AirTran's going to SFO

[Heavy Set]

Fins,

I didn't know you got an MBA at Harvard? Your gloomy predictions seem to contradict most Wall Street analyst predictions... What do you know that they don't know?

Delta has numerous assets that it can leverage - a strong international route structure, frequent flyer program, strategic alliances and code-sharing agreements, an improving Song with a lot of potential, hundreds of various-sized RJs to provide feed, strong presence in key markets like all three NYC airports and Atlanta (most of the gates), good reputation for service (above and beyond LCCs) and probably the most astute management team (very well paid...) in the business. Leo, unlike you, has an MBA from Harvard and he was a super-senior banking executive at First Chicago. I tend to think that he knows what he is doing - more than you do. Delta has access to serious lines of credit - that means great LIQUIDITY. Delta, if needed in an emergency, could always do sales and leasebacks of owned aircraft to raise needed funds - only if that was absolutely needed... Delta is in good shape according to most Wall Streeters - Delta has a plan (Song, 100 seaters and maybe more CRJ 700/900s) to deal with LCCs and eroding market share - all other majors have ZIP.... But guess what - they aren't telling you what's up their sleeve... Seems like every pilot out there thinks he's an airline management genius... Guess what - you ain't!

Sure, AirTran and Jetblue are making inroads, but Delta is by far the strongest of the majors - and it is executing well. Debt is not the critical factor here - cash flow is. So long as Delta can cover its debt service with its cash flow it is fine. Given Delta's strong balance sheet (ample assets) and access to huge lines of credit, I wouldn't be too concerned... The economy is gradually improving and business passengers will come back eventually. Were you aware that the economy is improving - do your predictions account for that? Delta will do what is necessary to continue growth and profit - it is a public company and a smart guy like Leo has a lot of stock on the line...

I think this AirTran post has gotten a little off track - don't you? Time to shut it down...

Cheers

 

[Ty Webb]

Originally posted by Heavy Set

Leo, unlike you, has an MBA from Harvard and he was a super-senior banking executive at First Chicago.

Uh, great post up to here. Leo has always worked in government-regulated industries, and he is hardly an innovator. His one big change at First Chicago was to attempt to institute a charge to use a teller, and it caused a hue and cry that made all the media forms for weeks, a PR nightmare. His other big job was at Com Ed, another government-regulated non-innovative utility that was often in the news in an extremely negative light (remmeber the brownouts in Chicago that "Killed" a few thousand one summer?


Leo the Innovator, not really. And the guy that they named to head up Song was considered a buffoon by most at Midway . . . .


As for that "Delta Service", this may come as a surprise to you, but Delta is NOT known for their service. The service is so bad (ancient senior F/A's tend to do the least amount possible) thta people think that our service is good, by comparison. And, considering that half of your flying is on the RJ's, that means that half of your poeple get a little bottle of water, juice, or lemonade. That's what Delta service is these days.

What Delta IS known for, to the customers, is price gouging where you are the only one serving the market (ie Mobile, AL).

You guys are the strongest of the majors, but right now, that is like saying you are the thumb-wrestling king of the leper colony.
Cheers [/B]

 

[skykid]

"Delta is in good shape according to most Wall Streeters - Delta has a plan (Song, 100 seaters and maybe more CRJ 700/900s) to deal with LCCs and eroding market share - all other majors have ZIP...."

Heavy Set, I don't disagree that Song is a great concept. However, if you want to compete with LCCs here in the domestic market, the most important thing is to attempt to adopt their cost structure. Can't beat em - join em. If you could do this (which granted is impossibe with traditional retirements) you don't need a low cost spin-off, because you is one! The other majors are way ahead here, and Delta employees currently have no incentive to take cuts. Unless another event triggers a big downturn, the concessions might be about over. Good, I hope they keep the bar up there! Let's say American wanted to mimic Song exactly except different name and paint. How much of a raise would they have to give their pilots to match Song? 35%?

 

[General Lee]

Skykid,

To say that the whole reason an airline will fail is because the pilot pay is higher than most is ridiculous. You seem to forget that the pilots are the only ones unionized, and that gives the airline more flexibilty than most other airlines. The other employees at Song have "elected" or been forced to join it with less benefits and pay, which does help the bottom line greatly. Do I feel sorry for them? Yeah, but they should have brought in representation when they had the chance. Now Song will be hiring people on 5 year contracts with no incentives and some just get a cash bonus at the end instead of a retirement--a short retirement. This will not happen to the pilots because they do have strong representation and the company knows it. But, it allows us a little more flexibility with pay also. I never said we wouldn't take a pay cut, and I think eventually we will take one. But in the mean time, the economy is coming back, and our bills are being paid with the cash on hand---borrowed or not. It is all about servicing the debt---AOL has $24 billion in debt, but pays it off each month. I know there are problems out there that need fixing, and everyone needs to be a part of the solution. Also, we have told the company that they could have immediate cash to help, as long as we get it back in "better times." What is wrong with that? We negotiated something fairly and we are now in a bad cycle, but that doesn't mean it will never get better. the company doesn't seem to want snapbacks or a contract extension, even though we could give them paycuts right now. Doesn't that seem suspicous? I guess the management types are the only ones to enjoy the good life. We have a standing offer to help them through this tough period----it is up to them to decide. Doesn't that seem strange to you? Free money now to help the debt, but give it back when times get better. We aren't stupid.

Fins,

I think you might need some anti-depressants. Ever since you heard that Dalpa was lying to us and even admitted it at the meeting---you have gotten more gloomy on this forum. That's funny, no one has said anything on our Dalpa forum about your "lie" that was exposed at the meeting---of course, they control our board too---they control the world. Come on. You are nervous about losing your CR7 Capt seat, and that is controlling your emotions. You are in this like everyone else-----"me me me me me." That is a common theme here, for all of us I guess. Try thinking about other people for a change--like the 1310 out on the street. You have it a lot better than they do. Your situation will change and you will see that CR7 Capt seat again. As far as Chap 11 goes, our managment has stated that we are in no way even close to a Chap 11 (CFO Michele Burns said that--and she should know) Analysts like Susan D'Onfrio keep singing our praises. But, they all do want our pilot wages to come down, and that is because they want labor costs to come down. I think they should also take pay cuts, but I bet they would disagree. I am not blind when it comes to our debt payments, and I think we will deal with them eventually, as a family. You can't just single out one group, especially since the others do not have protection---paid protection. That is too bad for them, they should have protected themselves. And, if you were in my same position, you would think the same. Believe it. Atleast the economy seems to be coming back, that should help.

Ty,

Yeah, a lot of our flight attendants at mainline are old and grumpy, and I think managment is starting to see that. They shouldn't have furloughed all of the younger ones. Song has gotten some of those spunky ones, and I think that will help them. But, they need to bring back the furloughs and let go with some sort of carrot of the older ones. But, if you were making $60,000 a year to fly once a week to Europe and sit in the back of the plane and do crosswords--would you want to give that up? Probably not.

Bye Bye--General Lee

 

[skykid]

"To say that the whole reason an airline will fail is because the pilot pay is higher than most is ridiculous."

Gen, who said that? I have never predicted the failure of anybody and to put those words in my mouth is ridiculous. I was just telling Heavy Set in my opinion Song is a drop in the bucket compared to the restructuring taking place at most other majors and used American as an example.

You go on and on about how the pilots at Delta are the only union on the property and what a great advantage that is. I agree. But, if you make all the cuts on the backs of the other employees, you are going to have labor strife with or without unions. Remember about a month ago when I told you highly paid people who don't have to work much don't retire early? Here is another basic fact of life: unionized employees usually don't take paycuts unless they are forced to.

 

[General Lee]

Skykid,

I agree with you. It is harder to get a unionized person to take a pay cut---especially since you can't just break a contract. It would be easy for Delta to slash wages for everyone else--since they have no protection. If Delta were really in terrible shape, they would do it. They just aren't doing it now because they don't want the others to unionize, and that is the gamble they are taking. We have offered to take a paycut in return for eventually getting our pay back in better times or just extending our current contract. That should be simple for them---take the money now if they need it, and in better times give back our pay. Management is chosing not to do this. Why? They could have great savings now. Please explain that to me. If the economy does come back and more business travelers come back and things get better, why couldn't they pay us what we already fairly negotiated? They don't want to. That is the answer. They want to give themselves bonuses, but don't want us to have back what we already negotiated. We have a standing offer, and they so far have rejected it. It will help them immediately. Everyone will take the same hit. IF we get a 15% pay cut, and everyone else does too, then everyone makes the same cut in their usual payments and lifestyle. Everybody must sacrifice. Even management---and they have much much more lavish lifestyles than pilots. Don't they deserve a cut too? Aren't we all in this together?

Bye Bye--General Lee

 

[General Lee]

Skykid,

Here is another Song reference---from an interview with Fred Reid on CNBC. He talks about Song and the brand name, and the cost cutting.




Delta Air Lines - COO Interview
Date: 8/20/2003; Publication: CNBC/Dow Jones Business Video; Author: Mark Haines



MARK HAINES, CNBC ANCHOR: Delta`s low fare carrier Song launching service at all three New York metropolitan area airports, the first and only low fare carrier to do so. Service will provide nonstop flights between the Northeast and key Florida leisure destinations plus Atlanta, Las Vegas, L.A. and San Juan. Here is look at Delta`s stock over the past five years.
The high back around `99 or so was 70 or better, and now we`re at 12. So let`s get an outlook for the company and talk about the airline industry, the effect of the blackout et cetera, joining us now from the New York Stock Exchange where they will be ringing the opening bell to kick off the celebration, Frederick Reid, COO of Delta Air Lines.

Good morning sir, thanks very much for being with us.

FREDERICK REID, COO, DELTA AIR LINES: Good morning, it`s a pleasure to be here.

HAINES: What is the strategy here, the regular Delta, now you`ve got Song, it seems like you are neither fish nor fowl.

REID: Well, I think maybe we are both. We are cognizant of the fact that air transportation in the country and in the world for that matter is segmenting itself into mainline hub and spoke products, regional products, low cost products and global alliances. And all of these products interact because you`ve got the same passengers traveling across these products over time, so Delta wants to play offense and defense in all of these segments.

ROBERT HORMATS, GOLDMAN SACHS INTERNATIONAL: Can I put a question to you?

You and other airlines have tried to establish airlines within airlines.

And they haven`t been overly successful. What have you learned from your own experience with Delta Express and from other airlines` experience that is going to make Song different and more successful than those experiments of the past?

REID: Well, some of those experiments have had mixed results. And I would point out that for the first three-and-a-half years of its existence, Delta Express did extremely well and had quite an effect on the passenger market as well as some of our competitors. What we`ve learned mostly is that you have to have the right aircraft, it has got to be young enough to have a long shelf life and you`ve got to come out of the blocks with a substantial cost advantage over your mainline operation. Song has come out of the blocks with a 22 percent improvement in unit cost performance. And we think if anything that unit cost difference from the mainline will grow over time.

HORMATS: How will pilot costs be different between Song and Delta?

REID: Well, we`ve - for efficiently purposes we are flowing the pilot group across the mainline product and Song, and sometimes on the very same day. So our goal, as I think you know, is to achieve greater cost competitiveness and productivity in the pilot group across all of Delta.

HAINES: Let me read you some research from Nicholas Owens (ph), who is the stock analyst from Morningstar, he says, Delta isn`t the worst airline around, given the unsustainable nature of Delta`s business model we don`t see any good reason to invest, one of our concerns is the strategy is not viable over the long-term, and he goes on to say you are either a low-cost provider like Southwest or you find some premium niche to occupy. You are somewhere in between and he, for one, feels that is not going to work.

REID: Well, there are varying opinions out there, but Delta has been around for 70 years and we plan to be around for well longer than that in the future.

HAINES: Does Delta have a net profit over those 70 years?

REID: I don`t have that number available to me, but certainly we`ve been...

HAINES: The entire industry has a net loss over those 70 years, it`s unlikely, you know.

REID: I think we have outperformed the industry average, and certainly I am not denying the fact that there is a great deal of cyclicality in here.

You mentioned the word premium, and I do want to mention that historically and even today that Delta does enjoy a revenue unit cost - a unit revenue premium, excuse me, over the low-cost competition because we offer many things that the low costs carriers do not. Nonetheless, that revenue premium has dropped over time and the cost disadvantage has grown. We are recalibrating both of those numbers and simply have to get to the point where the cost is much better and that is where we are going in the next two years with a targeted reduction of 15 percent of our unit costs.

HORMATS: Another question, you have invested a lot over the years in the Delta brand. And that raises the issue why have you decided to create a totally different brand with Song? I have seen the planes, they look pretty cool, but you have a good brand name and people recognize it, why did you decide to do something different and establish a wholly new name for this new airline?

REID: Well, the Delta brand has huge equity value and it`s got a great tradition and in my view, a great future, nonetheless, in the low cost segment, customers are really looking for differentiation and they want to know that you are going to have something that is low fare all the time, which Song is, and really makes itself - looks, feels and acts different from the mainline carrier. And that is what we are doing here. We don`t see it as an issue of dilution, we see it as an issue of enhancement.

HAINES: Next year, 2004, you have to start making contributions to your underfunded pension plan. How is that going to impact the company?

REID: We are prepared for that, that is fully baked into all of our outlook. And we`ve announced the numbers that we intend to fund in the first half of 2004.

HAINES: Two hundred and fifty million in the first quarter?

REID: We`ve given a range that goes from 250 to about 350.

HAINES: All right, sir, well, thank you very much, we wish you the best of luck with Song.

REID: Great to be here and thank you.

HAINES: Frederick Reid, COO of Delta Air Lines.



Well, he obviously wants to cut pilots costs, but has other things in the works. Some analysts like the prospects of Song, and some do not. It will be interesting to see what happens when all 37 757s roll out in DEC--and the Song brand may expand with more 757s etc. We shall see. What happens when gas prices eventually tumble in the upcoming months? Will that help the bottom line? Sure it will. All airlines will benefit, including ours. But, it would be advantagous for them to get pay cuts now. We offered it to them, but with snapbacks for us etc....

Bye Bye--General Lee

 

[enigma]

. You have to rememeber that Song uses a lot of other parts from mainline Delta to help with its efficiencies--like Delta Technology and other subsidiaries. The only expensive part is the pilots--and it looks like that won't change much. .............. With 199 seats on the 757s, is there some way you couldn't see a 7.0? Song uses Delta's fuel hedging and other programs. And, as we all know, Song will get bigger and help Delta.


Bye Bye--General Lee

General, I'm not a money man, but I do attempt to use logic when reading. So, I have to ask, if Song is essentially Delta with cramped seating flying on low yield routes, Why can't mainline Delta just increase the seating capacity of their aircraft and become profitable.

Do you see my point? You indicate that Song will benefit from its affiliation with Delta because of the efficiencies that Delta offers. I can only ask, If Delta is so efficient, then why isn't Delta mainline making real profit?

It seems to me that Delta is subsidizing Song. Maybe Songs real purpose is to be spun off onto an unsuspecting stock market and provide more cash to pay for management bonuses just before the last shoe drops at mainline. I truly hope not, because I do hope that wages can be maintained at Delta levels until I get there.

regards
enigma

 

[General Lee]

Enigma,

I hope you do get here before the wages go down, but I feel eventually they will fall from current levels. We are trying in earnest to keep them high, but we also know we have to have a solid company. That is why we have offered to cut some pay, and when things get better, as they usually do in a cycle, we would like to have them back. That is the offer.

As far as your reference to Song and whether or not it is just subsidized by Delta, I can understand where you are coming from. But, the Song employees, other than the unionized pilots, are totally different and make lower wages. The benefits are different, closer to that of a normal LCC. The planes are different inside, without a first class, and have more seats to help spread out the costs. Also, the TV systems, when installed eventually, are also only for Song at this time. But, Song enjoys the same efficiencies Delta has---like the same fuel hedging program, and stuff from Delta Technologies---something that most new LCCs do not have access to unless they pay for it. Yes, Delta will take the initial costs for starting up Song, which are high when you consider the installation of TV systems, new Paint, advertising, etc.... But, Delta also hopes to reap benefits from Song--like eventual profits. They are trying to do this by flying the planes more throughout the day etc, and lowering the wages. They might try this eventually with mainline, I don't know. And as far as selling it off, well, they haven't sold off ASA/COMAIR yet, and they have been a profitable part of our family as of late. IF Song does as well as THEY THINK, why would they sell that off too? I think they will hold on to profitable subsidiaries.

Bye Bye--General Lee

 

[wil]

General - I enjoy reading your posts and I myself enjoy drinking the company mint-julip but I have to ask, why wasn't Delta ahead of the industry? When the internet took off in the mid-nineties and the vail of voodoo pricing was being exposed why didn't Delta develop Song then? I know I'm just a "Connection " puke but since we are in the same boat- well ok I'm in the dingy, I'd like your imput. Will we continue to react or will we actually lead?

 

[General Lee]

Wil,

Good question. Will we compete or retreat? I hope we will compete. But, they will say we will have to cut costs to compete, and we all know what that means....I for one would give some back, but what about when we do well again someday? Can we have it back? Management would say NO. They would get the big bonuses, and then tell us, "Hey boys, like we said before--a Contract is a Contract, suckas!!!!"

I think alot of our downfall was due to the internet. As you probably know, the major airlines started an internet website called Orbitz. It had it's own board of directors and is essentially a side business. When all of the other websites started dumping low fares out there, Orbitz had to compete. So, they were hurting themselves trying to put out the same number (quantity) of low fares and hurting the bottom lines of the airlines themselves. So, what do the airlines do? They blame labor. I read all about this about 6 months ago in the NY times.(Whether that means anything anymore after that Jason Blair deal I do not know) In some ways, the major airlines brought this on themselves. But, we are the ones who will be paying for it......Another interesting side note is the actions of Northwest. Lately they have been the ones who have refused increasing fares $10 or so. At the same time they are trying to get labor concessions from their unions. The unions have pointed out to them that if they raise the fares $10 along with the others, then they won't have to ask for as many concessions. Northwest refuses to go along with it. Isn't that interesting? I think Northwest and the others really want to curb those labor costs above all else, becuase in all likelyhood, their bonuses depend on it.

Bye Bye--General Lee

 

[wil]

Thanks for the reply General. I wish at some point the Airlines would just draw the line on rates and say, "here is the rate to go to x" and then let the public pay to play. I am tired of discounting the flights just to get the planes filled. We cannot run the company like the Federal Government! At some point we have to turn a profit without the federal handout. I hope our unit of Delta is helping out and we can get the mainline healthy and the furloughs back. Fly safe- Wil

 

[~~~^~~~]

Fins,

I didn't know you got an MBA at Harvard?

Not Harvard, I was not impressed with their program.

Delta has numerous assets that it can leverage - Delta has access to serious lines of credit - that means great LIQUIDITY. Delta, if needed in an emergency, could always do sales and leasebacks of owned aircraft to raise needed funds - only if that was absolutely needed... Seems like every pilot out there thinks he's an airline management genius... Guess what - you ain't!

Reality check, Delta has already sold and leased back the fleet. This was news last fall and again around March of this year. Go on Yahoo and do an archived news search.

Based on my income, I'm not a pilot. Most of my income comes from consulting. Someday, it would be nice to just be a pilot.

Leo, unlike you, has an MBA from Harvard and he was a super-senior banking executive at First Chicago.

My firm was a client of Leo's and candidly, so was Delta during the Ron Allen 7.5 days. Overall, I felt like McKinsey and Co. made a mess of both places - reference my Harvard comment. Wharton mints better MBA's . Leo is savy, but has done a poor job with organized labor. If he was going to roll over, he should have prior to C2K. If he was going to fight, he should have never signed C2K.

Sure, AirTran and Jetblue are making inroads, but Delta is by far the strongest of the majors - and it is executing well. Debt is not the critical factor here - cash flow is. So long as Delta can cover its debt service with its cash flow it is fine. Given Delta's strong balance sheet (ample assets) and access to huge lines of credit, I wouldn't be too concerned...

Pan Am was the "leader" accross the Atlantic and had a positive cash flow in 1987 and most of 1988. Their "comeback" did not mean much after having nearly 18 years of losses which were financed. Debt is the critical factor, Delta's assets have been mortgaged and have become liabilities. Delta has not covered debt payments with positive cash flow, even with the government subsidies, since 9/11.

Unfortunately, the Delta pilots have decided to ignore unpleasant news, by design. As General Lee (or maybe it was FDJ's) said, there was a defacto boycott of Fred Reid's pilot meeting earlier this month and your MEC is feeding you information that they admit is misleading.

At some point pragmatism will catch up with politics and reality will come home to roost. Airtran is in the perfect position, right in the same spot Delta was when Eastern and Pan Am imploded.

Airtran does not have to do things right, they just have to survive until Delta's destination arrives. Delta has lost an engine and the MEA is above the single engine service ceiling at your current configuration. The outcome is certain unless Delta can drop some weight. (BTW even ALPA agrees with me on this, but does not emphasize the point for political reasons read your own VARS)

My AI stock is a good hedge for my airline job as long as your MEC continues to feed you the diet you are used to consuming. Why don't you guys read the news and come to your own conclusions, or get your hands on ALPA's own Economists' reports!

~~~^~~~

 

[General Lee]

Fins,

You really do need to look into a job with Delta management---they would love your style. Maybe when Erskin, our VP of labor relations---AKA labor negotiator--retires, they can hire you. Just think, you too can have a gaurunteed pension, like them. I haven't heard anything on the Dalpa website about the "lies" you were talking about, and believe me, we have plenty of militants that would love to write about it. Did you read the CNBC interview with Fred Reid that I just posted, he doesn't seem that worried. And, he was the one talking to you about the "mess" we are in. He seems pretty confident. If you like Airtran so much, then I suggest you buy even more of their stock and watch your assets grow along with them. Then, when you amass a huge pile of money, you can join the same country clubs we belong to at Delta.....Right??? That is ridiculous. You don't like Delta pilots because you think we are a bunch of pompous arses. That is so wrong. A lot of us flew at the regionals and worked hard to get to where we are, and a lot of them were furloughed and are now on the street. As far as turning a blind eye to the current situation, how about explaining why management won't give us a snapback if we loan them the money? Huh? Answer that one. We could give them money relief right now, and all they would have to agree to is giving it back when times are better--and no Arthur Andersan style accounting along with it. Management refuses. Sounds like they are the ones in denial. Oh yes, our MEC is currently lying to us---what? Why would they want to get rid of the Goose laying the golden eggs? We are ready to contribute, it is just management doesn't want to give it back eventually. Why shouldn't we all give alittle, too? During our '96 contract, the pilots gave 5% to the company, and immediately after we did that the company gave all of the other employees their 5% contibution back--so in essence we were paying the other employees. Oh, but the company can do no wrong in your eyes---they must be right. Look at your own situation at ASA and tell me how you're doing? But you worked as a consultant and deserve more....Get hired at Delta eventually and you might get more. As far as Airtran over taking us, well--we'll have to se about that one. I have no doubt that they will do well, but I don't think we're close to Chap 11---just read Fred Reid's statement again. When fuel prices fall eventually, the profits will roll in for everybody, and they are hoping to get labor prices down prior to that point. Also, I think our Dalpa negotiators have a better view of the actual finances than you do.......If you think lowering the pilot wages is the cure-all to all the problems out there, then you are mistaken. We should probably stop all Cap expenditures for the year---but that would halt all RJ's coming to you. So, in reality, you guys are really adding to our big debt payments...Thanks a lot. Here it is from the Quarterly report:
"Capital expenditures during 6 months ended June 30, 2003 totaled approximately $700 million and included acquistion of 16 CRJ-200 and 12 CRJ-700 aircraft. Capital Expenditures for 6 months ending Dec 31, 2003 are expected to be $800 million, including approximately $450 million for regional jet aircraft, some through aircraft maker financing." (still adds to debt load)

Man, we could sure use that cash back, but hey, that would stunt your growth and you would probably sue somebody....


Bye Bye--General Lee

 

[Ty Webb]

Well, I guess perspective really IS everything, because I read the transcript of that show and draw conclusions that are much different than that of the General.

Sounds to me like Mark Gaines was making Reid tap dance plenty, because what Delta has right now is an unsustainable business model, and his contention that Express made money is downright laughable.

As Joe Leonard said, "Song is a high-cost, low-fare airline" and that model is unsustainable.

Delta has a lot of potential, but the road they are going down right now isn;t the right one, in my humble opinion. And, General, before you start trying to slam me- you have no idea where I came from before I was a yoke-and-throttle operator over on Cellblock C. I will tell you this- I was in involved in several airline start-ups before I ever made my first buck as a pilot . . . . and I think I understand the industry in general and airlines in particular a lot more than you do, at least from a fiscal and operational standpoint.

Quizno's? I don;t eat that scheiss personally, but you are welcome to enjoy all you care to eat, 10-4, good buddy?