This article from NYTimes.com has been sent to you by psa188@juno.com. Delta Promises New Service to Compete With Low-Cost Rivals August 9, 2002 By EDWARD WONG Delta Air Lines said yesterday that it was developing a new product to compete with low-cost carriers, particularly AirTran Airways, which has been gnawing at Delta's market share on the East Coast. Delta declined to say what the product was, but several people close to the company said Delta could be starting another low-cost airline, even though it already runs the stagnant Delta Express. The company said in a statement that a team was being assembled to develop a product that "meets customer demand for low-price service and builds on Delta's strengths to compete more aggressively with low-cost carriers." A Delta spokeswoman, Catherine Stengel, said the plan was approved last week by Delta's board and would be rolled out gradually over the next several months, but it would not be fully in place until next year. Last month, Delta, based in Atlanta, reported a second-quarter loss of $186 million. By contrast, AirTran, based in Orlando, Fla., had a profit of $5.1 million. Delta announced yesterday that John Selvaggio, 55, Delta's senior vice president for airport customer service, would head the new operation. In the mid-1990's, Mr. Selvaggio served as chief executive of Midway Airlines, a regional carrier that moved from Chicago to Raleigh, N.C., under his tenure. Midway filed for bankruptcy protection after Sept. 11, then shut down last month after announcing that it would begin operating as a US Airways Express carrier starting in October. In a statement, Mr. Selvaggio said of Delta's planned product: "We expect to update our employees, customers, and shareholders with more details later this fall." Delta does not release financial numbers for Delta Express, which it started in 1996 as a no-frills airline to compete with low-cost carriers. People in the industry, however, generally view it as a failure. The operation was scaled back 50 percent after Sept. 11 and now serves 14 airports on the East Coast. Glenn D. Engel, an analyst at Goldman, Sachs, said Delta Express had stumbled for several reasons. It has costly labor agreements with its unions, Mr. Engel said, limiting its ability to keep costs low. Last June, the pilots' union at Delta approved a contract that gave Delta Express pilots raises of nearly 63 percent over five years. In addition, Mr. Engel said, the decrease in passengers after Sept. 11 reduced the usefulness of Delta Express in helping pull traffic away from AirTran. If Delta does start another low-cost airline, Mr. Engel said, it will probably have "the same handicaps as Delta Express." Some analysts also say that travel patterns have changed and that full-service carriers like Delta should give up on competing head-to-head with low-cost carriers. Delta and its siblings, analysts said, should focus on giving premium service to business passengers and on developing international routes. Delta has also been talking with Continental Airlines and Northwest Airlines to form a code-share alliance, which would counter a tentative agreement on a similar alliance of United Airlines and US Airways. But Delta's talks are in the early stages, and there is no promise of success, several people close to the company said. In a code-share alliance, airlines can book passengers onto each other's flights, which essentially extends each carrier's route system. Continental and Northwest already have such a partnership. The Transportation Department is reviewing the one proposed by United and US Airways. http://www.nytimes.com/2002/08/09/business/09AIR.html?ex=1029898675&ei=1&en=d5a90d38d27cad68 HOW TO ADVERTISE --------------------------------- For information on advertising in e-mail newsletters or other creative advertising opportunities with The New York Times on the Web, please contact onlinesales@nytimes.com or visit our online media kit at http://www.nytimes.com/adinfo For general information about NYTimes.com, write to help@nytimes.com. Copyright 2002 The New York Times Company