Delta Airlines & Innovation

According to our class readings about innovation, there are several key aspects
that a company, particularly one in the airline industry, should consider if it wants to
become "innovative." In Peter Drucker's article "The Discipline of Innovation," the
author defines innovation as the effort that a company makes to increase a company's
potential through focused and directed change. Drucker notes that there are multiple
resources that a company can look to for innovation opportunities, including industry
and marketing changes, unexpected occurrences, incongruities, process needs,
changes in perception, demographic changes, and new knowledge, for which the
accessibility of, as Friedman highlights, is expanding exponentially. Companies should
examine these resources for potential innovation using the framework of Porter's "Five
Forces that Shape Strategy." In the airline industry, big companies such as Delta have
recently found it very difficult to attempt to counter the threat posed by new low-cost
carrier entrants, whose fleets are made up of a single type of jet craft, which helps to
counteract the bargaining power of suppliers, and who lack labor unions that they have
to contend with. With these low-cost carriers and the advent of instant internet price
comparisons, combating the bargaining power of customers has also proved difficult for
the major airlines. To temper the threat of substitute products or services and limit price
wars arising from rivalry among existing competitors, for which the major airlines cannot
win, airlines need to offer products that differ significantly from competitors' products
and provide wider accessibility. Since Delta cannot compete with the prices offered by
the low-cost carries, it is putting resources into the expansion of its international travel,
which is a market with minimal low-cost competition and few transportation substitutes.
Airlines should also look to their core competencies for innovation. Though it did not
last, the culture of teamwork between management and labor, which resulted under the
leadership of Gerald Grinstein, can be viewed as one of Delta's core competences.
These competencies represent the collective learning of an organization that, if aligned
correctly in today's ever-evolving globalized world, can a create competitive advantage
and allow for innovative developments
Throughout the years, we have seen several examples of innovation stemming
from airlines. Widely used today, hub-and-spoke networks were first pioneered by Delta
in 1955 at its Atlanta hub. Launched in 1981, American Airlines' AAdvantage program
was the first frequent flyer mile program for a major airline. American Airlines' was also
the first airline to begin exploring the use of yield management techniques, including
overbooking and dynamic pricing. Through innovation, an organization seeks to
construct its own 'Blue Ocean,' in which industry demand creation grows instead of
cannibalizing upon itself. There are two ways that such a market can be created, either
with the formation of an entirely new industry or from within a Red Ocean, as Southwest
Airlines did, whereby it pushed the set boundaries of the airline industry and has since
managed to stay ahead of the game for a substantial length of time.
While it is possible for an airline to look to innovation, it can be less risky, more
cost effective and more realistic to aim for product renovation. As opposed to
innovation endeavors, renovation efforts concentrate on renovating and revitalizing
existing products and services. Many improvements that have been made in the airline
industry might better fit under this classification, including introducing non-stop services
in markets that previously did not exist, improving on-time performance, and replacing
first class with business class on international flights. Airline mechanization used to be
focused on the behind-the-scenes process of reservations, ticketing, payments, and
scheduling. In today's market, airlines have begun to focus more on people and how
technology can be used to improve the entire travel experience. After a long period in
which U.S. airlines were primarily focused on regaining financial stability as
bankruptcies swept the industry, airlines have begun to return to renovation and
innovation efforts in the last two years. The downside is that with these renovations
often come an 'era of fees.' Renovations in reservations, seating, and in-flight services
have resulted in rebooking fees, assigned seating fees, luggage fees, and movie, drink,
and food fees. Luckily, there are improvements that fall into the category of
technological innovations that do not necessarily carry a fee, including e-ticketing,
personalized online itineraries, digital 'identities' to speed through security clearance,
and Wi-Fi internet access on flights, which was just recently introduced by Virgin
America in May 2009.
In class, we discussed that there are five ways a company can grow its business,
by selling more of existing products to existing customers, new products to existing
customers, existing products to new customers, new products to new customers, or by
acquisition allowing a combination of the previous methods of growth. When Delta Air
Lines announced that it had chosen Richard Anderson to be its new CEO, people
throughout the industry assumed the carrier would take over a competitor; it was a
matter of when and which one it would be. Delta and Northwest Airlines were two major
airlines that had operated separately for several decades, with different passenger
policies, route structures, and corporate cultures. The theory behind the majority of
airline mergers is that they give the airlines some much needed capital by allowing for
the implementation of measures to cut costs. The "new" Delta, however, stated that it
did not plan to make any job cuts, reduce many flight legs, or release any hubs, which
did not leave for many opportunities to reduce expenses in an effort to boost revenue.
As a result, a year and a half after Delta closed acquisition on Northwest, the combined
entity is still reeling with problems associated to the merger. Both the combination of
two completely separated operations control centers and the integration of two massive,
complex reservation systems, and their associated websites, has yet to be complete
and is, in fact, not expected to be so until at least another year. Delta now has the
added issue of a possible unionization of two previously non-unionized groups within
Delta, flight attendants and ground workers. Delta may have been trying to "grow" its
business by acquiring Northwest Airlines, but the merger has appeared to only
accomplish creating a bigger company that is still plagued by the same record-high oil
prices problems and now the possible creation of an even stronger labor union to
contend with.
With added government, regulatory, and security issues, increasing fuel costs,
shifts in consumer travel behavior, and major changes in the competitive landscape,
airline companies need innovative thinkers to step up in order to be able to survive.
Peter Drucker notes that as opposed to genius, innovative work requires knowledge.
Thanks to 'information arbitrage,' in an age of globalization, as discussed in The Lexus
and the Olive Tree, knowledge now has widespread availability and spreads more
quickly than it has in the past. "Continued innovation represents an important
opportunity for travelers to get what they want while enabling airlines to differentiate
themselves and build brand loyalty," Saabira Chaudhurt, staff writer for
FastCompany.com. Going forward, the biggest challenge for airlines is going to be
whether they will be able to make the innovative changes that are necessary to meet
the future needs of customers before they are swept under by globalization wave.

REFERENCES

Adams, Marily. "Delta takes its time to get NorthWest Merger Right." USA Today.
March 10, 2009. http://www.usatoday.com/money/industries/travel/2009-03-09-airline-
merger-Northwestdelta-N.htm

"Chapter 11 FAQs." Delta Website.

http://www.delta.com/about_delta/deltas_restructuring/chapter_11_faqs/index.html

De la Merced, Michael J. "US Airways Withdraws Delta Offer." The New York Times:
Merges & Acquisitions. Jan. 31, 2007.
http://dealbook.blogs.nytimes.com/2007/01/31/delta-committee-backs-standalone-plan/.

"Gerald Grinstein" "Frequent-Flyer Program" "History of Delta." "Hub and Spoke

Field" "Yield Management." Wikipedia. http://en.wikipedia.org/

Gimbel, Barney. "Why Delta-Northwest Won't Work." CNNMoney.com. Feb. 21, 2008
http://money.cnn.com/2008/02/20/news/companies/delta_northwest_analysis.fortune/in
dex.htm

Sarkar, Christian. "Renovate Before You Innovate: An Interview with Sergio Zyman."
Emory University's Goizueta Buisness School: Zyman Institute of Brand Science.
http://www.zibs.com/zyman.shtml

Weber, Harry R. "Merger Rumors May Start Over Delta's Pick For CEO." The Seattle
Times. Aug. 22, 2007. http://seattletimes.nwsource.com/cgi-bin/PrintStory.pl?
document_id=2003847316&zsection_id=2--750727&slug=deltaceo22&date=2007082

Weber, Harry R. "New Delta Directors Must Choose CEO." USA Today. April 15,
2007. http://www.usatoday.com/money/economy/2007-04-15-1348203948_x.htm

Yamanouchi, Kelly. "Union Issues Still Vex Delta." The Atlanta-Journal Constitution.
Nov. 16, 2009. http://www.ajc/buisness/union-issues-still-vex-199500.html?
printArticle=y