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david
It's about FREAKIN' time!
Delta to launch new low-fare carrier next year
By RUSSELL GRANTHAM
Atlanta Journal-Constitution Staff Writer
Delta Air Lines is creating a new low-fare subsidiary that will replace its Delta Express brand. The new brand, which will launch next year, will feature mostly fares of between $79 and $299 one-way.
Delta said the carrier, which will have its own look and separate workforce, will compete head-to-head with other carriers in the low-fare market segment.
But the carrier won't make stops in Atlanta, at least initially. Instead, flights will be focused on "major high density" leisure markets between the Northeast and Florida, including Boston, New York, Fort Lauderdale and Orlando. Delta said the unit may expand service to Atlanta, other hubs and other parts of the United States "as the brand takes off."
Facing 'a real threat'
Leo F. Mullin, chairman and chief executive officer of Delta, said the new low-fare strategy reflects a new reality.
"We have previously noted that low-fare carriers represent a real threat to Delta - substantially more than that from other hub and spoke competition, " Mullin said in announcing the launch. "Low-fare carriers have been making significant inroads particularly during this period of extreme financial duress for the industry."
Mullin added, "Even in the midst of these challenges, Delta intends, through the actions announced today, to meet the low-fare carriers head on - first to halt their progress and then to regain competitive share. The goals are an enhanced competitive position for our company and higher profitability."
Mullin said the airline will represent about 10 percent of Delta's capacity. "That magnitude of commitment is very significant. We have very high hopes for this," he said.
Among the features of the new low-fare subsidiary :
Delta said it expects the new operation to fly passengers for about 20 percent less than Boeing 757s in its mainline operations. It will sell most tickets on its own Web site, use fewer flight attendants, and convert the jets to an all-coach, 199-seat configuration, among other measures.
This service will initially operate in the Northeast-to-Florida market, with later expansion across Delta's U.S. flight network.
The unit will operate as a wholly-owned subsidiary with 36 Boeing 757 jets. The planes will have all-coach configurations and 199 seats per aircraft.
John Selvaggio, 56, named in August to lead the new low-fare strategy, will become president of the new subsidiary. Selvaggio had been senior vice president for airport customer service before being tapped to lead the new low-fare strategy. Before joining Delta in 1998 he was an executive at US Airways and Midway Airlines.
The growing clout of discount carriers such as Southwest, JetBlue and AirTran has added to big airlines' woes during the industry's losing streak of nearly two years. Large, full-service carriers must match the discounters' lower fares even if they cannot match their lower cost structures.
Result of '2,100 action items'
Delta has had a team working on a low-cost strategy since August.
Selvaggio said the airline's project team made a list of "2,100 action items" to drive costs down to the level of low-fare carriers, which typically can fly each seat for less than seven cents per mile.
"We've identified means to reduce unit costs to a number that begins with a seven," he said.
Selvaggio said the 757 jets, which currently have both first class and economy class, with 140 to 180 seats, will be modified to all economy class, with 199 seats.
Without a first-class section, the jets will have four flight attendants instead of five or six currently.
Selvaggio said the jets will also fly longer and make more trips each day, averaging 13.2 hours instead of 10.7 hours a day. Delta said it expects to cut 30 minutes from the average time it takes to turn the 757s around at the end of trips.
Delta officials said, however, that they won't be asking for pay cuts or other concessions from employees to push costs down.
"We will not be asking for any concessionary wages from any Delta employees," Delta President Frederick W. Reid. "We have made the decision to deploy Delta employees with Delta working conditions on this product."
Delta said it hopes to forge a distinct culture within the subsidiary focused on costs and productivity. The airline said it will choose current Delta employees through a bidding and interview process expected to start next week.
Delta and American Airlines have been experimenting with cheaper business fares and simpler fare structures in certain markets, according to industry analysts.
American, the nation's largest airline, knocked 40 percent off walk-up fares on about two dozen routes, mostly out of its hub at Dallas-Fort Worth.
Delta, the nation's third-largest airline, likewise began testing discounts of more than 20 percent in August on some more restrictive fares in a few markets, including Charleston, S.C., Spokane, Wash., and the Tri-Cities area of Tennessee, JP Morgan analyst Jamie Baker said Tuesday in a report to investors.
Reid said the new strategy reflects the reality that customers make their airline selections based largely on price.
"Our research shows that more than 70 percent of customers make their purchase decision almost exclusively on price. In response, we're making aggressive changes to allow us to better respond to our price-driven customers," Reid said. "Our subsidiary will be low-fare, and it will be unit cost competitive with this tough airline segment."
Delta Express phased out
Delta Express, the company's Florida-based, all-coach discount unit which was launched in 1996, will be phased out. The carrier currently flies between Florida and the Midwest and Northeast but does not serve Atlanta.
In a nutshell, Delta said it expects to offer a distinct and better version of its first try at a low-fare airline by offering more features and doing a better job of cutting costs.
Delta said it also hopes to set itself apart of the old Delta Express, now about half as big as at its peak, by taking a new name and look and offering new features, to be revealed by late February.
The new airline will be "different and better than the current Delta Express," said Selvaggio. He said subsidiary will have separate service employees and a separate look and feel."
Delta executives refused to give details of how it will be different. However, they hinted that Delta may not be part of the name.
"We've really found that customers want to see something distintive," Reid said in an Internet conference with industry analysts. "People had this edge of skepticism that Delta Express was just something that was part of Delta."
When an analyst asked Delta executives if they knew of an alternative to JetBlue's technology that could be used to provide live television of Delta's jets, they said they were, but declined to comment further.
Reid said the unit will avoid cannibalizing customers from its existing operations by offering a distinct brand and concentrating on point-to-point flying on routes with lots of price-sensitive customers.
The unit will avoid Delta's hub airports, at least initially, he said.
Delta to launch new low-fare carrier next year
By RUSSELL GRANTHAM
Atlanta Journal-Constitution Staff Writer
Delta Air Lines is creating a new low-fare subsidiary that will replace its Delta Express brand. The new brand, which will launch next year, will feature mostly fares of between $79 and $299 one-way.
Delta said the carrier, which will have its own look and separate workforce, will compete head-to-head with other carriers in the low-fare market segment.
But the carrier won't make stops in Atlanta, at least initially. Instead, flights will be focused on "major high density" leisure markets between the Northeast and Florida, including Boston, New York, Fort Lauderdale and Orlando. Delta said the unit may expand service to Atlanta, other hubs and other parts of the United States "as the brand takes off."
Facing 'a real threat'
Leo F. Mullin, chairman and chief executive officer of Delta, said the new low-fare strategy reflects a new reality.
"We have previously noted that low-fare carriers represent a real threat to Delta - substantially more than that from other hub and spoke competition, " Mullin said in announcing the launch. "Low-fare carriers have been making significant inroads particularly during this period of extreme financial duress for the industry."
Mullin added, "Even in the midst of these challenges, Delta intends, through the actions announced today, to meet the low-fare carriers head on - first to halt their progress and then to regain competitive share. The goals are an enhanced competitive position for our company and higher profitability."
Mullin said the airline will represent about 10 percent of Delta's capacity. "That magnitude of commitment is very significant. We have very high hopes for this," he said.
Among the features of the new low-fare subsidiary :
Delta said it expects the new operation to fly passengers for about 20 percent less than Boeing 757s in its mainline operations. It will sell most tickets on its own Web site, use fewer flight attendants, and convert the jets to an all-coach, 199-seat configuration, among other measures.
This service will initially operate in the Northeast-to-Florida market, with later expansion across Delta's U.S. flight network.
The unit will operate as a wholly-owned subsidiary with 36 Boeing 757 jets. The planes will have all-coach configurations and 199 seats per aircraft.
John Selvaggio, 56, named in August to lead the new low-fare strategy, will become president of the new subsidiary. Selvaggio had been senior vice president for airport customer service before being tapped to lead the new low-fare strategy. Before joining Delta in 1998 he was an executive at US Airways and Midway Airlines.
The growing clout of discount carriers such as Southwest, JetBlue and AirTran has added to big airlines' woes during the industry's losing streak of nearly two years. Large, full-service carriers must match the discounters' lower fares even if they cannot match their lower cost structures.
Result of '2,100 action items'
Delta has had a team working on a low-cost strategy since August.
Selvaggio said the airline's project team made a list of "2,100 action items" to drive costs down to the level of low-fare carriers, which typically can fly each seat for less than seven cents per mile.
"We've identified means to reduce unit costs to a number that begins with a seven," he said.
Selvaggio said the 757 jets, which currently have both first class and economy class, with 140 to 180 seats, will be modified to all economy class, with 199 seats.
Without a first-class section, the jets will have four flight attendants instead of five or six currently.
Selvaggio said the jets will also fly longer and make more trips each day, averaging 13.2 hours instead of 10.7 hours a day. Delta said it expects to cut 30 minutes from the average time it takes to turn the 757s around at the end of trips.
Delta officials said, however, that they won't be asking for pay cuts or other concessions from employees to push costs down.
"We will not be asking for any concessionary wages from any Delta employees," Delta President Frederick W. Reid. "We have made the decision to deploy Delta employees with Delta working conditions on this product."
Delta said it hopes to forge a distinct culture within the subsidiary focused on costs and productivity. The airline said it will choose current Delta employees through a bidding and interview process expected to start next week.
Delta and American Airlines have been experimenting with cheaper business fares and simpler fare structures in certain markets, according to industry analysts.
American, the nation's largest airline, knocked 40 percent off walk-up fares on about two dozen routes, mostly out of its hub at Dallas-Fort Worth.
Delta, the nation's third-largest airline, likewise began testing discounts of more than 20 percent in August on some more restrictive fares in a few markets, including Charleston, S.C., Spokane, Wash., and the Tri-Cities area of Tennessee, JP Morgan analyst Jamie Baker said Tuesday in a report to investors.
Reid said the new strategy reflects the reality that customers make their airline selections based largely on price.
"Our research shows that more than 70 percent of customers make their purchase decision almost exclusively on price. In response, we're making aggressive changes to allow us to better respond to our price-driven customers," Reid said. "Our subsidiary will be low-fare, and it will be unit cost competitive with this tough airline segment."
Delta Express phased out
Delta Express, the company's Florida-based, all-coach discount unit which was launched in 1996, will be phased out. The carrier currently flies between Florida and the Midwest and Northeast but does not serve Atlanta.
In a nutshell, Delta said it expects to offer a distinct and better version of its first try at a low-fare airline by offering more features and doing a better job of cutting costs.
Delta said it also hopes to set itself apart of the old Delta Express, now about half as big as at its peak, by taking a new name and look and offering new features, to be revealed by late February.
The new airline will be "different and better than the current Delta Express," said Selvaggio. He said subsidiary will have separate service employees and a separate look and feel."
Delta executives refused to give details of how it will be different. However, they hinted that Delta may not be part of the name.
"We've really found that customers want to see something distintive," Reid said in an Internet conference with industry analysts. "People had this edge of skepticism that Delta Express was just something that was part of Delta."
When an analyst asked Delta executives if they knew of an alternative to JetBlue's technology that could be used to provide live television of Delta's jets, they said they were, but declined to comment further.
Reid said the unit will avoid cannibalizing customers from its existing operations by offering a distinct brand and concentrating on point-to-point flying on routes with lots of price-sensitive customers.
The unit will avoid Delta's hub airports, at least initially, he said.
