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Delta announces a new low cost subsidiary

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Delta announces a new low cost subsidiary

Old 20th Nov 2002, 13:40
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Delta announces a new low cost subsidiary

From Delta's press release:


CONTACT: Corporate Communications

Delta Air Lines Announces New Low-Fare Subsidiary
Strategy Strengthens Delta’s Portfolio Of Services;
New Service Appeals to Price-Driven Travelers

ATLANTA, Nov. 20, 2002 – Delta Air Lines (NYSEAL) today announced that it will create a new
low-fare subsidiary designed to appeal to the growing number of price-driven travelers. The main features include:
 Separate subsidiary. As a wholly-owned subsidiary of the company, the new operation of 36
Boeing 757 jets will launch in 2003 to compete head-to-head with other carriers in the low-fare market segment and to strengthen Delta’s current portfolio of businesses. The new subsidiary expects that most one-way fares to be between $79 and $299.
 Cost-competitive business model. The subsidiary will create a new, cost-competitive business focused on increased productivity and the efficient use of Delta’s current assets, including fleet, operations, technology and people. Its unit costs will be approximately 20 percent below the available seat mile costs of Delta’s mainline 757s.
 Distinct brand/customer experience. The new subsidiary will feature low fares, a distinctive brand, and amenities and services to meet the expectations of price-savvy customers. It will also feature the elements required for a discount carrier – simple low fares, low costs, high-utilization and direct purchasing methods for tickets. This service will initially operate its dedicated fleet of 757s in the Northeast - Florida market, with later expansion across Delta’s U.S. network.
“The new subsidiary announced today represents an aggressive and proactive initiative to meet the burgeoning competition from low-fare carriers,” said Leo F. Mullin, Delta’s Chairman and CEO. “We have previously noted that low-fare carriers represent a real threat to Delta – substantially more than that from other hub and spoke competition. Low-fare carriers have been making significant inroads particularly during this period of extreme financial duress for the industry. 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.”
The announcement follows intensive market analysis and planning. “We’ve listened to our customers, and we know what they want – low fares and better value,” said Frederick W. Reid, Delta’s president. “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. Our subsidiary will be low-fare, and it will be unit cost competitive with this tough airline segment,” said Reid.

“Delta’s new service will be a powerful addition to our portfolio of products that are focused on different customer needs. Delta will leverage its full array of services – including regional jets, network service through our hubs, international service, codeshare relationships and, now, a low-fare subsidiary – as a huge competitive advantage.”
John Selvaggio, 56, named in August to lead the new low-fare strategy, will become president of the new subsidiary and will report directly to Reid.
Delta plans to announce the new unit’s name, product and service elements prior to the launch of service in 2003. Details regarding the subsidiary’s business model, and marketing and people strategies follow.

New Business Model Focused on Cost Savings
The subsidiary will create a new, cost-competitive business focused on increased productivity and the efficient use of assets.
 Bigger, better aircraft. During 2003, the subsidiary will grow to 36 757s with all-coach configurations and 199 seats per aircraft. (The Delta Express Boeing 737-200 aircraft will be repositioned within Delta’s network to continue the company’s efforts to match capacity with demand throughout its system.)
 Higher aircraft utilization. Delta has developed a process that allows us to reduce the turn-time for a mainline 757 aircraft by 30 minutes and increases its utilization rate to among the highest in the industry – 13.2 hours per day, a 23 percent improvement.
Technology: The subsidiary, unlike its low-fare competitors, will be able to leverage the strength of Delta’s world-class technology infrastructure.
 Aggressive, direct distribution. Additional cost savings and productivity will be generated from an aggressive direct distribution goal of having 70 percent of all tickets purchased directly from the airline’s Web site and reservations service centers. This will be facilitated by a customer ‘self-service’ strategy that ties together all aspects of the flying experience using digital information technologies.
 Dedicated Web site. On the Web, Delta’s technology infrastructure will enable a simple, easy to use, information-rich site on which customers can purchase tickets, check-in for flights and print boarding cards from the convenience of their home or office. The airline also will feature a dedicated Web site address for the new low-fare initiative.
 Voice-activated reservations. Over the phone, customers will book directly with the airline through voice-activated technology.
 Self-service kiosks. At the airport, self-service kiosks will continue to help customers avoid lines by electronically executing high-demand transactions.
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Old 20th Nov 2002, 14:28
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Perhaps it´s not a bad idea. One of the great privileges of working for an airline is ID 90 tickets. If we (aviation proffesionals) do not want to pay a lot for a ticket, why should our passengers ?
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Old 20th Nov 2002, 15:12
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Could be suicide...remember CALite and their infamous peanut fares????!!!!!
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Old 22nd Nov 2002, 02:30
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Delta's Low Cost

Read this article in FI online version
Delta Air Lines is to set up a new low-fare subsidiary next year which will operate 36 Boeing 757-200s transferred from its mainline fleet and equipped with one-class 199-seat cabins. Offering one-way fares from $79, Delta expects the new division to have unit costs around 20% below the available seat km costs of its mainline 757 operations. Featuring a separate, yet-to-be-announced brand and no-frills services, it will initially operate the US northeast to Florida market including Boston, Fort Lauderdale, New York and Orlando, with later expansion across Delta's US network. The new operation will replace the six year old Delta Express division, which was the airline's first response to the low-fare competition. Delta says that the original plan has been successful but 'as low-fare carriers become stronger, a more powerful response is needed'.
Actually I have a question. Why operate a 757-200 with 199 seats when most charter use it in a 235 config ? Would it not be more profitable/feasible to do so in the case of a LCO or is perhaps because DAL's 75s are different models than let say. Monarch ?

Old 22nd Nov 2002, 03:13
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Low cost on the NE coast, they'll have to compete with Southwest, JetBlue and AirTran. That's going to be interesting... I remember flying MetroJet and seeing the parked aircrafts at the Mojave desert MHV one year later Let's hope Delta has learned from U.S. Air's mistakes

No idea about 752 config ...

BTW Amex, any luck yet? I have had some ... bad one, again

7 7 7 7

Last edited by Squawk7777; 22nd Nov 2002 at 03:25.
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Old 22nd Nov 2002, 03:33
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Not sure this non-UK topic is welcome here...

A couple of recent "moved" earlier threads on the subject:


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Old 22nd Nov 2002, 05:08
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AirBubba: interesting observation about geography and perspectives.

Back to the, uh, small US market.....have any major US airlines seriously planned to experiment with linear routes, other than say, Great Falls (MT)-Helena-"Frozen Midwestern Hub"? How would they distribute personnel and other resources, not to mention the critical maintenance people and numerous aircraft spare parts? They would really salivate like a dog in front of fresh red meat, at any reason to "outsource" even more work away from the highly-experienced mainline mechanics ('engineers').

Are they very concerned about the backlash from the lower (unit) cost airlines, such as Southwest, which already operated many years under conditions which require no large hubs, and whose pilots fund their own retirements, and reportedly had excellent company stock plans years ago? It succeeded very well and has been heavily unionized for many years, which is not a contradiction, as many Ppruners would want us to believe.

Even Southwest and other low unit-cost airlines have been affected by the recession and higher jet fuel prices etc, which indicates that the hub and spoke system, despite its built-in inefficiencies, has several factors which seriously influence its success, not just the business structure and higher labor costs. Look at (or close you all's eyes to-) how succesful many of the airlines were in many past years, which enabled them to grow.
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Old 22nd Nov 2002, 10:41
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what's wrong with the threads being placed in AA&R? Look how quick mil aircrashes get the bums rush to MilAircrew, even RAF/RN ones?

Delta's plans for a lowcost are not "breaking news", which is what RP is for, like that muppet in Montreal this morning.
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Old 22nd Nov 2002, 12:40
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I see what you mean... actually I am more interested in the reason behind the config chosen than the "start up".

LCOs tend to go for the highest capacity available (or at least it is the impression I have) so why lose 36 seats ?

I guess I should have posted that the questions Forum but then again it is a bit of news (as far as Flight International and I are concerned), a bit of a North American topic, a Question, something to do with airlines routes and airports, etc......

Anyway, anybody with a suggestion about the seating capacity ?
Old 23rd Nov 2002, 02:43
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No American low cost operator has seat piches anywhere near as small as the European Charter operators. In fact when European charter operators bring their aircraft to the USA on interchange (I used to do just that on the Ryan/JMC interchange) we would pull one or two ROWS of seats out of the aircraft before commencing USA operations because no American would tolerate seating that cramped no matter how cheap the flight, even as a charter operation.

199 seats is the most seats you can have with 4 flight attendants. Once you step over 200 you are required to have 5 regardless of how many people you have on the aircraft.

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