TAM-541 Arizona State University – Delta has historically used a specific activity system to create value. But, what happens when that activity system comes under threat? Should they change it?
QUESTION
Delta has historically used a specific activity system to create value. But, what happens when that activity system comes under threat? Should they change it? Abandon it? Adopt new activity system (is this possible)? Why have all low-cost subsidiaries of legacy airlines failed? What will happen if Delta does nothing, but tries to compete alongside Southwest and Jet Blue? If you were to try to launch another low-cost subsidiary of Delta, what would you do differently?
ANSWER
Adapting Activity Systems: Challenges and Opportunities for Delta Airlines
Introduction
Delta Airlines, like any other organization, has relied on a specific activity system to create value and maintain its competitive edge in the aviation industry. However, in a dynamic and evolving market, threats to the existing activity system can arise, necessitating a strategic response. This essay explores the implications of a threatened activity system, the failures of low-cost subsidiaries of legacy airlines, the consequences of competing with Southwest and JetBlue, and potential strategies for launching a new low-cost subsidiary for Delta Airlines.
Threats to the Activity System
When a company’s activity system comes under threat, it faces a crucial decision regarding its future course of action. Delta Airlines needs to evaluate whether it should change, abandon, or adopt a new activity system. While each approach carries its own risks and benefits, it is essential to assess the feasibility and alignment with the organization’s overall strategy.
Changing the Activity System
Changing the activity system may involve modifying existing processes, technologies, or business models to adapt to market dynamics. Delta Airlines could consider adjusting its pricing strategy, customer service approach, or route network to respond to competitive pressures. This approach requires careful analysis of the potential impact on brand identity, customer loyalty, and operational efficiency.
Abandoning the Activity System
Abandoning an activity system entails a fundamental shift in the organization’s strategic direction. This approach is typically chosen when the existing system is no longer sustainable or relevant in the market. However, abandoning a well-established activity system can be disruptive and may lead to a loss of core competencies and customer trust.
Adopting a New Activity System
Adopting a new activity system involves embracing a different set of core activities to create value. While this option may seem drastic, it can open up opportunities for innovation and growth. However, adopting a new activity system requires substantial investment, organizational restructuring, and a comprehensive understanding of the market and customer needs.
Failures of Low-Cost Subsidiaries of Legacy Airlines
Low-cost subsidiaries of legacy airlines have historically faced challenges in sustaining profitability. Several factors contribute to their failure, including:
Cost Structure: Legacy airlines typically have higher cost structures due to factors such as labor agreements, infrastructure investments, and complex operational processes. These cost structures make it difficult for low-cost subsidiaries to achieve the same level of cost efficiency as their dedicated low-cost competitors.
Cultural Misalignment: Legacy airlines often struggle to replicate the culture and mindset required for operating a successful low-cost carrier. The cultural differences between legacy operations and the nimble, cost-conscious approach of low-cost carriers can hinder the subsidiary’s ability to adapt and compete effectively.
Brand Perception: Legacy airlines often face challenges in positioning their low-cost subsidiaries in the market. Passengers may perceive the low-cost subsidiary as offering a lower level of service or product quality compared to the main airline brand, leading to difficulties in attracting and retaining customers.
Competition with Southwest and JetBlue
Competing alongside Southwest and JetBlue without any strategic adjustments can pose significant challenges for Delta Airlines. Southwest and JetBlue have successfully established themselves as low-cost carriers with a strong customer base and operational efficiency. If Delta does nothing to differentiate itself, it risks losing market share and revenue to these competitors.
Launching a New Low-Cost Subsidiary for Delta
To launch a successful low-cost subsidiary for Delta Airlines, several key considerations should be taken into account:
Clear Market Positioning: Clearly define the target market and ensure the low-cost subsidiary’s value proposition aligns with the needs and preferences of that market segment. Develop a differentiated brand identity to avoid cannibalization with the main airline brand.
Streamlined Cost Structure: Design the subsidiary’s cost structure to achieve high levels of efficiency. This may involve renegotiating labor agreements, optimizing operational processes, and implementing innovative technologies to drive cost savings.
Agile and Customer-Centric Culture: Foster a culture that embraces agility, innovation, and a customer-centric mindset. This will enable the subsidiary to quickly adapt to market changes, provide exceptional service, and meet evolving customer expectations.
Strategic Network Planning: Carefully select routes and destinations that maximize the subsidiary’s potential for profitability. Focus on high-demand routes with minimal competition and ensure the network is optimized for efficiency and cost-effectiveness.
Seamless Integration: Establish effective coordination and communication between the low-cost subsidiary and the main airline to leverage synergies and shared resources while maintaining operational autonomy.
Conclusion
When an activity system comes under threat, organizations like Delta Airlines face critical decisions regarding the future direction of their business. Whether it involves changing, abandoning, or adopting a new activity system, the choice must align with the organization’s overall strategy and market dynamics. Understanding the challenges faced by low-cost subsidiaries of legacy airlines and the competitive landscape is crucial in making informed decisions. Launching a new low-cost subsidiary requires careful consideration of market positioning, cost structure, culture, network planning, and integration to ensure long-term success. By embracing strategic adaptation, Delta Airlines can navigate market challenges, capitalize on opportunities, and continue to thrive in the dynamic aviation industry.
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