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....

 

[Dizel8]

Or Ted and Independence can just slog it out for air supremacy, much like DAL and AAI is doing it in the ATL-LAX market.

It is starting to look more and more like Song is not the money maker it was touted by Mr. Selvaggio, me thinks it may even be losing money, rumour has it 55 mil so far, not including the original startup cost of 60.

As far as DAL mainline getting IFE, that will happen after you give them 30 percent of you pay, heck they may even throw in the hat with the plume of feathers and the five stripes for the 777 guys.

Take care

 

[FDJ2]

General, I think you're right about the "dilution" factor. I wouldn't be surprised to see Delta start installing the Song IFE in mainline 757s and continue to expand the JFK operation with mainline vs. Song. I think the emphasis will be to compete more aggressively with the Delta Brand vs. creating a new brand. We may see some other changes in RJ utilization and DCI as well. The next shareholder meeting will be interesting.

 

[General Lee]

FDJ2,

I agree, and I guess the shareholder's meeting is April 23rd (?) in ATL now.


Dizel8,

Ted and Independance will slug it out at IAD, and AA--DL--Jetblue will slug it out at JFK. But, we still have other hubs that will hopefully bring in some much needed revenue this Spring and Summer. Also, I have flown a few Song flights lately and they have been pretty close to being full. I think the passengers like it and they even like the lime green colors.....But, I don't know really what Grinstein will do---but it sounds like he might have a plan.....And, I think there will be pay cuts, but I doubt all the way up to 30%----maybe 20% with some other benies....

Bye Bye--General Lee

 

[~~~^~~~]

Song Sung Ted

Instead of Song Sung Dead, this should be Song Sung Ted.

United to launch low-cost airline atDulles


By Tom Ramstack
THE WASHINGTON TIMES



United Airlines announced yesterday that it would operate a low-cost subsidiary out of Washington Dulles International Airport beginning April 7, while Delta Air Lines said it would stop Dulles flights by its low-cost subsidiary on April 30.
United already operates a hub at Dulles with 73 daily flights. The new Ted subsidiary will add another 15 daily flights, many of them for leisure passengers traveling to vacation sites in Florida or Las Vegas.
United officials said they can operate more efficiently with their subsidiary, Ted, than Delta could with its subsidiary, Song.
"It was an easy and natural choice," Pete McDonald, United Airlines' executive vice president for operations, said about the choice of Dulles for the Ted flights.
Ted is cutting expenses by sharing maintenance and gate facilities with the United hub, although it will be managed as a separate airline, said Sean Donohue, Ted vice president.
Song operates three round-trip flights daily out of Dulles.
After April 30, the Boeing 757 used for Song's Dulles flights will be transferred to New York's John F. Kennedy International Airport for flights to Fort Myers, Fla.
Song uses a "point-to-point" routing system in which it has no hub. Instead, it flies between any airports where its management thinks it can land the most passengers.
The end of Song flights at Dulles is part of a companywide re-evaluation of the subsidiary's operations, Song officials said.
"We need to make the most of the assets we have," Song spokeswoman Stacy Geagan said. "The flight will be much more successful and have much more market in the New York area."
Low-fare airlines carried nearly a fourth of U.S. airline passengers last year, the U.S. Department of Transportation said.
Ted derives its name from the last three letters of the word United.
Whether a new marketing plan is enough to make Ted successful where Song has struggled depends on the management, said Leo Schefer, president of the Washington Airports Task Force, a nonprofit organization that promotes business with Washington-area airports.
"If they really look at it as though they've created a low-cost carrier instead of a low-cost division of an airline, then they'll be successful," Mr. Schefer said.
A common mistake of large airlines that start low-cost subsidiaries is that they maintain the same labor contracts and committee decision-making for the subsidiary, he said.
"That reduces your productivity," Mr. Schefer said.
A better option is to develop new labor contracts specifically for the low-cost carrier and a more flexible management structure that responds to needs of a smaller organization, he said.
Dulles' attractions for low-cost airlines include Northern Virginia suburbanites with annual income of about $75,000, which is a top customer base, Mr. Schefer said.
In addition, only about 30 percent of Washington-area residents were born in the region, meaning people from other regions often return home for visits, he said.
Ted "will add one more choice for the region's air traveler," said Mark Treadaway, air services vice president of the Metropolitan Washington Airports Authority, which manages Dulles and Ronald Reagan Washington National airports.
Ted will have no first-class seats. Instead, each Airbus A320 will have 90 economy seats and 66 "economy plus" seats.
Economy plus, which offers an extra 4 inches of legroom per seat, is reserved for regular customers who have amassed the most frequent-flier miles.

 

[G4G5]

It's all part of getting a new CEO. Grienstein is making his mark. From "Sexy" new uniforms, to pulling out of IAD, adding to JFK, demanding 30% for the pilots, to backing off on Song. For better or worse he is letting everyone know that he's in charge.

I for one like some his moves. IAD is going to be a long drawn out LCC cat fight. Within the next 6 months you will have JetBlue, TED and Independence Air all flying LCC flights out of IAD fighting for the same customer. You predict the winner? But it was not going to be Song. So, he choose to get out and move the assets to a fight he can win. Smart.

Backing off on Song makes sence too. IMHO it was a stupid idea in the first place. Mullen spent big bucks for the McKensie folks to come up with something, anything. This was not Delta's idea it was the consulting groupt that Mullin paid big bucks to. Arpey was just quoted that his plan is to try and offer one product at one level of service, like SWA. He also said the multiple types of aircraft cartering to different types of customers DOES NOT work. I believe that Grienstein is thinking along the same lines. If he sells just a few few first class tickets on an IAD-CAlf flight his dynamics change. He can't even offer a first class ticket on a Song flight but their is nothing stopping him from charging the same price as an LCC in the back if a Delta jet.

The additional flights at JFK tell me that they are concerned about JetBlue. Delta is just trying to protect its turf. They need the JFK feed for their high yeild intl traffic. They could afford to give away some seats if they have some connecting pax paying big bucks to Europe.

I think he's going to hit a wall if he thinks that he can muscle the pilots into giving back 30%. DAL is no where near the financial condition that AA was last April. He's caught between a rock and hard place.

 

[spanky2]

...and the final straw will be the Gerry paint job. That way Delta can have 4 different paint jobs on the ATL ramp...the "original" (and best IMO), the Ron Allen (no personality), the Leo Mullin (beach towel), and what ever Gerry pays a consultant to come up with. Gotta do something to force BK.

 

[Capn Butthead]

The new CEO at Delta is a moron. In my opinion ( not a smart man I am ) he is there for one reason. To get concessions. By the way, Hang in there guys....yall do not deserve to give 30 percent back to the comapany. You are in no way in the same situation as United or US air. I am 100 % behind DL alpa in fighting Mr Grienstien.

My only other question is how is he going to compete with jetblue and the low fares and trying to bring a profitt back to Delta. Jetblue already does these runs out of JFK and will provide a lot of competition for DL on these runs. It seems that fares will not be able to be raised on these routes unless Jetblue goes away.

Just my opinions....good luck and kick some butt

 

[General Lee]

Capn,

Well, we will need to give him some pay due to the fact that there is a large gap between us and the other guys, and in bad times that doesn't float. I don't think we will just GIVE him 30%---and he will have to work with us. He has a lot more flexibility with all of the other groups, and most of them are currently now paying higher medical premiums, and the stews did get a slight pay cut---but that is all I know about. So, there is some flexibility there. As far as fighting Jetblue on those routes, we will have to keep charging lower fares on those, but will raise fares on others---like INTL etc... Also, a big help for us will come when lower gas prices eventually come back. It will help us all---but really help the Majors who pay a lot more. Hopefully that will happen soon.


Bye Bye--General Lee

 

[Publishers]

song

Song by any other name is Delta and the fact is what does Song do for Delta, very little.

Only if it was spun off later on would it be worth it and then you would have employees up in arms over going with Song rather than Delta.

New LCC's have a distinct advantage as they do not have all the baggage that the culture at Delta or United have going.

 

[duckman]

Baggage

Over time, and furloughs, and wage cuts, and changing of the whole industry...that "baggage" will go away. Painful in the interum though, and tough for the companies/employees during the change.

 

[General Lee]

Another thing the LCCs don't have is the requirement to pay retirees their pensions. I just read that Delta still pays out about $350 million a year to our retired pilots, managment, flight attendats, etc.... Jetblue doesn't have to pay a dime, yet. But, as the years go by, they will start to have to pay for more and more---I just hope we all are still around then......

Bye Bye--General Lee

 

[banger]

Originally posted by General Lee
Another thing the LCCs don't have is the requirement to pay retirees their pensions. I just read that Delta still pays out about $350 million a year to our retired pilots, managment, flight attendats, etc.... Jetblue doesn't have to pay a dime, yet. But, as the years go by, they will start to have to pay for more and more---I just hope we all are still around then......

Actually General, They won't (refering to pension payouts). jetBlue's retirements are all matching 401K's that belong to the retirees'. JetBlue matches 3% and you need to stay a certain amount of time to get vested, but once you are vested the total is yours to do with as you like.

 

[General Lee]

banger,

Is that a "Cash balance" type program? I think most of our non-union people were just switched to that---which still gives you a percentage or a matching but when you retire you take it with you and that is it---no monthly check from Delta. That is the new scheme for companies these days---although I think I read something about IBM not being allowed to do that for some reason...?? But, we do have s huge payout every year to retirees--including now Leo Mullin---who was here only 5 years or so, and was GIVEN credit for 30 years----and he also got $16 million as a goodbye present. (In his contract----they can try to break our contract--but they can't try that with Leo's....?????)

Bye Bye--General Lee

 

[rudderdog]

Originally posted by General Lee
Another thing the LCCs don't have is the requirement to pay retirees their pensions. I just read that Delta still pays out about $350 million a year to our retired pilots, managment, flight attendats, etc.... Jetblue doesn't have to pay a dime, yet. But, as the years go by, they will start to have to pay for more and more---I just hope we all are still around then......

Actually General, They won't (refering to pension payouts). jetBlue's retirements are all matching 401K's that belong to the retirees'. JetBlue matches 3% and you need to stay a certain amount of time to get vested, but once you are vested the total is yours to do with as you like.

ATA is the same....We have a matching 401k as well as a "money purchase plan" which is basically the company putting between 4.5% and 12% of our gross pay into a retirement plan of our choice. The money is there and it's ours. TWA had the same kind of deal when their A-plan went south. Great protection for the employees and the employer won't face a $4 billion underfunded pension in 20 years!

 

[duckman]

Still nothing like a fully vested A and B plan you would find in the legacy carriers IF it stays solvent...correct?
Something that rarely had to be worried about 20 yrs ago. Now it's the standard vice the exception.

 

[OPIE01]

A monthly retirement paycheck?

With an Company Pension what happens if you die at at age 60.5 years old. Does your spouse still continue to recieve the montly check.

I'm retired military and my spouse get's nothing if I die unless I had paid into the monthly SBP plan which cost's 6% of my monthly retirement check.

And if I did pay into SBP, she would only get 55% of my retirement check. Is the Delta plan simular?

 

[Falconjet]

Survivor Benefits

Opie it depends on the plan. FedEx's A fund has an option to take a reduced amount so that a surviving spouse can continue to receive a monthly check (less than the full amount). It is very similar to the SBP from the military. B funds typically just pay out a lump sum upon retirement, but again depends on the company and their plan. I don't think our B plan has any survivor plan because its just a lump sum payout. I would imagine that Delta's A plan allows for a survivor plan, but am just guessing.

FJ

 

[Publishers]

costs

Just the whole thing in everyt aspect costs more. You have more senior people wondering around who have had COI and performance raises over a long time, less entry level pay andmore high end, sick days and other stuff.

In one company I was with, our policy was that the non union people would do as well or better on the benefits package than the union negotiated. Consequently, if the union negotiated 6 sick days, everyone else might have recieved 7 or more.

All of this adds up over time and becomes a major part of you Cost of operation. This same factor is why majors do not want to integrate their regionals.

 

[Dave Benjamin]

I'm not employed by DAL but here's my theory.
Lots of DAL pilots are retiring due to concerns about possible bankruptcy and some due to age 60. I heard that something like 300 pilots are calling it quits in March. If Song were to continue expanding they might have to call back some of the furloughs. Naturally management doesn't want to call back furloughs when they are playing hardball with pay negotiations. It's a matter of brinkmanship. If staving off bankruptcy was really a driving concern then management would be willing to consider short term pay cuts. They have stated they will only consider a long term cut which we all know probably isn't necessary. When the economy rebounds yields will go back up to some extent and if DAL were to concentrate more on Asia they will be in good shape to profit from that expanding international market.

Just my .02.

 

[MedFlyer]

I'm not employed by DAL but here's my theory.
Lots of DAL pilots are retiring due to concerns about possible bankruptcy and some due to age 60. I heard that something like 300 pilots are calling it quits in March. If Song were to continue expanding they might have to call back some of the furloughs. Naturally management doesn't want to call back furloughs when they are playing hardball with pay negotiations. It's a matter of brinkmanship. If staving off bankruptcy was really a driving concern then management would be willing to consider short term pay cuts. They have stated they will only consider a long term cut which we all know probably isn't necessary. When the economy rebounds yields will go back up to some extent and if DAL were to concentrate more on Asia they will be in good shape to profit from that expanding international market.

Just my .02.

Sorry to kill your conspiracy theory, but I don't think Song's halt has anything to do with pilots. You'll notice that while Song isn't expanding out of JFK, regular mainline DL is expanding (new flights to SJU,SDQ,SAN,DEN,etc) instead. Song's intended growth has just been "given" to regular mainline, but its growth for DL pilots either way.

The reason Song is being slowed is performance. Song's loads and revenues have been sub-par and while Song's costs are lower than DL mainline, they still aren't even close to being competitive with JBLU. Until the existing Song routes prove that they can make money or at least breakeven, there's no point in spending another dime on lime-green paint.

Further down the road if Song proves worthwhile, maybe it will be expanded. Or maybe DL management will realize you can't be everything to everyone and just focus on making all of Delta a great product, not just 36 planes.