Airline Identity Crisis

The 4 major airlines have a real problem on their hands when it comes to having an identity. No one can really tell one apart from the other based on how they interact with their customers. The average person will chose their flight based on who ever has the cheapest flight available. This is how the 4 major airlines are competing, low cost low quality.

These larger airlines don't have an identity and are riddled with massive amounts of bureaucracy and management which significantly already cut into their profits. These airlines are teetering on the edge of entering into the diseconomies of scale region.

The smaller airlines are getting the job done fast and better than the bigger guys. Southwest airlines allows its employees to be creative and to have fun with their job. They let them be funny. Southwest has a reputation to be fun, young, different, and low cost. If you had the choice to fly Delta or Southwest, what would you chose?

http://management.fortune.cnn.com/2012/02/17/the-real-threat-facing-the-airlines/
http://usatoday30.usatoday.com/travel/flights/2009-11-10-airshuffle10_CV_N.htm

Human Capital

I can relate almost everything in this chapter to Delta's oil refinery acquisition but I don't want to beat a dead dog.

This week I am going to talk about the recent American Airways and U.S. Airways merger that was voted on last week. The $11 billion merger creates the world's largest airline. The U.S. now only has 4 major carriers. The biggest difference between Delta and the other three is that Delta made a billion dollars and the new merger would have lost $1.2 billion.

Delta is clearly doing something right is in their human capital department. This may be there greatest resource. Their employees and management are doing something right because they are one of the only airlines that made a decent profit last year. According to Yahoo Finance, Delta took in .5 billion less than United but somehow made $1.7 billion more in net income. The leadership at Delta is making the right decisions for the company.

The employees are even above the cut when it comes to the other 5 big airlines in 2011. Delta ranked the best when it came to customer satisfaction, baggage handling, on-time arrivals, and involuntary denied boardings.

Side Note: The refinery acquisition concerns me a little because refining oil is not their core competency.

Delta also has the largest market cap, operating margin, and earnings per share.



http://www.pbs.org/newshour/rundown/2013/02/american-airlines-us-airways-merger-by-the-numbers.html
http://finapps.forbes.com/finapps/jsp/finance/compinfo/IncomeStatement.jsp?tkr=DAL
http://travel.usnews.com/features/Americas_Meanest_Airlines_2012/

Previous Post May not be 100% Correct

According to the article below, airline mergers don't significantly affect flight prices and competition. It appears that having only 6 or 7 major airlines is enough to prevent the industry from price gouging and becoming an oligopoly.

http://www.usatoday.com/story/travel/flights/2012/12/13/airlines-merger-fares/1767647/

Delta: Airline Monopoly & Oligopoly

Delta Airlines recently acquired a 49% stake in Virgin Airlines which now allows Delta to delete & merge flights from NY to London. The deal in the merger was that Delta and Virgin Airlines would share costs and revenues on transatlantic routes. This works out well for both companies because the companies can legally share pricing strategies and slowly hike the fares up. Even though they are two entirely different companies, they are essentially the same company when it comes to pricing.

The US airline industry is an Oligopoly because there are only 6 major airlines in the US. (US Air, American, South West, Delta, Jet Blue and United. It is also extremely costly to enter and exit the industry. To add to the Oligopoly, most airports only service a couple of these airlines (Memphis). This creates a service and price monopoly on the airport location.

Essentially, the airline industry is a monopoly inside of an oligopoly. Unless you happen to live in Philadelphia, New York, Chicago, Atlanta, Dallas, Charlotte, LA, etc...


http://www.nbcnews.com/business/delta-air-lines-buys-49-stake-virgin-atlantic-1C7546210
http://www.bizjournals.com/memphis/blog/memphis-in-motion/2013/01/nate-silver-calls-out-memphis-airfares.html