another interesting article......
Another interesting aviation article for your entertainment........
Low-fare Delta unit landing at NY airports
La Guardia flights complete strategy, but JetBlue is the gold standard
By Tommy Fernandez
Published on August 04, 2003
Delta Air Lines ups the ante in the discount air travel game today by launching its low-cost Song service out of La Guardia Airport.
The move completes Delta's four-month expansion of Song to all three major metro airports. The company is seeking to drum up interest in the brand as a "cheap chic" alternative to JetBlue Airways Corp. for the vital routes between New York and Florida. Locally, JetBlue operates only out of John F. Kennedy International Airport.
"It's not a question of whether we can compete with JetBlue; it's whether JetBlue can compete with us," says David Pflieger, Song's vice president of operations. "We offer more choices for airports, choices of food on the airplane and choices of times to fly."
Much to prove
Still, travel agents and other industry sources note that Song, which launched in mid-April, has yet to prove itself. And in pitting itself against Queens-based JetBlue, it's taking on one of the few airlines that's thriving these days.
Song will operate out of the Delta Terminal at La Guardia, as it does at Newark Liberty International Airport. It operates out of Delta's international terminal at JFK. With the expansion, Song is running a total of 22 daily flights from all three airports to West Palm Beach, Fort Lauderdale, Orlando, Tampa, Fort Myers and Atlanta. It plans to have 36 daily flights as of Oct. 1.
The new carrier is Delta's second foray into the no-frills arena, which accounts for more than 20% of air travel today. Song boasts a fleet of 36 Boeing 757s that are 3 years old on average. Its airfares to Florida destinations are comparable to JetBlue's, ranging from $75 to $230 one-way.
Customer confusion
Delta is using Song to replace its 7-year-old Delta Express line, which will cease operations on Aug. 31. Delta Express, Mr. Pflieger says, simply could not compete with low-cost carriers like JetBlue on the East Coast and Southwest Airlines across the Mississippi. Its airplanes, Boeing 737s that are 20 years old on average, are too expensive to maintain. Moreover, there wasn't any independent management to focus on distinguishing the brand from the mainline Delta, which led to customer confusion.
"People would hop into the Express planes and ask, `This is Delta-where is the food; where is the service?"' Mr. Pflieger says.
Customer dissatisfaction with Delta and the other major carriers has led to JetBlue's gains. J.P. Morgan aviation analyst Jamie Baker estimates that JetBlue controls nearly 21% of the New York-to-Florida market, while Delta and Continental Airlines each hover at 22%. JetBlue accounted for 19% of JFK's total traffic during the 12 months ended in May. Delta represented less than 6%.
JetBlue was one of the few airlines to actually post a profit in the second quarter this year. Its net income for the quarter was $37.9 million, or 55 cents per share, up 160% from results in the year-earlier period. Delta lost $237 million, or $1.95 per share, in the same quarter.
"JetBlue is really taking a bite out of the airlines out of New York," says James Gilliland, a director at Fitch Ratings. "Introducing a new low-cost service for the East Coast seems like Delta's answer to that."
A spokesman for JetBlue shrugged off Song's expansion, declaring that La Guardia is vulnerable to inclement weather. The airport, which operates just two runways that intersect, has to shut down one of them when visibility is too low, resulting in long lines for takeoff. In addition, because La Guardia is so small, it doesn't allow for much expansion.
"You could fit 10 La Guardias in JFK," the spokesman says. "We're not planning on expanding beyond Kennedy anytime soon."
Although there is a lag of several months before traffic figures are released for new airlines, anecdotal evidence among travel agents indicates that awareness of Song is growing only gradually.
Low-key publicity
"Delta has not really publicized the airline, so a lot of passengers are not even aware of the existence of this new carrier," says Moises Lugo, an agent with Liberty Travel.
Furthermore, the aviation industry is rife with examples of failed low-cost subsidiaries launched by the major airlines. These include Continental Lite, MetroJet from US Airways, and United Shuttle.
Many experts say that the large carriers simply can't compete in the low-fare market because their costs are too high.
Major carriers generally have a hub-and-spoke system, in which principal flights are routed through the airlines' main airports or hubs; in the case of Delta, that's Atlanta, its headquarters city. This structure is good for pooling passengers for long-distance flights but leaves the large carriers facing higher overhead than the low-cost airlines, which simply fly planes back and forth between a handful of destinations.
Higher salaries
The major airlines also have higher costs related to wages. According to Plunkett Research, Delta spends 44% of its revenue on wages, while JetBlue spends only 25%.
Mr. Pflieger argues that Delta can succeed with Song because it is implementing cost-cutting methods that nobody else has used.
For example, airplane downtime results in significant costs for carriers. After a flight, it can take as long as 90 minutes for passengers to exit and for the crew to reload a plane; that means that most carriers get to use their planes for maybe 10 hours or less in an 18-hour day.
Song has been able to cut downtime to less than 50 minutes by having cleaning crews enter planes before all the passengers have left and by installing conveyor belts inside its cargo bays to speed up loading. Consequently, it gets almost 13 hours of use from its planes in an 18-hour day.
Because of the minimized downtime and wage concessions from Song's nonpilot employees, Mr. Pflieger says, the average passenger cost per mile is roughly 7 cents, 22% lower than Delta's cost. JetBlue says its passenger cost is 6.25 cents per mile.
JetBlue Chief Executive David Neeleman says that success is still a long way off for Song.
"Delta's Song makes a lot of promises, but we've yet to see a lot of the things they've been talking about," he says. "It's one thing to tell people how good you are; it's another when the customers themselves are telling you you're doing a great job."
Copyright 2003, Crain Communications, Inc
