services through point-to-point system that uses regional airports that are not too crowded. Using small airports in main cities saves lots of traffic time and landing time for air carriers compared to landing at major airports. Three major airlines employed the strategy for low cost carriers. Southwest airline is the only one that survived and remained steady in the airline market and competed with other major carriers. Others like Briniff Continental and Texas international failed to survive following deregulation of the airline industry.
On the other hand, Delta is one of the successful major airlines. Just like other major airlines, the company experienced tough times and it has not always been prosperous in doing business. However, the company survived in the competitive airline industry for the longest period. Delta has remained strong and competitive. This is because the company adapts to new changes and environment quickly as opposed to clinging on to old management model that no longer fits the change in a new environment. Apparently, scores of airlines failed to remain operational and competitive in the airline industry, and instead merged after deregulation. On the contrary, Delta survived the tough economic downturn in the industry and surfaced as a key leader in the airline industry.
Corporate Culture
Southwest and Delta airlines establish good relationships with the companies’ workers. Particularly, the competitive strategy of the Southwest airline centers on enhancement of effective and respectable relationship with its workers. This relationship triggers high satisfaction of the employees, an aspect that increases their output level, hence profitability and productivity in the industry. Southwest put a strong emphasis on its employees’ satisfaction. Given that the company’s employees have high satisfaction in their work environment, the employees strive to serve Southwest airline. As a result, the company’s customers become satisfied with the company’s services.
Both Southwest and Delta centers on developing powerful links with their taskforce. However, their approach to employees’ relationships and creation of corporate culture is different. Apparently, the two companies capitalize on strong employees’ relationships with the companies’ management. As a result, they created a corporate culture that embraces strong employees’ relationships, although their approach is divergent.
Union Structure
It appears that Southwest airline acknowledged employees unions and their benefits from the word go. The first CEO and the president of Southwest, Lamar Must realized that it would be more efficient to negotiate with union and build a compatible relationship rather than trying to work against them. Employees’ unions are a very efficient way to lead a company to growth and profitability since the union offers employees a sense of power and voice. Employees unions do not necessarily imply that workers will always go on strike to seek for higher compensation. Instead, employees unions function as a way for a company to recognize its workers’ power and give them voice to express their concern or needs. Moreover, employees’ union allows workers to express their dissatisfaction, and have the power to voice out the issues affecting them.
While Southwest airline has the strongest workers’ union, the company’s workers do not strike. Instead, the union allows workers to be more productive in their roles, in the company. Despite, a strong employee’s union in Southwest, the company experienced the least number of strikes among airlines companies irrespective of its heavily unionized employees. The company recognizes employees’ union and respects them since they are beneficial to the company’s overall performance and growth strategy. Southwest airline has a strong corporate culture of making its employees feel comfortable and view Southwest airline as a big family. The company’s management ascertains that workers’ union is only a part of the workers’ organization that, in an event of workers’ dissatisfaction, the union allows them to have a voice.
On the contrary, Delta holds no employees union, and is the only airline that is free of union. However, the company only acknowledges the union of its pilots. Delta adapts a family working environment besides development of a friendly connection with its employees. The company leaders also work jointly with the employees, but without employees’ union. Delta claims that there is no need for employees union since it considers itself as a family. The company considers having union as a way that impedes its corporate culture. There were multiple attempts to start flight attendants’ union when Delta merged with Northwest airlines in 2008. Southwest is one of the most unionized airlines before it merged with Delta Airline. Flight attendants from Southwest airlines wanted to join employees’ union while Delta’s flight attendants did not see the point and benefits of joining the union. Delta flight attendants believed that their family like environment did not require workers to organize themselves to protect themselves against their employers. Delta flight attendants believed that joining employees’ union would only interfere with the corporate environment of Delta Airlines. There have been three attempts of trying to bring employees’ union in Delta. Even though, it has failed until now, the margin of votes is getting closer every time, and there will be another vote next year seeking to introduce employees’ union in the airline.
There have been heated debates on the appropriateness and value of employees’ unions. Mostly, people view these unions as an impediment for a liberated market. Competitive service industries like hotel, private businesses, and entrepreneurs view workers’ unions as organizations that function to harm the effectiveness of free market and democratic society. In most regular companies, employees get fired because of taking part in the unions. Moreover, most companies view workers’ union as something to fear and anti-company. For instance, Verizon prepared itself three months ahead to deal with the union and trained its workers. The company prepared itself to take place of the union workers in case the union impeded its business operations.
On the contrary, the airline industry is different from normal free market industry in that airline companies are not legally allowed to fire workers for being part of worker’s union. With respect to Southwest and other unionized airlines, employees’ union is not always an impediment to the competitive industry as people view them. In fact, Southwest is doing far much better than any other company in the airline industry is. From this perspective, Southwest’s strong management strategy is what makes Southwest stand out and even makes more profit when competing with most of the major airlines.
Service Types
Southwest and Delta depict dissimilar service corporate and competitive strategies due to their different nature as a low-cost carrier and a outstanding carrier. Southwest provides basic in-flight services that are distinguishable from those of Delta airlines. Southwest only offers free beverages during the flight with pretzel snacks. In addition, Southwest does not give customers options to choose seats or have meal services during the flight. Southwest’s strategy of keeping its service simple has helped the company in putting to remission the operational cost. The airline not only provides simple services but also offers anti-frill services. This means that Southwest only sells one way ticket with all the extra charges included. Such system is much more transparent since customers understand that the do not purchase air tickets at an increasingly higher prices. Moreover, the system employed by Southwest airline helps facilitates development of customers’ confidence. While the simple services employed by Southwest airline assists in putting the operational cost at minimum, some people expresses their dissatisfaction for such limited services and options provided by the company. However, Southwest airline still focuses on providing services at low cost rather than offering more and complex services at a higher price. This is because the company’s main strategy is to compete with other carriers through providing the lowest possible price.
Delta airline on the contrary offers snacks and foods options during the flights notwithstanding the distance of the flights. This strategy requires preparation of fresh food and making sure that they always have these items available during flights. Delta also offers full services that include seat selection during the flights. Since Delta is a full carrier, it has to compete on price with other carriers while providing services that match the other major carriers. Since deregulation of the airline industry, major airline companies must compete less on services and at the same time offer services in order to remain competitive.
Carrier Types
Southwest and Delta have differences in their use of carriers. One of the leading success factors of Southwest airlines is that the company operates only one carrier. Having one carrier saves Southwest lots of money since it allows constant checkups, replacement of parts, and monitoring of carriers. Southwest is the biggest operator of Boeing 737s. Even when Southwest merged with Air Tran Airways, it sold its air carrier 717 fleet to Delta airlines to keep operating a single carrier. On the contrary, Delta operates multiple carriers. As of 2012, Delta had three major air fleets including the ones manufactured by Airbus, Boeing and McDonnell Douglas. Delta is going through a major renovation to provide seats that are more comfortable and improve on its effectiveness. Delta decided to use system of Boeing 777 space saving design, which will save lots of space and enable placement of more seats. The strategy will lead to selling of more air tickets for the extra seats. The seat structure of a flatbed Business Elite product is perhaps the most efficient way to place more seats in the fleets. This aspect will help in maximizing the space. This change will make Delta generate higher revenue by renovating its carriers.
Flight Systems
Point-To-Point System
Another Difference between Southwest and Delta airline is the flight system. Southwest uses the point-to-point system. In fact, Southwest airline is the only carrier that uses point to point system, and it is different from the hub and spoke system which is a system that most airlines use. Point to point system is a system that a carrier flies from one point to another without any layover or stops. This system allows many of the business travelers to save time. The major benefit of point to point system is that it can fly a short distance domestically and at the same time fly from and to none major airports. This benefited both Southwest air lines and its customers. Using less crowded airports near the major airlines allowed Southwest airlines to operate in large cities, but with much less waiting time for its landing and departing slots. Surprisingly, the place that airlines spend the most time is on the air traffic. In major airports, each airline is assigned its own slots and when there is heavy air traffic, planes have to wait until its turn, and it could lead to delay in departure or landing. Since southwest uses less crowded airports, it does not have to wait in air traffic. Additionally, its customers can avoid all those ground traffic from the major airport and use much less crowded road while using cab to get to their final destination. This system also helps to save lots of time for business travelers when they have meetings. The system help business travelers to get early in the morning and avoid the major traffic experienced while using the major airlines. Point to point system allows Southwest airline to operate from one destination to another without layover. In my view, this system is the most noteworthy system that distinguishes Southwest airline from any other major airlines. The system enables Southwest airline to survive in the airline industry even though it operates only as regional short distance flights with no international or long distance flights. Again, Point to point system is more economical, beneficial and time saving to both the company and its customers.
Normal Hub and Spoke System
While Southwest uses point-to-point system, Delta uses normal hub and spoke system like most of the other major airlines. Hub and spoke system often makes stops from the original destination to final destination with layovers. Since these are mostly long distance flights, airlines provide meal and beverage services and uses major airports to depart and land. Unlike Southwest’s point-to-point system, Delta suffers more from the air traffic since it uses the major airports in major cities. This naturally leads to more delays, layovers that will lead to less customer satisfaction. According to the data provided by Woodruff, Southwest has significantly higher customer satisfaction compared to Delta airlines. Delta has a customer satisfaction score of 65% while Southwest has a customer satisfaction of 77%.
Management System
Southwest and Delta differ in their management system. Southwest airline was in much better condition than many other major airlines during the economic crisis and in the aftermath of 9/11 New York attack. Since Southwest’s major management, strategy is to treat its workers and put them before anything else. The company’s management decided to keep all its employees and did not fire even a single employee. While Southwest had to cut down its spending along with other airlines during the economic crisis, it had a wage cut of many of its employees instead of firing them. Southwest is one of the airlines that paid its worker well regardless of the wage cut during the economic crisis.
Southwest’s strategy entails hiring fewer workers and paying them attractively compared other major airlines. Hiring of a limited number of employees allows Southwest employees to work longer hours with higher wages and bonuses. This functions as one of the major factors that instigated high satisfaction of its workers along with not firing its workers. Southwest’s pilots on average flies more hours than most of the other major airlines and so are the flight attendants. Having fewer workers helps in saving Southwest more money and keeps its employees even during tough times like after 9/11. Since Southwest kept all of its workers, it helped build a stronger relationship between Southwest’s workers and employers.
While Southwest kept most of its workers after the 9/11 when the airline industry was in turmoil, Delta used a opposite strategy. Delta had a serious stage of firing its employees to save money, and experienced a severe budget cut for its existing employees. These different airlines had to use the different strategies while facing tough economic times since they were all facing different situations. Delta had a high debt that had accumulated for many years and was close to going bankrupt. If Delta did not cut its spending and piled on even more debt, it would have declared itself bankrupt. In this regard, Southwest’s strategy of cutting reducing workers’ wages would not have been sufficient enough on meeting the Delta’s budget cut. Delta also shows its flexible use of its strategy when it lowered the ticket pricing after the entry of low cost carriers. Delta used to charge higher prices than most of the other carriers, but with the low cost carriers coming up with marginally lower priced flights, Delta started to provide regional services to match the price of low cost carriers. After the deregulation when most of the major airlines went bankrupt, Delta was able to keep its stand in the airline industry due to its ability to adapt change and adjust to the new environment. When Delta realized that its business model did not fit to survive in the airline industry, it came up with a new business model to start a fresh and pay off their huge debt that accumulated over the years. This new strategy enabled Delta to survive in the airline industry.
Conclusion
Delta and Southwest used different strategies to survive in the tough times of the airline industry especially the 9/11 terrorist attack. It was a hard time for most of the airlines since people avoided taking flights due to the fear of terrorist attacks. Nevertheless, Southwest and Delta found their own ways to survive. Even though, their strategy was different, they served them well and provided positive means to survive in the manner appropriate to each company’s culture and strategy. In my view, the different perspective employed by the two companies demonstrates that there is no single right way to deal with the situation or management strategy to succeed in the airline industry. However, the best strategy is to find a unique method that works best for each company and different from the rest of the airlines. This technique will help in distinguishing and making each company stand out from the rest of the airlines.
Notwithstanding that, Delta and Southwest have numerous differences and similarities, embracing unique strategies and approaches to change characteristically enhanced the success of Delta and Southwest airlines besides fitting each company’s business model. It is apparent that there is no one right strategy that leads to success of the airline industry, but integration of unique strategies in the company’s corporate culture and overall business strategy enhances success in an airline company. Moreover, no one can say one method of management is better than the other. For instance, Southwest employs a different management model where it allows employees’ unions and treats its employees with due respect.
Delta airline, on the other hand, supports close employees relationships but does not support unions. Either way, the two company’s different management models focus on the need to enhance employees’ satisfaction as a strategy that instigates improved performance, hence profitability. All airlines have their own success strategy to survive in the airlines industry and every airline company holds a different strategy that fits their model. Delta airline employs normal hub and spoke system while Southwest employs a point-point system. While these systems are different, they both come with detriments and benefits to the airlines. Since each airline holds a different culture and its own strategy to survive in the competitive airiness industry, it is important that each airline demonstrate flexibility in its corporate culture and business model to adapt change. In this regard, there are different success model and strategies applicable to different airline company’s business model. These together make up each airline’s environment and success of its own.
