Delta's Battle for Survival in the UK
Aviation in the UK is a major industry; on an average, about 235 million passengers and 2.3 million tons of freight are carried from and to the UK every year. Such a market is sure to attract big and small airlines; however, the aviation industry in the UK operates without a subsidy. Hence, all key players in the UK airline industry either operate commercially, or are part of the private sector.
Delta Airlines Inc., a US-based airliner, also operates from the UK. This number one airline in terms of passengers carried, No.1 in fleet size, and No.2 in terms of scheduled distance traveled, set up its headquarters at Heathrow, London in 1978. Delta's destinations in the UK include Aberdeen, Edinburgh, Newcastle, Manchester, London and Southampton. It also services the Shannon and Dublin airports in Ireland, and also operates flights to Glasgow, Scotland, on a code share basis with KLM.
Though Delta Airlines is one of the largest global carriers, it suffered a loss of $ 318 million in Q1 of 2011. Despite $ 318 million being a substantial loss, the loss on each share amounted only to 38 cents, as against the economist-estimated loss of 50 cents per share.
This situation has arisen partly because of the rising fuel prices. Delta's fuel bill rose by 29%, or $ 483 million in Q1 of 2011. This, in turn, led the airlines to increase ticket prices to recover the full costs spent on every flight. Customers all over the world have had to contend with as many as seven price hikes in 2010. Revenue generation for the airline is further being impacted by the tension in the Middle East and Africa, winter storms in the US, and the Japanese disasters. Delta is also planning on cutting down flight routes that do not produce enough revenue.
The flip side of this price increase is that the airlines will scare price-conscious customers away.
Research has established that price is the most important deciding criterion for consumers in the UK. Competition from other airlines such as Ryanair, EasyJet, British Airways and Virgin Atlantic etc., and the railways, has turned the market into a virtual battle field, where only the fittest can survive. The success of the discount airlines, or, the "no frills" airlines, as they are called, has been a veritable blow for traditional airlines. The entry of low cost carriers in the UK market coupled with the liberalization and privatization of air transport in Europe has truly made the customer the king. A customer pays at least 70% less on air travel today, than he used to 20 years ago. Hence, the leisure sector in the UK has also become price-sensitive and discretionary.
Being high priced is one of the most important factors that might work against Delta Airlines in the UK. If Delta continues to procrastinate in regard to its high prices, it risks being ousted from the UK market by the discount airliners, which provide almost the same service, with the exception of a few frills. A price-conscious customer will have no problem forgoing a few services, in order to get the best price. Demand for air travel in the UK is projected to grow in the medium and long term. If Delta can work on its customer service, reduce its ticket prices, and work on its technology to attract more customers, it can hope to survive the uncertain future that threatens airlines in the UK.
The big question is
- In the wake of rising fuel prices, will Delta airlines be able to reduce its ticket prices to attract price conscious customers in the UK?
- Will it be able to survive the battle that rages between established airlines and the "no frills" airlines in the UK?