Delta Airlines Political Environment

Delta Airlines is headquartered in the United States. The airline industry is heavily-regulated, in particular where public safety is concerned. The airline industry was also transformed in the late 1970s by deregulation, a process which has opened up competition and created the conditions for the industry consolidation that is still ongoing today (The Economist, 2013). Most of the legal/political environment for Delta is the FAA, or Federal Aviation Administration. This is the body that governs the airline industry, and sets the standards by which airlines must operate.

There is no discrimination between airlines by the FDA. The Department of Justice is also a factor, because that department governs the mergers between airlines in order to ensure a competitive market. Thus far, airline mergers have been permitted, and there are still protections from the FAA with respect to foreign carriers and their ability (or lack thereof) to operate on domestic U.S. routes. Thus, in general, the political environment is neutral.

The restrictions placed on the industry increase costs -- and safety -- and airlines have been able to merge, but competition in the industry has made it difficult for many airlines to operate profitably with any sort of consistency. There are just enough regulations to keep industry costs high -- though arguably this offsets potential lawsuits that would surely occur if there was cost-cutting by a company like Delta.

Non-aviation operations are much less stringently-regulated than the aviation regulations, so in that sense Delta does have some flexibility with respect to how it wants to run its non-aviation operations. There are other aspects to the legal environment for Delta. The company was able to declare bankruptcy in order to restructure its pension obligations, something that has helped the company to remain in business this long (Foust, 2009).

Its merger with Northwest was also critical, and this was allowed, so the strongish Delta today exists because of a favorable political environment ten years ago. The legal environment also governs such issues as labor laws -- rules regarding hiring, firing, unions and other variables. Taxation policy affects airlines, in particular how they structure their asset bases. Further, the legal environment is important where things like communications are concerned as well -- fortunately for major airlines they are allowed to offer things like Wifi on their flights.

Government is heavily involved in health and safety, through OSHA, something that is quite important to airlines in particular, as a heavy machinery industry. Globally, the political/legal environment is generally unfavorable for airlines. In basically every country, domestic flights are run by domestic airlines. The airline business is typically viewed by governments as a national security issue, and they all protect their domestic markets from foreign competition. So a foreign airline can fly from a foreign country into the U.S., but cannot fly between two U.S. cities.

The same holds true outside of the U.S. This limits Delta's operations to the domestic U.S. routes, and to routes between the U.S. and a foreign country. There is a cap, then, on the degree to which Delta can expand. On international routes, it then must compete with the other major U.S. airlines, and whatever foreign carrier runs that route as well. So for example, the New York-London route is served by several American and British airlines, and competition on a route like that is intense.

Delta has the opportunity, however, to service other niches. For example, it is the only U.S. airline to fly to Johannesburg (South African also flies to the U.S., but not to Atlanta, where Delta flies). Nevertheless, trade restrictions on airlines in the global market are some of the strictest in the world, a fact that influences the ability of Delta to gain profitability through global expansion. Thus, there are several barriers for the airline industry.

There are high barriers to entry in terms of meeting the guidelines for flying, because this industry is heavily-regulated at both the national and international levels (Snider & Williams, 2011). Delta is restricted from expanding internationally, and therefore must work within the U.S. domestic system, and with a handful of international routes. The longer international routes are often more lucrative, though there are some that are highly competitive and therefore not as profitable.

It is difficult to find truly profitable domestic routes -- other airlines will target any route that emerges as profitable. So for Delta, the key issue is access to expansion, either through organic route expansion or through the ability of the company to merge with another major airline. Both seem contentious at the moment. The international political environment with respect to airlines is not going to change any time soon.

The airline industry is starting to become concentrated, and there is genuine risk that the Department of Justice will not allow any further mergers among the major airlines. Without the ability to merger or to expand internationally, Delta is essentially constrained at roughly its current size. It will be a target for smaller companies, especially discounters, to win market share. Delta will face diminishing returns in its quest to find profitable.