Strategic Audits of Delta Airlines - Research Paper Example

Strategic Audits of Delta Airlines Strategic Audits of Delta Airlines 0. Current Situation 1. Current Performance Delta airlines has been in operation since 1924 where it began as Huff Daland Dusters, a crop dusting company. Its performance has been splendid. It has become efficient since with flights to more than 57 countries. Hartsfield-Jackson International Airport is the largest operating hub under delta airline. In addition, it has four other hubs in full operation in U.S cities. It is estimated to be the second largest airline in the world. In 2008, it made intention of purchasing Northwest Airlines known thus creating one of the largest airlines in the world. The traffic merger was $2.8 billion. In addition, by October 2011, Delta was named the second largest airline with Continental and UAL Corporation merger (Datamonitor, 2010). For the companies that are most admired in the world, delta appeared in the top 100 scooping the 84th position. As a result of competition, high price of fuel and effects that the travel sector experienced, delta airline had debt amounting to over $20 billion in 2005. This led to its bankruptcy. Furthermore, in 2007, it made great strides and solved most of its debts thus gaining profits. 1.2. Strategic Posture 1.2.1. Mission Statement Delta airlines’ mission is to ensure fair treatment of employees by the management, those who are directly or indirectly in business operational environment, and customers exist as a family unit. Delta exists to positively influence the society and customers in a bid to achieve both local and global good. The backbone of this mission is that fair treatment of the involved stakeholders enhances a better and a more profitable company. Customers’ satisfaction is the main aim of Delta airline though the transcendental finality is to acquire new customers. 1.2.2. Objectives Delta exists to include people of different diversities, religions, races, education, sexual orientation, gender identification, family status, geographical regions, citizenship, and styles of communication, socioeconomic background, skills, knowledge and many more. It is a great supporter of local organizations which focuses specifically on wellness and society health. For instance, Delta airlines has sponsored Cancer Society in America, Carter Center, Breast cancer centers, Network for Children Miracle, St. Jude Children Hospital, Humanity Habitat and many more (Datamonitor, 2010). Delta also is effective in supporting community based organizations. For instance, the museums that enlighten, inspires, and exhibit people to make them important and enhance the betterment of this world is in partnership with Delta airlines. Other partnership includes Current partnerships include the Tribeca Film Festival, National Black Arts Festival, the Atlanta Symphony Orchestra, the Minnesota Orchestra, High Museum of Art, Fox theatre, Guthrie, and many more partners (Datamonitor, 2010). The objectives are in consensus with each other and they resonate well with the mission and external environment. For instance Delta is involved in community activities which fulfill one of its missions. 1.2.3. Strategies Delta airline is a company that strives to promote a culture that includes all the members in all levels of operational environment. In addition, the management at the top acknowledges any level of contribution of all the stakeholders. The management has also established a diversity inclusion strategy in order to ensure mutual respect between people and annual progress review. Community involvement is a vital tool to achieve maximum satisfaction and achieving goal. Delta airline has stood out in acknowledging all the stakeholders as part of its missions and objectives. 1.2.4. Policies Delta policies exist to enhance its mission: maintaining profitability, naming shareholders, the company’s quest to transform, expand and progress. Thus, the company must invest in ways that adapt to various varying market needs and come up with changes that are can sustain the business. Delta thus makes the decisions that best suits the firm as they continue to evaluate the employees, the environment and customers. The internal and external environment is thus evaluated to identify the weaknesses, opportunities and threats as one of its policy in the operational environment. Under the above three components, the firm can make a step towards achieving a better strategy that can lead to a competitive advantage and in the long run ensure that the mission are achieved (Airlines, 2000). The current objectives, policies, strategies and mission try to reflect the end result at the long run. It is clear that the analysis above reflects international cooperation globally since Delta airlines’ prime performance is not only a domestic but also a global scale 2.0. Corporate Governance 2.1. Board of directors Delta airlines board of directors include Richard H. Anderson, Edward H. Bastian, Roy J. Bo stock, John S. Brinzo, Daniel A. Carp, David G. DeWalt, William “Bill" Easter, Mickey Foret, Shirley C. Franklin, David R. Goode, George N. Mattson, Paula Rosput Reynolds, Kenneth C. Rogers, Kenneth B. Woodrow. The board usually has four regular meetings annually, special meetings, and meeting regularly without having the top management. They usually serve for a period of three years Furthermore, the board is highly convicted that good corporate governance is an important entity in enhancing and improving the current framework thus the board discharge the duties effectively. In addition, the board has invested in corporate governing principles that are related to its operations, structure and function. The board of directors are people with necessary skills in achieving the goals and objectives of Delta and not necessarily external or internal members. There are selected on the basis of international background, acumen, experience, operational experience, skills, judgement and character (Datamonitor, 2010). The board do not necessarily own stock but they believe that the Officers in the executive should have a common stock to streamline stakeholders’ interest with their personal interests. Thus, they have incorporated procedures for the executive. Individuals not subject to the executive are required to attain a level of ownership within the stipulated period of five years. Stock is in different classes where a person attains a greater level of ownership as a result of pay increase or promotion is subject to higher ownership. Board members bring wealth of experience in Delta airlines. For instance, they are representatives of all the stakeholders to achieve returns that endure for a longer time. Furthermore, they are involved in solving matters to do with the stakeholders, customers, employees/ government, suppliers and the society (Datamonitor, 2010). They exist to monitor progress provide advice to the management and ensure that the corporate standards are followed. Since the international background is needed and connections, the board members are required to have international experience in order to be effective in their international operations. In this case, Delta airline is an international company and thus international experience for board members is a requirement. The directors are involved in strategic management although not directly. They are active in implementing what has been suggested by the Top management to avoid conflict of interests. In other words they are useful in directing what the top management has put in place (Airlines, 2000). 2.2. Top Management The top management is composed of skilled and experienced individuals that assist in the operational environment of Delta airline. Corporate governing body evaluates the individuals in terms of expertise, background, knowledge, and style. Their chief characteristics include operational experience, international background and experience. Furthermore, the top management consist of very knowledgeable individuals with excellent international relation skills that are useful when undertaking international operations (Commission, 2003). The executive and the top management are two separate entities. The executives is part of the management since they delegate on what, and how things are done and also delegate duties to the board of director. Over the past few years, Delta airline has been making tremendous strides in profit making. However, in 2011 terrorist attack in Washington DC and New York resulted to reduction in the number of flights in the air travel by almost 15 percent (Commission, 2003). This resulted to a great loss record in finance in 6 years. The management in this case is responsible for the performance since they have been trying to streamline their operations by selling their 40 percent reservation since early 2003. Delta airline has enjoyed a period of ethical governance since the time immemorial. The top management exists to make sure that there is a sustainable and profitable firm governed by various ethical guidelines steered towards achieving the business principles that were established first in early 1940s by the founder and the CEO, C.E. Woolman. In full operation, there have been 13 operating managers. Each manager is chosen on the basis of operational experience, judgment, expertise, international diversity, and character. There are internally hired to give a unique business and management background (Commission, 2003). The top management is responsible in making decisions and strategic operation that are significant to the well being of the company. For instance, the top management has established a systematic approach to managing delta airlines strategically in terms of the number of airplanes, global diversity all over the world, cargo, customer relationship management and air travel. Furthermore, they are involved in making of the strategies by ensuring that the board members are directing the policies and strategies that they have made. The level of interaction for delta airlines top governance resonates well especially bearing in mind that employees and board of directors are part of their strategic mission to ensure a well developed airline sector. It strives to promote a culture that includes all the members in all levels of operational environment. In addition, the management at the top acknowledges any level of contribution of all the stakeholders. The management has also established a diversity inclusion strategy in order to ensure mutual respect between people and annual progress review (Datamonitor, 2010). The top management invests in Code of ethics to ensure that the decisions are ethically made for all the stakeholder of the company. The code is further intended to guide the directors in their quest to deal and recognize work ethics and ensure that ethics becomes part and parcel of the company. This further promotes accountability and honesty as a culture that steers it even higher. The stock in the management process plays a pivotal role in compensation of the executives. For instance, when an executive goes bankrupt, the level of stock is used to compensate him or her. In addition, in case of poor health, accidents, poor family health, the management reviews the executive stock for the past five years and if he/she owns a viable amount, then the management uses the review to compensate him (Airlines, 2000). The top management of delta airline is sufficiently skilled. The way they choose new managers is a clear indication of viability and sufficiency in leadership. For instance, they chose someone with respect to the background management experience like international relations, expertise, style and many other excellent qualities thus they are sufficiently skilled 3.0. Human Resource Management (HRM) Delta airline or rather the entire airline is commercially competitive. In this regard, individuals, organizations, customers, and employees must be very competent. The end result influences the organization competitiveness, structure, culture, and the operational environment. HRM audit report carried in 2011-2012 financial year has got data on delta airline (Airlines, 2000). 3.1. HRM strategies, Objectives, programs and policies HRM strategies are the overall plans that results to the actual implementation of certain HRM areas of function. In Delta airlines, the HRM strategies provide guidance in decision making process. The strategies can be divided into four main components: people, culture, resource systems and human organization. The top management influence the success or the failure of a company’s goals. HRM plays a pivotal role in selecting new executives by drawing analysis from previous success in staffing. The airline industry is a very competitive industry. For this matter, airline culture I one strategy that cannot be replicated so easily. HRM is therefore a set of procedures: i.e. recruitment, appraisal, training, motivation, development, sourcing and selection, and rewarding individuals through correct observance of industrial relations. The definition above is important in order to select a culture that evaluates, interact, compensate and enriches the employees. Seal and Kleiner argues that good management labor, communication and chief executive officer style are very vital management skills (Airlines, 2000). Communication is a result of organizational structure which ensures that a good relationship is maintained between employers and employeesDelta has four main HRM objectives which revolve around the society, functions, person and an organization to ensure efficiency and effectiveness and ensure that the employees are maintained, society values are adhered to and ethics is upheld.The current HRM strategies are merely stated to achieve performance since they were trying to recover from and achieving cheaper prices in that they lost their competitive advantage in customer service and employee relation. If they had concentrate on leadership they can be competitive in the airline sector. The objectives fail to reach the consistency level of Delta though for the mission there is an interrelationship existing between thus we can see a consistent but not a sound outlook with the internal and external environment. 4.0. Analysis of Strategic Factors (SWOT Analysis) Delta Airlines is among the domestic airlines within USA. The company has been able to offer services to more than 378 destinations worldwide within 66 countries. The company merged with the Northwest airlines to enable it improve its services to customers as well as achieve the strategic objectives. Nevertheless, global economic recession hinders the ability to sustain and achieve profitability (Airlines, 2000). Strengths Is a strategic merger: the company focuses on expanding its business, and this has seen it merge with the Northwest airlines. The merger deals with passenger and cargo transportation, and this became a subsidiary of the Delta Airlines. International alliances: The Company has multilateral and bilateral marketing alliances with other foreign airlines. This enables it to improve its access in the international markets such as KLM Dutch Airlines, CSA Czech Airlines and Alitalia among others. Consistent top-line growth: The company forms the world’s largest airline, and despite the slowdown in world economy. Weaknesses Overdependence on North American Market: the company has been depending heavily on North American markets where the company derives most of the income. Overdependence on one geographic region increases the susceptibility to economic and political factors of that region. This can hinder the effort in top-line boost. High indebtness: the company has been witnessing high debt obligations in FY2008 recording the long-term debt of $15,411. This has reduced the ability of the company to use the working capital and any other general requirement. Opportunities The aircraft maintenance in the world: there has been dramatic growth and changes in maintenance repair and the overhaul market. Recovery of airline industry in US: there has been increase in airfreight by 10 percent. There has been prediction cargo traffic worldwide will increase an annual rate of 5.8 percent. The company has been able to generate revenues from both local and international markets. Threats Intense competition: the airline industry is very competitive in terms of routes, fares and other services. The domestic routes are prone to competition from the existing and new carriers. The company has been facing competition from hub airports from Atlanta. The intense competition pressurizes operating margins in delta. Disease pandemics: some contagious diseases affect the passenger freights. For instance, the swine flu in 2009 affected aviation industry significantly. Global economic crisis: the airline industry has been adversely affected by the economic downturn as a result of oil prices volatility and credit crunch. This makes the industry to be highly cynical with the level of air travel correlated with global economies. This has affected the company and hindered its ability in achieving and sustaining profitability (Commission, 2003). 5.0. Analysis of Internal and External Environment 5.1. External Environment 5.1.1. Social factors: the habits of people influence their travelling. The airline hosts people from different income levels to enhance customer satisfaction. The company therefore balances its clientele in their marketing mix strategy. 5.1.2. Technological factors: advancement in technology has provided new opportunities to the airline industry. Such service includes online booking and online enquires. 5.1.3. 5-Forces Analysis of Delta Potential entrants: entry into the airline industry requires huge capitals. Other challenges for new entry include increased government restrictions and securing the landing rights among others.   Suppliers’ bargaining power: Boeing and Airbus dominate the industry and control over 92 percent of entire market. This reduces intensification of the industry and creates rivalry. Shifting to another supplier may not be easy. Buyers’ bargaining power: buyers within the airline industry have low bargaining power due to high costs involved. The threat credibility in the buyer power comes with innovative ticketing. Threats from substitutes: due to the increased efficiency of other means of transport, airline travel is gradually decreasing. For instance, electric rains are cheaper and very efficient means of transport. Existing rivalry: there has been increased rivalry in terms of routes, hubs and airports. Such factors incorporate low returns due to increased competition. 5.2. Internal Environment 5.2.1. Products: the company is providing harmonized cargo services taking the best characteristics of carriers in order to establish best rates. These include the delta Care, Safe Transport, Live animals and perishables among others. 5.2.2. Sales distribution: the company is facing challenges from the unprecedented declines in revenue as well as the increased volatility in fuel prices. This has seen the decrease in revenues. 5.2.3. Location: the company has been able to operate in leading trans-Atlantic joint venture with other leading airlines worldwide 5.2.4. Image: the company is committed in taking care of the environment and enhancing the social responsibility.  The industry aims at advancing the global diversity. 5.2.5. Internal politics: Delta promotes diversity through appreciation, leveraging and recognizing the different culture, languages and political perspectives. 6.0. Strategic Alternatives and Recommended Strategy The industry has been keen in enhancing self sufficiency to reduce overdependence on North American Market. The company aims at forming alliances with other established airlines in the world. Considerable plans have been established to partner with China Airlines, CSA Czech Airlines and Alitalia among others (Datamonitor, 2010). To regain a strong competitive position, the company relies on its expertise through their bankruptcy chapter 11 that is considered to be among the most successful and the largest in US. The company has been expanding its international operations by flying in international cities. The company is improving the management style so as to enable it withstand during the periods of economic crisis. The company strategy is to have a strong leadership team. The company has established a fleet of jetliners to maintain their competitive advantage. Also, merging with other airlines enables it to acquire new planes. This has made it possible to do away with the old ones and increase the number of their airplanes. References Airlines, D. (2000). Delta Airlines. New York, NY: Vault.Com. Commission, A. (2003). Concession Audit of Delta Air Lines, Inc. San Francisco: Office of the Controller. Datamonitor (2010). Delta Airlines Inc. Retrieved From: http://ezproxy.minotstateu.edu:2057/ehost/companyinfo?hid=104&sid=3fed4911-a304-4583-8111-e0d9b218b781%40sessionmgr113&vid=5 Read More