Song to add capacity & destinations 2004

[Heavy Set]

For all of you Delta watchers out there... Note that Delta plans to add 8-10% capacity next year (including Song increase) - that's a good sign. Load factor looks good for a new and growing airline/brand in its first year of operations. Sounds like some good news for a LCC that serves ALL THREE NYC AIRPORTS....



Dow Jones Business News
Delta's Song Unit To Add Capacity, Destinations In 2004
Tuesday November 18, 5:37 pm ET
By Elizabeth Souder, Of DOW JONES NEWSWIRES


NEW YORK (Dow Jones)--Delta Air Lines Inc. (NYSEAL - News)'s low-cost airline unit, called Song, will add capacity and destinations in the spring, Song Chief Executive John Selvaggio said.


Song's growth next year will take place mainly in New York, Selvaggio said Tuesday after giving a speech to the Wings Club in New York. That capacity growth is part of Delta's plans to grow 8% to 10% next year, he said.

"We will expand in New York with new service to the West and South and other leisure destinations," Selvaggio said.

Song will announce details of the expansion in coming weeks, as Delta announces plans to remodel some facilities in New York.

Currently, Song operates 36 Boeing 757 planes to 13 destinations. The airline began operations earlier this year, and took over routes previously flown by Delta Express. Song doesn't fly routes operated by the main Delta airline, and Selvaggio said he has no plans to take over Delta hub-and-spoke routes.

Instead, Song operates point-to-point flights, mostly from the East Coast to major vacation spots in Florida and the West. The idea for Delta is to offer a low-fare product to compete with low-cost airlines such as JetBlue Airways Corp. (NasdaqNM:JBLU - News; JBLU), while continuing to offer service on Delta's extensive hub-and-spoke network.

Selvaggio wouldn't say when Song will turn a profit, but he said the airline is doing better than Delta had expected - and well enough to continue operations.

"No one starts out an airline this size and expects to make money the first year," he said.

Song is filling about 70% of its seats these days, which Selvaggio said is pretty good for a new carrier. But he wants to boost the load factor to the low- 80% range.

-By Elizabeth Souder, Dow Jones Newswires; 201-938-4148; [email protected]

(Evan Perez of The Wall Street Journal contributed to this report.)

 

[FLB717]

Genaral,
Didnt you say that Song was making money already? Whas ups? Fill us in Bro.

 

[jethro38]

Even if Delta was making money on Song they wouldn't admit it. Why? Delta mainline pilots fly it and management needs to look like they are going to file bankruptcy if they don't get concessions from those greedy pilots who make 80% more than anyone else. Plus with a creative pencil you can move money/cost/profits anywhere they want. It will make the bottom line look how they want it to.

R,
J-ro

 

[Heavy Set]

Profit is just an opinion...

Profit depends on charges you take and on the method of depreciation for assets. There are so many variables that can be tweaked to make things look bad. Obviously, Delta will take a charge on all set-up costs for Song this year - that won't help earnings.

Leo will do ANYTHING to influence the pilot pay negotiations - no big surprise...

 

[Ty Webb]

Funny how differrent people can read the same article and come up with different conclusions.

What I get out of that article is that Song is not profitable with loads in the 70% range, and it will take a load factor of 80% or better just to break even . . . . and many of those seats were cannibalized from DAL mainline revenue.

 

[side stick-n]

I see this as a smoke and mirror's way of saying more flying is going to be transferred from Delta "mainline" to Song. I know what the press release says but the city pairs I looked at west bound (LAX, SFO, SLC, PHX) are already served by mainline. OAK would be new, though IMHO, that would put Song into competition with mainline(SFO). (In addition to the other LCC) I would look for any current 757 mainline flying to be suspect for Song expansion.

 

[Heavy Set]

Side stick-n,

I agree with you and I think most Delta pilots wouldn't mind that so long as their salaries were not impacted TOO MUCH (probably will get a 15-20% pay cut - or so-called "investment"...). I have talked to Delta buddies and they believe that most of Delta's 757s (I think they have 100+) will eventually operate as Song - so, not a surprise to them if that happens.

Ty,

You make some good points. Let's all try to remember that Song is less than one year old and is still gaining in name recognition and market share... After year 3, a comparison would be more apples-to-apples. Start-up year always requires more capital and time for passenger recognition and acceptance. I am sure Leo is running Song as a separtate profit center, so, with start up costs it may take awhile to realize a profit on that unit... It is nice to hear that Song will be growing and addressing the LCC competition - at least Delta is doing something proactively...

 

[Andy]

Song is gunning for JetBlue. Delta management is willing to eat losses on Song if they can crush JetBlue out of existance. If you look at JetBlue's route structure, you can see which destinations that Song will add from New York.

AMR is also considering starting a LCC. I wouldn't be surprised to see it fire up operations centered in New York. And you can bet that they'd also be mirroring JetBlue's route structure.
Here's the link: http://biz.yahoo.com/djus/031106/1017001103_2.html


I remember having to sit through a chick flick (Fried Green Tomatoes or some other tear jerker). There was a part of the movie where a middle aged woman was about to park in the only free parking spot. Along came a couple of young girls in a VW who stole the parking spot. As they got out of the car, one said, 'We're young and fast.' The older woman revved her car and turned the VW into a tin can. Her response to the young girls, 'I'm old and rich.' That, in a nutshell, is the airline industry.
As we come out of the recession, the majors are going to have excess cash flow to put the smackdown on LCCs. And they will. Profits be darned (can't believe that I got censored for using an 'm' instead of an 'r').

United's Ted will be busy mirroring Frontier; UAL needs to put the FRNT genie back in the bottle. UAL won't try to kill FRNT; they need to have them in DEN to have some semblence of competition. But you can bet that most of FRNT's expansion is behind them, not in front of them. If ACA gets off the ground as an independent carrier, I would expect Ted to be deployed to mirror ACA. However, unlike FRNT, I'd expect UAL to put the hurt on ACA until they file chap 7.
I'm not happy with the idea of UAL having to battle two LCCs at the same time, so you can expect UAL to keep ACA as its express partner until they're just about done paring down FRNT. ... The UAL/ACA contract cannot be terminated until UAL says it's terminated. (This scenario, of course, assumes that Mesa doesn't buy ACA).

 

[side stick-n]

Andy,

I expect us all to be replaced by monkeys within ten years. No more airline pilot. I believe you are expecting a lot from the network carriers that have lost billions of dollars over the past couple of years and continue to do so. They WERE all "old and rich". Now they are just old. If you look at the numbers, I don't think you will find that Song has done a lot to crush jetBlue and Song I believe just passed their first year. Who is going to take on America West, AirTran, and last but certainly not least Southwest? If you have been around the industry long enough, you know that it is an ever changing world out there. Those that can successfully alter and change their business model continue to operate. Those that can't take the path of PanAm and TWA. I'll leave Eastern out because that's an entirely different story. It goes well beyond the "old and rich" mirroring the LCC with flights. However, years from now count on a new airline coming into existance that can do it better and cheaper than all the surviving LCC's and network carriers, changing the industry and starting the cycle again.

 

[FDJ2]

Andy,

If you look at the numbers, I don't think you will find that Song has done a lot to crush jetBlue and Song I believe just passed their first year.

I believe that Song has only been operating for 7 months. I'm not sure what JBLU's RPMs, market share or name recognition were in their first 7 months, but my guess is it was less than Song's. Song is currently installing their advanced IFE system in their first 36 B757s. Apparently it's working quite nicely. All 36 aircraft should be equipped by the beginning of the summer in 2004. Song will also receive an additional 10-15 B757s next year, increasing their fleet size to between 46 - 51 B757s in its first 18 months. Not bad.

 

[General Lee]

I agree. Can you let Song grow a bit and then see what has happened? How about 1 year? I believe it started last May, and by this upcoming May we will have been through the first Winter and Spring, and I bet the loads will improve. Ty likes to say that Song has taken key mainline routes which will hurt us. We have figured out that some people want only low fares from particular cities, and want to go nonstop also. Well, Delta is funnelling people who want those cheap fares nonstop on Song, and leaving more expensive fares (or seats) available in the hubs, for people who live in cities that do not have that LCC option. Those seats on the 767-400 in ATL going to MCO, FLL, TPA, etc are now filling up with more expensive fares---from people who don't have a choice. As the economy gets better, that will help fill planes even more---and everyone will be happy. Starting a whole new brand name that many people have never heard of is tough, and with the new IFE system---more and more people will try it and like the new service. A lot of our current losses are one time charges (haven't they run out of those yet???) and many have to do with starting up Song, painting airplanes, installing the IFE systems, and advertising---even skywriting "SONG" in the sky in LA on the weekends. When it is established---it will then become more profitable---I hope. And, you have to admit that Delta has been the first Major to do anything to really combat the LCCs. Also, remember that Delta is not only a domestic airline---and this has taken a lot of thought and effort to get this going---and obviously this has an economic toll too costing big bucks. This really has been interesting to watch and be a part of.

Bye Bye--General Lee

 

[IB6 UB9]

EEEEEEK....here he goes again! What if the economy doesn't get better? What if some sneaky little guy with the wrong agenda gets through security somewhere? What if...get the picture General? What if all your planes are green soon and your wages are too?

 

[General Lee]

IB6,

What? So genius, the economy isn't getting better? It's not? I think we are holding our own against you, and you will start to feel it. You guys took a while to "takeoff", and we will too---but offer more than your blue potato chips---like all 3 NYC airports, better IFE, better food, and better frequent flyer programs. Can you dispute any of those? No? I thought so. Try to tell me that you win on any of those? You can't. Oh, that's right---you have loyal customers........Wait until they try Song. As the economy does get better----and it will----more people will fly and more people will try, and more and more people are probably getting sick of driving to JFK only to catch a flight South or West. Now they will have a choice. Also, we have hubs and we will have mainline feed, not only RJs, to those hubs. TED is the LCC that will mainly fly through the hubs, not us. Sure, our pay will decrease I am sure, but it will be higher than yours and that is becasue we are not only a LCC-----have you ever seen our 777s or 767-300ERs at JFK? They go to INTL destinations. And, if someone gets through security---both you and I are in trouble. We will be fighting over the next Amtrak job. (Wait, you might take the LCC train job---as a NYC subway driver) Enjoy!



Bye Bye---General Lee

 

[side stick-n]

General,

I'm not going to get into the mine is bigger than yours argument. However, we do offer more than blue potato chips and they are FREE. Is all your food free? Ah ha, beat you on that one. I agree that the economy is getting a little better. If that is true and more people do fly then that just means more for ALL of us which is good for ALL of us. For both our sakes, I hope customers don't get too tired of driving out to JFK. Even you guys have a lot of domestic flight out there. I don't believe that your flying out of all 3 NYC "area" airports makes a lot of difference. Unless I'm mistaken and I often am, the routes Song is flying came from mainline. So the only real difference is a white/green airplane with IFE instead of a white/blue/red one.

You said:

"Also, we have hubs and we will have mainline feed, not only RJs, to those hubs. TED is the LCC that will mainly fly through the hubs, not us."

I'm not sure I understand your argument here. You have hubs? You do or don't fly through them? TED, not you fly through hubs? I missed that one. I do know that hubs are expensive. Banks of flights all going and coming at the same time, people making connections, bags being transferred, ect, ect. In between those banks are hundreds of people sitting around in the employee lounges while still on the clock. True, we do some connecting but the majority of that is coming from upstate NY. Missed connections and mishandled bags are very expensive to correct. In fact, on some flights a mishandled bag can cost our company more than the customer paid for the ticket. Delivery charges are not cheap.

I know we have a great product and after reading your post you guys probably do also. (though not as good as ours)(oops, I guess mine is bigger than yours)

Good luck to you. I hope you guys can make a profit soon. If memory serves me correctly, we did after 6 months of operations. And BTW, I do like your 777's at JFK. Darn, yours are bigger than mine!

 

[General Lee]

Side-stick-n,

Well, I don't think you had a 9-11 event that happened right after or before your start up. You and I can agree that these times since 9-11 have been hard---and Jetblue was less affected because you had less planes, less maintence cost, etc---and you weren't affected like we were with 500 planes out there and no passengers for a couple months right after 9-11. That really hurt us---our size. The economy taking a dump also didn't help. There were a lot of factors, and I am glad we did not go Chap 11 and I also think the economy will get better, helping us both.

As far as my argument with TED----TED will fly mainly out of United's hubs (DEN, ORD etc) and that will dilute their whole product. Passengers will get off a United mainline plane in DEN from SEA (for example) and then have to figure out where to go next---is it United Express? Is it TED? How about Mainline? Most Song passengers only stay on Song, and do not connect onto Delta flights (maybe in JFK for INTL---maybe). Our hubs are used for higher fares---or connection traffic that cannot fly on LCCs to their final destination. Like the Carribean on Delta----going to Curacao from Peoria will take you through ATL--and the ticket will cost a lot. Those people in BOS or NYC that want to go to Florida or Las Vegas for cheap will fly nonstop on Song, and will leave those seats in ATL or CVG for people in Portland, ME that also want to go on Delta but can't go nonstop. Get it? That is what Delta Express was for, and now Song--which has a better product and airplane for that type of service. We know that there are people out there in the NE and other places that will not pay for expensive tickets to FLA or Las Vegas. We will put them on Song and make some money, and fill the other seats in the hubs with people who will pay more.

You are right about the price for food---but we apparently are making money on that deal. People actually think that the food is about the same price as regular airport food, and they like the "rock and roll veggie sushi" type food better. We actually have a pretty good selection, and they really do like it--I have asked them.

This Winter and Spring will be better for all of us---and Song will have better loads. Someday we will make a profit again---and that will probably be helped by us taking some sort of paycuts eventually. Whatever. And, you are right--those 777s are cool. We get two more in 2005, and we start flying them to Tokyo in JAN from ATL.

Bye Bye--General Lee

 

[Andy]

And, you have to admit that Delta has been the first Major to do anything to really combat the LCCs.
Bye Bye--General Lee

That's because Delta has the most excess cash to burn among the majors. Given the recovery currently underway, Delta will be getting assistance in the not-too-distant future.

Side-stick-n,

As far as my argument with TED----TED will fly mainly out of United's hubs (DEN, ORD etc) and that will dilute their whole product. Passengers will get off a United mainline plane in DEN from SEA (for example) and then have to figure out where to go next---is it United Express? Is it TED? How about Mainline? Most Song passengers only stay on Song, and do not connect onto Delta flights (maybe in JFK for INTL---maybe). Our hubs are used for higher fares---or connection traffic that cannot fly on LCCs to their final destination.
Bye Bye--General Lee

General, here are links to FRNT and Ted's route maps:
http://www.frontierairlines.com/about/profile.asp (click on 'shown in the online route map' in the first paragraph).
http://www.united.com/page/article/...avSource=FareSalePromo&linkTitle=FSA_meet_ted

Note how Ted is ONLY out of DEN. Note how the ONLY destinations that Ted flies to are also flown by FRNT. In fact, the only city not served by FRNT mainline is Ontario.
Look at FRNT's route map, and you will see where Ted will be adding routes. I'd expect to see Ted add PDX, BOI, SMF, SAN, ELP, MSP, MKE, MCI, STL, IND, BWI, ATL, DFW, IAH, AUS, SJD, MZT, ZIH, and CUN. Most likely the first service additions will be SJD, MZT, ZIH, and, CUN.


Again, I can't emphasize enough that Song and Ted's purpose are not to make money; they're to reduce LCC competition.

 

[Andy]

Andy,
I believe you are expecting a lot from the network carriers that have lost billions of dollars over the past couple of years and continue to do so. They WERE all "old and rich". Now they are just old. If you look at the numbers, I don't think you will find that Song has done a lot to crush jetBlue and Song I believe just passed their first year. Who is going to take on America West, AirTran, and last but certainly not least Southwest? If you have been around the industry long enough, you know that it is an ever changing world out there. Those that can successfully alter and change their business model continue to operate. Those that can't take the path of PanAm and TWA. I'll leave Eastern out because that's an entirely different story. It goes well beyond the "old and rich" mirroring the LCC with flights. However, years from now count on a new airline coming into existance that can do it better and cheaper than all the surviving LCC's and network carriers, changing the industry and starting the cycle again.

The only reason why the legacy carriers are creating LCCs is to rebut charges of predatory behavior.
The legacy carriers don't have excess capital during recessions to crush startups; they're busy hunkering down and cutting costs. When the economy recovers, the legacy carriers might as well have printing presses because they make so much money. During those times, they funnel some of that money into predatory pricing to reduce competition.
Now that the economy is starting to recover, the legacy carriers will have significant negative impact on LCCs.
This recession and recovery are no different than any other within the aviation industry.

 

[Tim47SIP]

Big A

The UAL/ACA contract cannot be terminated until UAL says it's terminated. (This scenario, of course, assumes that Mesa doesn't buy ACA).
Does United have a size restiction clause? I think they do. The day that ACA picks up their first 319 would more than likely be the last day of the contract. Of course with United in BK, I guess that clause is no more. Evidently, with a late spring start up, sounds like this will be the end of the contract. ACA seems to think that they have a work around for the Delta PWA, but I am having difficulty figuring out how they could do this. We will see.

 

[FDJ2]

Re: Big A

Does United have a size restiction clause? I think they do. The day that ACA picks up their first 319 would more than likely be the last day of the contract. Of course with United in BK, I guess that clause is no more.

How do you come to the conclusion that a particular clause in a PWA no longer exists simply because a carrier went into BK? BK does not automatically abrogate all contractual language, pay or work rules.

 

[side stick-n]

The only reason why the legacy carriers are creating LCCs is to rebut charges of predatory behavior.


During those times, they funnel some of that money into predatory pricing to reduce competition.

You are contradicting yourself Andy. First your say they rebut the charges only to claim they funnel more money into the practice.

In a previous post you stated:

Again, I can't emphasize enough that Song and Ted's purpose are not to make money; they're to reduce LCC competition.

If that is the case and could be proved in a court of law, I would expect there to be a huge cash settlement for the LCC's. Starting a company with no intention of making money and only to put another company out of business I believe is illegal.

You have valid points as far as making money when the economy is good. Of course if the cost were controlled better, the legacies could make money as Southwest, Airtran and We did during the recession. I guess you believe that the legacy carriers are the only ones that will benefit from the recovery. Guess what, all of the LCC's will see that same increase in cash flow. The difference is that the LCC's will be able to keep more of the revenue ( in terms of %).

Good luck.