Delta created its separate subsidiary in response to competitive threat of low-cost airlines. In addition, its subsidiary used pilots of its parent airline with independent decision-making authority. Does song have an effective strategy? Evaluate strategies by using three tests of effectiveness?
Low-cost airline:
Faster growth of low-cost aviation industry with homogenous service makes this industry fragmented across the United States. Delta airline was expanding its business into low-cost airline segment by launching new independent subsidiary by the name of Song. Song’s primary business model was to target women and the segment of business class people. In effect to reduce the cost, Song management decided to fly high load factor on the drag of 900 miles. Moreover, the company increased the number of
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Since opportunity to target women was catered by Song, it shows how well they are consistent with external consistency. The threat of competitors declined as well because of their sound strategic implementations. Moreover, we can judge their external consistency by applying porter five forces model.
Porter five forces model
• Threat of new entrant: Threat of new entrant is quite low because of high capital requirement and lower margins in low-cost airline segment. In addition, market share in this segment is fragmented, which is why it not that easy to snatch market share from existing employees.
• Threat of substitute goods: Threat of substitute good is high in this industry. If a private company or government introduces any fast road transportation services in the United States, then traveling through airline can reduce. Air travel is somehow costlier than road transport. If the same kind of leisure will be provided in public transport with greater speed, then the share of airline industry can decline. This threat can be reduced if their products offer more value than other substitute