=20 ---------------------------------------------------------------------- This article was sent to you by someone who found it on SF Gate. The original article can be found on SFGate.com here: http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2003/02= /16/ED226846.DTL ---------------------------------------------------------------------- Sunday, February 16, 2003 (SF Chronicle) Can Song keep Delta from singin' the blues? George F. Will, Washington Post Writers Group Atlanta -- America's airline industry, which has not netted a nickel sin= ce Kitty Hawk, has never been sicker. United Airlines, the second-largest carrier, lost $3.2 billion last year ($1.47 billion in the fourth quarter, or $16.3 million a day). It's in bankruptcy, as the largest carrier, American, may soon be, having lost $3.5 billion last year, the worst loss in aviation history. Shares of US Airways, the seventh-largest, which entered bankruptcy last August, trade over the counter for 20 cents. Yet in the teeth of this torrent of numbing numbers, the third-largest carrier, Delta (which last year lost a comparative pittance -- $1.3 billion), is launching a new airline. The start-up's whimsical name -- Song -- is intended to promise passengers something other than the routine grimness they experience nowadays. Not since Henry Luce began a new business magazine, Fortune, during the economy's free fall in February 1930 has there been such an act of business bravado. But Delta CEO Leo Mullin notes that his airline began passenger service in June 1929, five months before the stock market crash that triggered the Depression. Song, he says, is not a flight of fancy. It will enable Delta to take on its most significant competitor -- an airline that did not exist when Mullin came to Delta five and a half years ago. About 25 percent of Delta's business has something to do with Florida as an origin or destination, mostly involving leisure travelers. Delta has been losing a lot of that business to the 3-year- old, New York-based JetBlue Airways. It and Song are emulating the business model of "no-frills" Southwest, t= he so-called "flying Wal-Mart" that is flying relatively smoothly through the industry's current turbulence, having recorded in 2002 its 30th consecutive profitable year. But Song and JetBlue have frills. JetBlue has 24 channels of live satellite TV. By October, Song will have that, too. It also will have on- board shopping, interactive games and maps and digital MP3 audio so passengers can make their own listening menu. Song's first green-and-white, all coach, 199-passenger 757s will take off April 15, and all 36 will be in service by December. Delta's operating advantages include having only one union, the pilots. But Delta's pilots are the industry's highest paid. Delta, United and American have generally moved in lock-step regarding pilots' pay. United's pilots used a slowdown -- which cost the airline $500 million -- to win a lucrative contract in 2000. Delta then agreed to United's terms plus 1 percent. American then offered its pilots the Delta deal, but Sept. 11 happened before the pilots agreed. And now that the exigencies of bankruptcy are forcing concessions from United's unions, Delta is left with the highest labor costs of the big three carriers. But Mullin hastens to add that there are, of course, severe costs to bankruptcy: An airline loses control of its destiny to a judge. Shareholders are devastated. Employee moral plunges, taking a toll on quality of service. Small and midsize communities suffer from cutbacks. Mullin says more than half -- $700 million -- of Delta's $1.3 billion lo= ss last year resulted from post-Sept. 11 security costs, many of them federally mandated. These include fees for passenger screening, increased insurance costs (in 2001 Delta paid $2 million for terrorism insurance; in 2002, $145 million), new postal service and freight restrictions, cockpit door modifications (a $40 million item), the cost in displaced passengers of carrying air marshals, etc. Mullin, who was a Conrail executive for five years, sees "a slight possibility" of an airline industry "collapse" resembling the domino of railroad bankruptcies that followed the Penn Central bankruptcy in 1970 and resulted in Conrail in 1976. Government, he says, should compensate the airlines for security costs, because these are aspects of national defense. And Congress might approve binding arbitration for airline industry labor negotiations, now that labor sees the alternative as the hammer of bankruptcy. Then, perhaps, the industry will stop singing such a sad song.=20 ---------------------------------------------------------------------- Copyright 2003 SF Chronicle