9/13/2004

Delta: Too little, too late?

Delta Airlines is planning an overhaul for the record books. Their plan to re-engineer is an effect of the success of low-cost carriers. In fact, it is likely that if something isn’t done quickly, Delta will not survive. Some fear that if the majority of their pilots decide to retire and cash in their benefits, Delta will be faced with Chapter 11 bankruptcy.

The main focus of the re-engineering is to, of course, minimize costs. Experts say they need to cut costs by $2.7 billion by 2006, and the most likely of strategies is through wage concessions from Delta pilots' union and executives as well. Some of their plans include cutting 7,000 jobs, re-structuring their network, and expanding Song.

One of Delta’s errors, in my opinion, is that their attempt is too late. It may be too late for the re-engineering plan to save them. It sounds like they know what they have to do, but time is against them. Could they have forcasted this a long time ago and dealt with the necessary changes in a different way?

2 comments:

John West said...

Delta could have possibly done a better job in forecasting what needed to be done in order to stay afloat. The same could be said for any company in the world. A firm can always improve on what it is doing, but doing so is easier said than done sometimes. There is no such thing as a level playing field in life, let alone in business. Management must always stay abreast on the latest issues while at the same time coming up with and implementing strategies that will increase shareholder wealth.

9/11 really hurt the airline industry and I'm not sure, what with all of the measurements against terrorism, that we will ever see it rebound any time soon. Imagine the rising costs of protecting employees and potential passengers against terrrorists along with the decreasing number of passengers willing to place themselves on an airplane. Faced with this constant threat, Delta is doing what it needs to do to ensure that the company can serve the marketplace in providing transportation to millions of people. A lot of people are going to lose jobs, and in the end such is not good for our struggling economy right now. No matter what the Bush Administration is saying at this moment, the economy is hurting and definitely needs to get better.

Dr. Tufte said...

The airline industry is a tough one to explain. I' not an expert on transportation economics, but there is a blog on this in the links at the left (Truck and Barter).

Right now, what you hear about is that Delta needs concessions from its pilots. But there are a long string of decisions leading up to that which we don't hear about in the news.

What I do know is that we have had periodic airlines bankruptcy waves for almost a generation now. This is a sign that we need fewer carriers. But, our bankruptcy courts keep letting these firms reorganize, and come back to life. Firms like this are called "zombies" for a reason. A good example is USAir, which is going into bankruptcy for the second time in 25 months! What we really need is for our bankruptcy courts do dissolve a few of these companies, and sell off their assets. That's what they would do if you had a little operation that went bankrupt - but they can't pull the trigger on the big ones.