Delta Air Lines business model is to cater to business and professional travelers rather than compete in the price, and therefore margin, sensitive discount air line segment for the infrequent, leisure traveler. Their operating model is to provide quality service and cater heavily to their frequent fliers with an emphasis on the business traveler over the leisure traveler.
Similar to Starbucks’ strategy of focusing on employees that are on the front line of employee interaction, Delta takes great care of their flight attendants. A happy flight attendant leads to a great experience for a traveler which leads to loyalty and repeat customers. Delta flight attendants are so satisfied from shared on call time, profit sharing, etc. that they continuously vote down attempts by a minority group of flight attendants, mainly previous Northwest employees, to unionize. Delta flight attendants are the only group of flight attendants that is not unionized. The flight attendants have so much pride in Delta that they wear the “Flying D” as a symbol of Delta pride and gift them to certain frequent fliers. (Note: I proudly have a Flying D and wear it when I fly Delta.)
To balance the operating model with the business model, Delta has recently changed their frequent flier program, known as Skymiles. No longer is Medallion status achieved only by flying a certain number of Medallion Qualifying Miles (MQMs) or Medallion Qualifying Segments (MQSs), customers must now achieve a minimum spending level known as Medallion Qualifying Dollars (MQDs). This additional qualification has made Medallion status more exclusive which translates into an increased proportion of business travelers flying on Delta as they are less price sensitive than the occasional vacation traveler. An increased proportion of business travelers increases the dollars per seat for Delta which flows through to the bottom line. The remaining Medallion members also benefit from the new, more stringent system as upgrades are more likely as the pool shrinks. There is also the added benefit of a decrease of crying babies on the plane (no one wants to hear a crying baby on a plane. No one. Fly Southwest if you want to hear that.) To avoid completely alienating the hybrid business/leisure traveler and to cross-sell their co-branded American Express credit card, the MQD requirement can be waived with a minimum $25,000 spend on the credit card. After introducing the MQD requirement in 2014, Delta executives realized the MQD requirements were too low and increased each level by $500 but maintained the credit card waiver based upon annual spend.
To cater to the business traveler population, Delta has the most flights with wifi available through GoGo internet service and has plans to have their full fleet wifi capable by the end of 2015. While GoGo internet does require an additional fee to be paid, Delta Studio is available for Delta One (first class) and Delta Economy Comfort + (“second class”) passengers without a charge. This approach caters mainly to the business traveler that needs to get work done while traveling but still appeals to the leisure traveler. Other air lines are struggling to equip their aging fleets with wifi to counter this competitive advantage.
A combination of the superior customer service, increased focus on business travelers, combined with low oil prices has led to record profits for Delta Air Lines which is the best proof of their operating model leading to success in their business model.