Delta LCC - "Song Air" - Is that true?

[fredflyer]

I just think that the mentality that one airline has to fail for another to succeed is not totally accurate.

Actually, it was sort of funny the other day, after we had a real problem with a "rough" sort of passenger, the captain I was with said "with our prices, we're not taking market share from Delta, we're taking it from Greyhound"

 

[BLUE BAYOU]

OK General Lee, first I'd like to wish SONG the very best. But let's address these issues: The only cost savings the new carrier is hoping to reap is from higher aircraft utilization. They will still be strapped by the high cost of labor-- Pilots, gate-agents, maintenance, and rampers; with the exception of the FAs, who will be the happy-cheery furloughed ones making half what they used to. Frequent-flyer miles only work if you can easily redeem them-- that is why the news today has Delta looking at possible legal ramifications. JetBlue will be moving on to Chicago this spring/summer, leaving a well-established service to Florida to weather the summer storms. My feeling is that all this is too little, too late for Delta who should've addressed these LCCs immediately from the get-go. Bring on the threat of war and a sluggish economy, the price of starting this new venture could be quite costly. In the end, if Delta doesn't change it's entire price structure and ways of doing business to match this potentially successful start-up, they may be competing with THEMSELVES!!!!

 

[General Lee]

Blue Bayou,

You are talking tough for an airline with only 30 airplanes. You are wrong on many fronts. First of all, only the pilots will have the same pay scales. Everyone else---mechanics, gate agents, flight attendants--all have to go through special interviews to even get on with Song. Then, their wages are a lot less----in line with yours. If you think the pilot's wages are going to bring down Song, you are crazy. Let's look at it this way----let's say the pilots took a 20% pay cut. The Capt would lose about $50 an hour, and the 757 FO would lose $25 an hour. So, Song is saving $75 an hour on a 3 hour flight from LGA (or JFK, or EWR---choices remember--choices for Pax) to FLL---so total savings is $225. What happens if you have to hold or go-around? That savings is gone. So how much will you save in 1 year by saving $225 per flight? What, about $2 or $3mil, and that will make or break an airline? Gimmee a break. You then stated something about Iraq and how that will affect us. Well, currently we are flying lots and lots of Military charters on our MD-11's and 777's. We are making more money now on those than if they were flying Pax to Europe because the Government pays us very well to take Generals over to Kuwait. The fuel issue is a non event here because we hedge over 70% of our fuel----we have a better fuel hedging system than anyone else. How is your hedging program doing? In USAToday we were called the "analyst favorite" because we have a lot more flexibility than the other majors---with only one union (well paid though), and RJ's that can be put on routes that are thin. We have $2.6 bil in cash, and another $5 Bil we can mortgage. We have an answer to your airline--Song--that will take people away from you. We are interested in picking up any routes or slots that United or USAir want to give up. Our frequent flyer program, even with this lawsuit deal, is a heck of alot better than yours, and this illegal codeshare with NW and CO will bring us business pax that want to sit in all of the airlines crown rooms etc. We will ride this out, and you will finally have some competition that will stunt your growth. Don't count out someone who is a lot bigger than you and has a lot more money and only one union.

Bye Bye----General Lee

 

[Heavy Set]

General Lee is correct.

Delta has a lot of cash and tremendous flexibility. The fact that Song will offer comparable fares to Jetblue, similar inflight service (TVs, leather seats, etc.) and the choice of three different airports in the NYC area is very compelling. UAL is broke and may be broken further. USAirways is broke and may disappear. Airtran is growing but does not have a lot of excess cash. Jet Blue is growing but cannot expect its growth rate to continue forever - Southwest never had to compete with Delta in the same way that Jet Blue will. The East Coast will become TRENCH WARFARE for the airlines.

Don't get me wrong, I really like the Jet Blue product. Delta can leverage its lucrative European network to subsidize its Song project. Don't count Delta out when the going gets tough.... Cash is king!


Good luck to all!

 

[fredflyer]

You know what I find funny, in other posts and threads, when jetBlue guys praise their company and say how well they think it will do, they get accused of drinking the cool-aid (blue juice) and being naive by guys at other airlines; but now that Delta has come up with essentially a carbon-copy of jetBlue, maybe with a few alleged improvements, some of those same people are swimming in Song cool-aid.

 

[BigFlyr]

OK General Lee, first I'd like to wish SONG the very best. But let's address these issues: The only cost savings the new carrier is hoping to reap is from higher aircraft utilization. They will still be strapped by the high cost of labor-- Pilots, gate-agents, maintenance, and rampers...

I read about it the paper today but they didn't say the pilots were or weren't going to be on the same payscale as mainline... Anyone know for sure? As for the name?... Kind of strange but at least it's not the "same ol' song"... XYZ Express...

 

[BLUE BAYOU]

On April 15th jetBlue will operate 8 flights to PBI. SONG will have one flight there on it's new 757. And I'll bet you that SONG's jet will be full-- why, because most of the flights on jetBlue are already sold out. When we started in the NE, JB used to take spillover traffic from the majors. In less than three years, the spillover traffic now goes from jetBlue to the majors. Furthermore, we're not the cheapest airline. You can fly cheaper on Delta Express to every market we fly to. I've talked to our customers, and yes they love the TV's-- but they are more impressed with our customer service and our reliablility. If SONG/Delta can reintroduce themselves into a viable service, there will be plenty of customers to go around for both JB and SONG. In the long run, it's all about making a profit. As long as JB can keep its CASM to 6.32 cents like the last quarter and continue with it's successful business model, a 36-plane fleet of lime-green hybrid LCC shouldn't affect JB. I believe SONG is a good answer to the LCCs, specifically JB, but I still think Delta is too late. SONG is not expected to be profitable until 2004, so it sounds like Delta will be burning through more of their cash in another uncertain industry year.

 

[greg20]

BLUE BAYOU said:

In the end, if Delta doesn't change it's entire price structure and ways of doing business to match this potentially successful start-up, they may be competing with THEMSELVES!!!!

What's your point here? Song is owned by Delta. If the "Song" model is more profitable than the Delta mainline model, more flying will go to Song and less to today's mainline. This could (notice I said "could") lead to an eventual scenario where a successful Song takes over most of the Delta mainline flying in the US, and today's mainline is sharply reduced or eliminated. Song is still owned by Delta, therefore Delta still reaps the benefits.

 

[Boeingman]

One thing for sure is that this Song will be the sound of the fat lady singing at USAir.

Another LCC on the east coast will be the kiss of death for them.

 

[Bill Nelson]

greg20,

You are probably right. If song became more profitable than mainline they would try to transfer flying.

The lower payscale of all employees involved with song will keep this from happening. the union realize this is a very real possiblity and so they are going to fight tooth and nail to keep the same payscale at song as at mainline, so when the flying does get transfered over, the employees aren't the ones losing out.

This union fight will prabably keep song from being to terribly successful. Song and Mainline will be hamstrung.

 

[BLUE BAYOU]

BLUE BAYOU said:



What's your point here? Song is owned by Delta. If the "Song" model is more profitable than the Delta mainline model, more flying will go to Song and less to today's mainline. This could (notice I said "could") lead to an eventual scenario where a successful Song takes over most of the Delta mainline flying in the US, and today's mainline is sharply reduced or eliminated. Song is still owned by Delta, therefore Delta still reaps the benefits.

My point exactly. The reason Continental Lite failed is because they competed with themselves. 2 Lite flights against their mainline in some routes for example. If Song should takeoff, they will take customers away from mainline where the more profitable ticket prices are. Therefore, in the end, even though Song might make money, it will be at the expense of mainline Delta. Additionally, did anybody think about how this will also impact Delta's partners Continental and NWA at EWR and LGA? I'm sure they're pleased about this venture too...

 

[greg20]

Bill,

Thanks for agreeing. You said:

The lower payscale of all employees involved with song will keep this from happening. the union realize this is a very real possiblity and so they are going to fight tooth and nail to keep the same payscale at song as at mainline, so when the flying does get transfered over, the employees aren't the ones losing out.

Delta's unionized pilots are going to be flying for Song at the same wages as they are flying mainline today. Like another participant said (sorry I forget who), most likely Delta pilots will be flying Song flights as part of their rotation. The issue of Song wages for mainline flight crews has already been taken care of. "The union" won't be fighting because they have already been given satisfactory contract terms, no matter where Song flies or what mainline flying it "steals". The remainder (and majority) of Song employees are non-union, have no contract and will be working for lower wages.


BLUE BAYOU said:

My point exactly. The reason Continental Lite failed is because they competed with themselves. 2 Lite flights against their mainline in some routes for example. If Song should takeoff, they will take customers away from mainline where the more profitable ticket prices are. Therefore, in the end, even though Song might make money, it will be at the expense of mainline Delta. Additionally, did anybody think about how this will also impact Delta's partners Continental and NWA at EWR and LGA? I'm sure they're pleased about this venture too...

Continental Lite (and Metrojet, and Shuttle by UA) failed because they used the generally ineffective 'airline within an airline' model, not necessarily because they competed with themselves. They had no differentiation in their product, marketing, or branding efforts. They claimed to be low cost carriers but were too intertwined with their parent mainline carrier to truly lower their cost struture. They had poor, vague strategies for competing. Song is a completely different product, owned by Delta and flown by Delta pilots. There is no branding confusing Song with Delta.

You said the more profitable ticket prices are at mainline? In some areas, but not where Song will be competing (leisure east coast flying, primarily, to start). Is there higher revenue at mainline? Yes. Higher costs? Yes. Less profit (more loss)? Yes. Delta mainline hasn't posted a year-end net profit since 2000. Delta may be able to command a higher average yield (systemwide) than Song will, but Delta's costs are also much higher. Song is only "cannibalizing" mainline Delta in leisure markets where Delta's cost structure is too high to compete with FL and B6. Instead of Delta posting huge losses in these markets, Song will (may) make money with their lower cost structure and the same fares that Delta (with its higher costs) has to offer today in order to compete for market share. This will free up mainline Delta resources (aircraft) that are currently operating at a loss in these NY<-->FL-type markets to expand services in other markets where they can be operated profitably. Mainline Delta losses in the leisure markets will be reduced, Song will be profitable in these markets, and the entire company will benefit from both. Sounds like a solid plan to me.

 

[General Lee]

Blue Bayou,

It is not too late for Delta----Delta has more cash and mortgageable assets than almost anyone, and that means it has time on its hands. They have recognized faster than any other major that they must do something against Jetblue. Yes, on April 15th Song will only have 1 757 from JFK to PBI, while you have 8 flights. But you are forgetting the other 400 airplanes we fly thru ATL and on to Florida. We are adding 1 757 per week painted in the Song livery. We can only add them as fast as we can paint them. It will take 36 weeks, and then Song will be as big as Jetblue. By October Song will have added all of the DirectTV and MP3 audio stuff to the airplanes, and then we will be even on the entertainment. I know your customer service is great---my brother has flown on you and liked it. Well, there are interviews for new Song employees that will weed out the old hags and boring people. Look at all of the furloughed airline employees out there that would love any job----and Song will interview and hire the "fun" ones.?? Song will eventually fly to Las Vegas and Phoenix according to John Slavaggio--the Pres of Song---probably by Dec 31st of this year. There is a chance that Delta will expand Song to more 757's, and that is fine with us--the pilots---as long as the pay for the pilots stays the same---since we have a contract. You have to remember that we have several units inside Delta that are money makers---especially in good times. The Delta Shuttle---using 737-300's (not -800's) is a great brand and will continue to bring in revenue--especially with the 737-300's. Our International flying will bring in big bucks when this Iraq deal is over---in the mean time we are making big bucks in Military charters---we were going to park the 14 MD-11's---but not as fast now with the charters. Our Atlanta hub is huge---the biggest hub in the world with the most flights, and Cincinnati does well too. We also have tons of RJ's that bring Delta revenue on each flight. And, we only have one Union---so our flexibility is better than most Majors. So, what I am saying is don't count us out. Jetblue is a great airline doing well. But we are not going to let you grow without some good competition.

Bye Bye--General Lee

 

[BLUE BAYOU]

Delta is a great airline... I have many friends there and I wish them all well. I think we're seeing a revolution in airline travel and the consumer will surely come out the winner. I understand the advantages that Song will bring to Delta, but again, what about your partner Continental out of EWR? Or NWA out of LGA? JetBlue may be the target, but at who's expense?

 

[greg20]

Don't know...

BLUE BAYOU said:

but again, what about your partner Continental out of EWR? Or NWA out of LGA? JetBlue may be the target, but at who's expense?

I don't know how this will work in regard to DL's agreement with CO/NW. I haven't educated myself enough on the terms of the new agreement to offer up an educated opinion. It will be interesting, that's for sure.