Song Sung Dead?

[Flying Freddie]

Reuters
Delta to put Song expansion plan on hold-WSJ
Thursday February 5, 1:57 am ET


NEW YORK, Feb 5 (Reuters) - Delta Air Lines (NYSEAL - News) will put a much-anticipated expansion of its low-cost carrier Song on hold as it looks for more ways to cut costs company-wide, the Wall Street Journal said on Thursday.
The No. 3 U.S. carrier had planned a January cross-country rollout for Song from New York, in a bid to take on JetBlue Airways Corp. (NasdaqNM:JBLU - News) and other low-fare rivals.

The plan has been shelved on orders from new Chief Executive Gerald Grinstein, the paper said, citing company officials.

Atlanta-based Delta has announced the launch of a full-scale review of the entire business, with completion targeted by June.

Last week, Delta unveiled a major expansion out of New York's John F. Kennedy International Airport. It was announced that Song would add just two new daily flights to Fort Myers, Florida, in May. Delta's mainline service will get added flights to Denver; San Juan, Puerto Rico; Santo Domingo, Dominican Republic; and, San Diego.

The Wall Street Journal quoted John Selvaggio, president of Song, as saying the low-cost carrier's role may change after the review. "(I)t may be larger, it may be smaller. It's not really decided," he said.

Delta representatives could not immediately be reached for comment.

 

[spanky2]

Could be due to new CEO's reported desires to return to Delta's heritage. Less DCI, less code share, more Delta brand name. I tend to agree. It will be a challenge to un-do years of crushed faith and dilution of product from previous regime while staying competitive in an era of "race to the bottom" mentality.

 

[~~~^~~~]

The reason for the race to the bottom was ALPA's own policy of allowing alter ego airlines to grow and flourish. Now ALPA is putting furloughed mainline pilots at the low pay alter egos. ( IE US Air to Mid Atlantic )

Mullin and his co-horts simply took advantage of what ALPA agreed to.

 

[MedFlyer]

Song is also ending IAD-MCO service. Kind of sad that Song couldn't make it on this route considering that there is no competition from JetBlue (they fly IAD-FLL).

 

[duckman]

Certainly must mean that Song is not producing a bunch of positive cash flow/revenue--may not have been in the biz-plan to produce profit this early, but can't be making the numbers or they wouldn't put a hold on expansion...for whatever reason.

 

[zonker]

February 5, 2004


MARKETING


Delta Air Grounds
Expansion Plans
For Its Song Unit

By EVAN PEREZ
Staff Reporter of THE WALL STREET JOURNAL


ATLANTA -- Delta Air Lines is playing a different tune with its low-fare Song unit, putting a much-anticipated expansion on hold as the company conducts an operational review to find more ways to cut costs companywide.

The nation's No. 3 carrier had promised a January cross-country rollout from New York of its stylish airline-within-an-airline experiment, as it faces an assault from low-fare carrier JetBlue Airways and other low-cost rivals. Song currently flies mostly from the Northeast to leisure destinations in Florida.

Those plans for Song have been shelved on orders from new Chief Executive Gerald Grinstein, who wants to determine whether pursuing that strategy makes sense, company officials said. The review, expected to be completed by June, extends across the entire loss-plagued Delta operation, officials say. Meanwhile, Delta is in tense talks with its powerful pilots union, seeking wage concessions that the company says it needs to stay competitive with rivals.

Launched last April, Song was formed to operate at lower costs while providing perks such as leather seats and in-flight entertainment. Some of the lower costs are achieved with shorter aircraft turnaround times at airports, borrowing a strategy from low-cost carriers that get greater use of their aircraft than so-called hub-and-spoke carriers such as mainline Delta. The task is complicated by the fact that Song uses the same higher-cost Delta pilots to operate its lime-green 199-seat Boeing 757s.

Even as Delta dials back on Song, UAL Corp.'s United Airlines plans to launch its low-fare Ted airline Feb. 12. Unlike at Delta, United's employees, including those who will operate Ted, took sharp wage cuts last year after the company filed for bankruptcy-court protection. UAL also has the advantage of having cut its aircraft-lease expenses during bankruptcy. United is the nation's No. 2 airline; AMR Corp.'s American Airlines is No. 1.

Mr. Grinstein, in meetings with employee groups in December, questioned whether given its financial problems Delta should focus on lowering costs across the entire airline instead of just one part. Last week, Delta announced a major expansion out of New York's John F. Kennedy International Airport, JetBlue's base. But Song was only a footnote, with two new daily flights to Fort Myers, Fla. Delta's mainline service will get expanded West Coast service and even Caribbean leisure destinations in Puerto Rico and the Dominican Republic, the kind of markets for which Song was created.

John Selvaggio, president of Song, played down the recent developments. "Rumors of my demise have been greatly exaggerated," he said, borrowing from Mark Twain. He said Mr. Grinstein's comments weren't an indication that Song's survival is on the line, but rather a sign that the new CEO was reassessing Delta's overall strategy. "Jerry's concern was that the Song business plan was [previously] a defensive plan, and that before you take it to an offensive plan with an expansion, we need to review it to see if it's the right thing to do."

After the review, Mr. Selvaggio said, Song's role "may change; it may be larger, it may be smaller. It's not really decided."

Delta said Mr. Grinstein wasn't available to comment.

It is a surprising turn of events for a $65 million experiment that, while unprofitable, has captured plenty of buzz with a marketing strategy emphasizing cheap chic. Song staged employee "casting calls" to pick enthusiastic employees from Delta's ranks. It outfitted flight attendants in uniforms by designer Kate Spade. It hired a New York publicity firm known more for representing celebrities, and borrowed from the fashion business by opening a "concept store" in New York City's high-rent, SoHo neighborhood.

Attempts at launching an airline-within-an-airline have flopped in the past, which is why analysts, rivals and employees are closely watching Song. Delta doesn't release financial results for Song or its other units. Mr. Selvaggio said Song's load factor, or percentage of seats filled, has hovered around 70% and that he hopes to raise it to about 80%.

Mr. Selvaggio said Song already has proved to be a "good return on investment" for Delta, despite weak financial results early on. Song came up with ways to increase aircraft utilization, which Delta is adopting on some of its routes, he said. Similarly, with on-board meals, Delta is saving millions by switching to food-sales after successfully experimenting with it on Song, he said.

However, Delta's larger problems loom over any Song buzz. The company had cash of $2.9 billion at the end of 2003, but is approaching cost cutting with urgency. The company says it trimmed $1.2 billion from annual operating costs last year and is trying to find another $1 billion in savings this year. The company has about $12.5 billion of debt, of which about $1 billion matures this year. This week, the company sold $325 million in convertible debt, raising much-needed funds to meet hefty pension obligations, analysts said.

Write to Evan Perez at [email protected]1

URL for this article:
http://online.wsj.com/article/0,,SB107594110679421237,00.html

 

[SpeedBird]

Well it seems that DAL has blinked first. I heard a while back from a friend who flies for DAL that Song was not performing very well, or least below management expectations. I kept it to myself, but now it seems that there may at least some truth to what he said. It looks like history has caught up again with the idea of employing an airline within an airline does not create lasting benefits those who employ such tactics. I wonder what this means for TED's chances of success?

 

[FDJ2]

It's my understanding that GG was never a big fan of creating a new brand. From what I've heard, he preferred the idea of improving the Delta brand name instead of creating a new one. IOW, provide the "Song" experience on Delta mainline aircraft. I believe most Delta employees feel the same way. You'll still see Delta increasing capacity in NYC, GG just invested over $300M to expand JFK. This summer's shareholder meeting promises to be interesting, you might see some "sacred cows" from the Mullin era get slayed.

 

[SpeedBird]

FDJ I think you're right about that. I think Delta mainline would be far better and more logical to its best customers if the fleet was equipped like Song, versus two different brands that appear to give more to its least loyal customers. The challenge to that however is the huge cost to convert the entire fleet while still trying to manage/reduce $20 billion in LT debt.

 

[General Lee]

Time for my SPIN.

First of all, Song isn't DEAD---they have stopped the current expansion of Song, and we could all see that in that last report about future expansion. Most of the new flights (including SJU and Santo Domingo) were going to be on Mainline 757s---not Song (although they did get two Ft Meyers flights from JFK also). And, I already stated that Gerry Grinstein supposedly didn't like the DILUTION of the Delta brand name--and didn't like having a separate brand. But, Song is still out there with 36 or so 757s, and they will continue to have lower fares and compete with Jetblue. The question is: "Will Song continue or will the planes go BACK to mainline?" We aren't parking any planes here folks. Here are some other things I have heard Grinstein SUPPOSEDLY say:
1. He doesn't really like all of the RJs out there---more mainline flights are needed to compete

2. He doesn't like all of the INTL codeshares, and also would like to fly more to Asia

3. He thinks we can compete more on the West Coast (he is from Seattle---maybe we can merge with Alaska....)


And, I told you about what he supposedly thought about Song a couple weeks ago---and then this came out. Song isn't dead, the expansion of it has been put on hold until the July (?) shareholders meeting--and in the mean time the 757s that MIGHT have been going to Song will stay at Mainline....


Here is what the Jetblue people and our people also had to say:

"As JetBlue, which carries more passengers through New York's John F. Kennedy Airport than any other airline, continues its rapid growth streak amid tough competition, Fulcrum's Greff cautioned JetBlue shareholders against getting too exuberant about the stock.

"Song is still going to be there in one form or another," he said. "This is a false reason for the stock to rally."

JetBlue shares were up $1.19, or 5.35 percent, at $23.45, on the New York Stock Exchange (News - Websites) shortly after midday.

Atlanta-based Delta has announced the launch of a full-scale review of the entire business, according to Delta spokeswoman Peggy Estes.

"At this point, Song's future growth is part of a full strategic review of Delta's business plan that is underway," Estes said in an interview."


Bye Bye--General Lee




PS--Medflyer,

TED announced new routes from IAD today--to MCO, TPA, FLL, and LAS. Independance will also fly those routes no doubt--giving Jetblue two new competitors....