30 Part 1: Strategic Management Inputs
However, it has had significant problems making the
merger of the two systems work effectively. In fact, it
announced a major net loss for 2012 because of its prob-
lems. For example, in November 2012, a computer mal-
function (software problem) caused the delay of 250 of
United’s flights globally for almost two hours. Its res-
ervation system failed twice during 2012, which shut
down its website, stranding passengers as flights were
then delayed or cancelled. United’s on time performance
suffered and was once of the worst in the industry for
- The number of customer complaints for United
was much higher than in the past. In short, it is relatively
easy to determine why the airline suffered a serious net
loss in 2012. Yet, Delta, which performed very poorly a
few years earlier, performed better in 2014. It made a
net profit for the third year in a row. Its on-time per-
formance was about 10 percentage points higher than
United’s. And, while United is eliminating flights and
furloughing employees to cuts costs (trying to make a
profit), in 2012 Delta purchased a 49 percent share of
Virgin Atlantic to gain access to the highly valuable New
York–London routes and gates in both locations. Delta
was also one of the first airlines to introduce Wi-Fi to
passengers during flights, although most other airlines
have duplicated this service. Interestingly, the one pro-
gram most airlines have used to establish some differ-
entiation is their loyalty programs. However, benefits
of these loyalty programs have been decreasing over
time with less availability and more miles deducted.
Furthermore, research shows that airlines attrack brand
switching customers who tend to move to the brand
with the most perks for them at the time.
Certainly, some reduced-service airlines have fared
much better in most of the categories noted above (e.g.,
profits, on-time flights, customer complaints). Among
these is Southwest Airlines. Interestingly, while it started
as a low-price airline (and has maintained this feature),
it also has generally offered superior service compared
to the full-service airlines. The large airlines tried, but
were unable, to imitate Southwest. In effect, Southwest
developed its resources and capabilities which over time
allowed it to provide service much more effectively and at
a lower price than its full-service rivals. However, JetBlue
has duplicated much of Southwest’s strategy, although it
is focused on business travelers.Sources: E. Glusac, 2015, What price loyalty?, Entrepreneur, May, 16;
S. Sharf, 2015, American Airlines reports lower revenue, higher profit,
Forbes, http://www.forbes.com, April 24; S. Schaefer, 2015, Cleared for takeoff.
Forbes Asia, May, 18; C. M. Voorhees, R. C. White, M. McCall, &
P. Randhawa, 2015, Fool’s gold? Assessing the impact of the value of
airline loyalty programs on brand equity perceptions and share of wallet,
Cornell Hospitality Quarterly, 56(2): 202–212; 2013, Anatomy of 99.5%,
Delta Airlines Website, blog.delta.com, February 15; S. McCartney, 2013,
Believe it or not, flying is improving, Wall Street Journal, http://www.wsj.com,
January 9; J. Freed, 2012, Delta grabs bigger share of key NY–London
route, Bloomberg Businessweek, http://www.businessweek.com, December 11;
D. Benoit, 2012, Delta lands London space with Virgin joint venture,
Wall Street Journal, blogs.wsj.com/deals, December 11; J. Mouawad, 2012,
For United, big problems at biggest airline, New York Times, http://www.nytimes.
com, November 28; C. Negroni, 2012, Good airlines news: Losing fewer
bags, New York Times, http://www.nytimes.com, August 6.- How important is the environment to the performance of air-
lines in the airline industry? What does this suggest regarding
the industrial organization (I/O) model to explain how firms
can earn above-average returns? - Why is there a lot of imitation in the airlines industry, and how
does this affect firm performance?
3. How important is the resource-based model to explain how
well firms perform in the airlines industry?
4. How can strategic leaders be successful in an industry like the
airlines industry?
Case Discussion Questions
NOTES
- D. J. Teece, 2014, The foundations of
enterprise performance: Dynamic and
ordinary capabilities in an (economic)
theory of firms. Academy of Management
Perspectives, 28: 328–352; D. G. Sirmon,
M. A. Hitt, R. D. Ireland, & B. A. Gilbert,
2011, Resource orchestration to create
competitive advantage: Breadth, depth and
life cycle effects, Journal of Management,
37: 1390–1412; D. G. Sirmon, M. A. Hitt, &
R. D. Ireland, 2007, Managing firm resources
in dynamic environments to create value:
Looking inside the black box, Academy of
Management Review, 32: 273–292.- J. Denrell, C. Fang, & Z. Zhao, 2013,
Inferring superior capabilities from
sustained superior performance: A
Bayesian analysis, Strategic Management
Journal, 34: 182–196; R. D’Aveni, G. B.
Dagnino, & K. G. Smith, 2010, The age
of temporary advantage, Strategic
Management Journal, 31: 1371–1385;
R. D. Ireland & J. W. Webb, 2009,
Crossing the great divide of strategic
entrepreneurship: Transitioning between
exploration and exploitation, Business
Horizons, 52: 469–479.