Imagine that you are a consultant for Delta Airlines and s Delta has hired you to advise it on how it can ensure it’s future success as a company in its current market.  To do this write a 7-9 page research paper analyzing market and business data to explain how the core microeconomics principles impact the sustainability of the company and what actions it can take to ensure success.

2000 Words

ADVISING ON FUTURE SUCCESS OF A COMPANY

 

Introduction

Integrating theme for micro economical elements is considered as marginal decision rule. Simple approach based on micro economical principles can help to maximize value of business objectives. This theme of micro economical elements in relation to business context can support both demand and supply of an organization. In order to make a production plan and make trade decisions, micro economics can provide analytical tool to the businesses to evaluate market mechanisms. Based on these factors, authority of an organization can focus on production plan as well as pricing policies. This research project has focused on Delta Airlines to advise for developing sustainability. Moreover, this research has the aim to evaluate importance of principles of core microeconomics on sustainability of business. In order to advise Delta Airlines, researcher has arranged this research project to identify important factors related to micro economical principles. In order to advise this organization regarding decision making process, researcher has identified both social and environmental factors along with economics.

Delta Airlines can be considered as world’s largest global airlines. Delta is helping near about 180 million travelers to take airline services for going to their destinations (DELTA, 2019). Along with support of better quality community engagement, Delta has achieved success and competitive advantages among other rivals. This organization has dealt with some social challenges like human trafficking. At this organization, the authority has trained 56,000 employees as they can recognize human trafficking signs. Delta wants partnership opportunities which will increase loyalty and brand awareness to the customers. By adjusting pre-tax income, Delta has achieved $1.2 billion which is driven by $700 million of growth of revenue (delta.com, 2019). After losing its slot in annual allocations of California, Delta has announced to end services from Orange country to New York. Moreover travel disruptions due to technology issue has decreased rate of success of Delta (Martinez, 2018). Based on this factor, it is important to advise Delta to retain sustainability by resolving these issues.

Evaluation of trends in demand over time and their impact on delta airlines

Market demand of an industry depends upon demand created by all the consumers for a given product or services. According to Tate et al. (2015), it is being observed that over the last five years, there has been in increase in per capita income, corporate profit, and consumer confidence which have lead to rise in demand for both leisure and business travels in USA. This has resulted to increase in industry revenue by 2.5% each year. However, due to fall in fuel charges and fuel surcharge fees have put a constraint in revenue growth. Delta airlines are providing airline services to domestic and international network so their customer base is focused on business and leisure travelers. Revenue for the year 2018 has been counted to $9647 million which has increased by 6.9% from the previous year (Delta, 2019). Delta airlines maximum revenue comes from their domestic airline service which was counted as $7066 million in 2018. As per the views of Pineda et al. (2018), in order to understand market demand of Delta airlines, determinants of market demand can be analyzed which consists of income, price of related goods, tastes, population and demographics, and expected future price. Per capita income of customers using delta airlines has increased thus resulting to enhancing market demand of the company. Price of related goods in airline industry is not that competitive. Over the years people prefer to travel in their leisure time which has increased the demand of airline industry.

Analysis of data in relation with demand and supply of delta airlines products

Particulars	2014	2015	2016	2017	2018
Sales & revenue	US $40.2 billion	US $40.51 billion	US $ 39.6 billion	US $41.13 billion	US $44.44 billion

Table 1: sales and revenue of delta airlines

(Source: Delta, 2019)

From the above table it can be observed that there is been increase in sales growth for almost every year except for the 2016. In 2017 there was an increase of 4.28% in terms of sales & revenue growth of delta airlines.

Edquis et al. (2015) stated that determinants of supply are the factors that affect supply of goods and services of a particular company. These determinants include inputs costs, technological improvement, prices of substitutes, number of firms in the market, and expected future price.

Particulars	2014	2015	2016	2017	2018
Operating expenses	US $38156 million	US $32902 million	US $32454 million	US $35172 million	US $39174 million

Table 2: operating expense of Delta airlines

(Source: Delta, 2019)

From the above table it is being observed that operating expenses that is input costs of Delta airlines has been increased in 2018 compare to 2017( Delta, 2019). This is due to the reason for increase in fuel prices as well as profit sharing. In order to provide more services to the customers, Delta airlines have been upgrading their cabin seats so that customer experience can be enhanced. According to Atkinson, Ramdas & Williams (2016), Prices of substitutes such as travelling by bus or train does not impact delta airlines as travellers do not use these substitute products unless it is a short trip. Number of airline companies is high in USA making it a highly competitive market. Expected future price of flights can increase due to high fuel price.

Determination of price elasticity of demand of delta airlines products

Price elasticity of demand can be referred to as economic measure through which change in purchase of quantity demanded product can be measured with the change in price (Zoutman et al. 2018). Price of flights provided by delta airlines fluctuates over the time. It is identified that in comparison to other airline companies delta airlines usually charges more. They focus more on creating brand awareness by implementing strategic marketing decisions. Reasons for fluctuation of prices are mainly due to the reason of high fuel price and changes in corporate tax in USA. Price of flights in airline industry depends for many reasons such as number of seats available, cost of service provided, date and time of purchase, and choice of fare class. It is being identified that price elasticity of demand for products and services provided by delta airlines to be elastic as demand for product increases more than reduction in price.

Explanation of factors affecting consumer responsiveness to price changes

With the help of determinants of price elasticity of demand, factors affecting consumer responsiveness to price changes can be analysed. According to Miller (2016), determinants of price elasticity of demand includes availability of substitutes, passage of time, market definition, share of budget, and necessity or luxury. Substitute available in the market does not pose a threat to delta airlines as most of the customers prefer to use flights for their travel instead of other means of communication such as bus or train. So changes in prices of substitutes will not affect delta airlines profitability. Most of the customers using delta airlines purchases flights out of necessity. Most of the purchases are done for business purpose. However, it is observed that premium cabin seats of delta airlines are being sold more than economy seats. This means that customers are also purchasing flights to enhance their flight experience. It also means that price changes can impact customers purchasing behavior. As mentioned by Wang et al. (2015), airline industry has seen an increase in their market share over the years in USA. Due to slack in tax rate many airlines companies is getting benefit in terms of increase in revenue.

Impact of price elasticity of demand on firm’s pricing decision

Relationship between price elasticity of demand and total revenue can provide an overall understanding of the pricing decisions of the company. According to Chen (2016), if demand is inelastic then rise in price will lead to increase in revenue. However it will lead to reduction in demand for products in the market. When demand becomes elastic then a fall in price will lead to rise in total revenue as well as fall in price will also increase demand of the product or services in the market. If the demand is perfectly inelastic then changes in price impacted on changes in revenue will be similar (Zou et al. 2016). Price elasticity of demand of Delta airlines is elastic in nature. It means that fall in price of air tickets will increase the customer base resulting to increase in total revenue. As per the views of Madsen Dillon & Tinsley (2016), costs incurred by the company due to increase in fuel price have resulted to increase to flight tickets in the year 2018. However, Delta airlines are trying compensating pricing issue with providing better customer experience to target customers.

Analysis of company’s cost and their trends over time impacting company’s profitability

Particulars	2014	2015	2016	2017	2018
Cost of goods sold	US $32172 millions	US $27362 millions	US $22567 millions	US $24553 millions	US $27048 millions

Table 3: Cost of goods sold of delta airlines

(Source: Delta, 2019)

From the above table it can be observed that over the last five years there has been fluctuation in cost of goods sold for Delta airlines. There has been increase in 14.23% in cost of goods sold compared to 2017. Delta airlines use jet fuel in their operation which is being procured from third party vendor. Increase in jet fuel has resulted in increase in their cost of goods sold in 2018. In order to reduce carrying costs of the company delta airlines provides allowance of obsolete parts.

Application of concept of variable cost and fixed cost to evaluate output decisions

Variable costs are those costs which are associated with marginal increase in productivity. Variable costs increases when any input used for production also increases. Tsafarakis, Kokotas & Pantouvakis (2018) stated that on the other hand fixed costs can be referred to those costs which are permanent and does not change with the change in production unit. Variable costs are basically showcased in cost of goods sold because it is related to manufacturing unit of a production. On the other hand fixed costs are associated with operating expenses of a company as all fixed expenses are showcased in operational level. It is being observed that delta airlines have incurred more costs in operational level as compared to cost of goods sold.

Overview of market share of the company

In US, Delta airline can be considered as one of the active medium of transportation to the passengers. It can be reported that Delta carries 192.5 million passengers and the operating revenue of it is 44.44 US Dollar (delta.com, 2019). Among other competitors, this organization has supported business dealings with loyalty in order to get competitive advantages. Moreover, authority of this organization has supported an agenda to increase sustainability and introduce business in new location. In comparison to others, Delta has achieved 27.54% of Market share (DELTA, 2019).

Analyses of barriers to entry

As the business of airline industry is high competitive and capital intensive, it has been identified that rate of risk factors to enter new business market is high. As per the views of Gölgeci et al.(2019), in case of this high capital intensive nature, business of airline industry can face barrier to enter in new market. Though present day’s globalization can support expansion of airline industry, due to high importance of competitive rivalry from existing competitors, Delta has faced barriers to establish their business purpose.

Market structure of delta airlines

Market structures are defined as arrangements of behavior by organizations in a try to adjust market which the airlines brands operate. The market structure of any Airlines is highly oligopoly. Delta Airlines similarly is not an exception. Emerging from its bankruptcy in 2005 Delta successfully returns in 2007 and 2008 with its accusation of Northwest Airlines delta becomes one of the largest airlines (DELTA, 2019). The market is highly competitive, and lingers between monopoly and monopolistic competition, where Delta dominates the market and has domination over the product price.

Recommendation on the basis of findings

In order to increase profitability of Delta Airlines, it is important to focus on effective pricing strategy to attract the customers and retain position of them in new business environment. Following recommendations can be proposed for Delta to develop sustainable growth:

• After analysing demand and supply trend of delta airlines it can be recommended that they should also focus on providing quality service to their economy class section.

• In order to sustain in the market for longer run with the other competitors it can be suggested that they should try to reduce their flight ticket price.

• After analysing price elasticity of demand it can be recommended that they should focus more on customer’s preferences by providing more economical products to the customer.

Conclusion

Thus it can be concluded that Delta airlines is one of the tough competitor in the airline business in USA. Their best customer centric approaches have resulted in maintaining market share for the long run. However, increase in ticket price due to increase in fuel surcharge has created a negative impact on customers responsiveness to price changes. Airline industry of USA is growing at an increased pace which has provided much opportunities for airline companies.

 

Reference list

Atkinson, S. E., Ramdas, K., & Williams, J. W. (2016). Robust scheduling practices in the US airline industry: Costs, returns, and inefficiencies. Management Science, 62(11), 3372-3391. Retrieved on 13 March 2019. Retrieved from https://pubsonline.informs.org/doi/abs/10.1287/mnsc.2015.2302

Chen, I. S. (2016). A combined MCDM model based on DEMATEL and ANP for the selection of airline service quality improvement criteria: A study based on the Taiwanese airline industry. Journal of Air Transport Management, 57, 7-18. Retrieved on 15 March 2019. Retrieved from https://www.sciencedirect.com/science/article/abs/pii/S0969699716302654

DELTA (2019). Home Page. Retrieved on 10 March 2019. Retrieved from https://www.delta.com/us/en/about-delta/overview

delta.com (2019) Delta Air Lines announces December quarter and full year 2018 profit. NEWS HUB. Retrieved on 10 March 2019. Retrieved from https://news.delta.com/delta-air-lines-announces-december-quarter-and-full-year-2018-profit

Madsen, P., Dillon, R. L., & Tinsley, C. H. (2016). Airline Safety Improvement Through Experience with Near‐Misses: A Cautionary Tale. Risk analysis, 36(5), 1054-1066. Retrieved on 25 March 2019. Retrieved from https://onlinelibrary.wiley.com/doi/abs/10.1111/risa.12503

Martinez, P., (2018) Delta Air Lines hit with “technology issue,” says “all IT systems” restored. CBS NEWS. Retrieved on 10 March 2019. Retrieved from https://www.cbsnews.com/news/delta-air-lines-technology-issue-it-systems-ground-stops-atlanta-today-2018-09-25/

Pineda, P. J. G., Liou, J. J., Hsu, C. C., & Chuang, Y. C. (2018). An integrated MCDM model for improving airline operational and financial performance. Journal of Air Transport Management, 68, 103-117. Retrieved on 14 March 2019. Retrieved from https://www.sciencedirect.com/science/article/abs/pii/S0969699717301175

Tsafarakis, S., Kokotas, T., & Pantouvakis, A. (2018). A multiple criteria approach for airline passenger satisfaction measurement and service quality improvement. Journal of Air Transport Management, 68, 61-75. Retrieved on 12 March 2019. Retrieved from https://www.sciencedirect.com/science/article/abs/pii/S0969699717300704

Zou, B., Kwan, I., Hansen, M., Rutherford, D., & Kafle, N. (2016). Airline fuel efficiency: assessment methodologies and applications in the US domestic airline industry. In Airline Efficiency (pp. 317-353). Emerald Group Publishing Limited. Retrieved on 12 March 2019. Retrieved from https://www.emeraldinsight.com/doi/abs/10.1108/S2212-160920160000005012