NYTimes.com Article: Delta Hopes Its Venture Will Sing a New Tune

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Delta Hopes Its Venture Will Sing a New Tune

May 11, 2003
By EDWARD WONG






BEFITTING its name, Song, the low-cost carrier started last
month by Delta Air Lines, plans to introduce video-screens
where passengers can create a playlist of MP3 music. Those
same screens, once they are available next year, will let
travelers watch live satellite television or pay-per-view
movies or play interactive video games with other
passengers.

Delta's intention in creating Song was to build an airline
that would draw travelers from JetBlue Airways and other
low-cost carriers that have drained Delta of passengers on
the East Coast. The company's strategy seems simple: offer
consumers a banquet of options missing from the rivals, on
the assumption that more is clearly better.

The problem is that the airline industry has historically
demonstrated that the opposite holds true.

Airlines that offer fewer options to passengers have
thrived, while those that have tried to be all things to
all people have suffered financially. The most obvious
evidence of this is Southwest Airlines, which has been
profitable for 30 years, all the while promising nothing to
customers except low fares.

Large network carriers that took a different tack are now
in bankruptcy court or on the brink of having to file for
bankruptcy protection. The two obvious cases are United
Airlines, now struggling to bring down costs under Chapter
11 protection from creditors, and American Airlines, which
barely avoided a bankruptcy filing in mid-April but is
still foundering because of huge expenses.

Those two carriers, as well as all their network rivals,
once thought that the path to profits lay in offering
everything to passengers - hot food, frequent flier
programs, flights to every corner of the country. They have
discovered in the last couple years that travelers just
want to get from one place to another safely on a plane.

Yet Song executives obviously believe that passengers do
want something extra. Besides the various choices for
in-flight entertainment, Song also promises to sell hot
food. Executives have said they will encourage customers to
use the Song Web site to send messages saying what they
would like to see on the flights.

Some industry experts are skeptical of such efforts.


"People will say they want things," said Robert W. Mann, an
aviation industry consultant based on Long Island. "Getting
them to pay for them is something else entirely."

In-flight entertainment is very expensive for airlines to
operate, Mr. Mann added.

High costs have plagued every attempt by a big network
airline to start a low-cost subsidiary, including Shuttle
by United, Continental Lite, Metrojet at US Airways and
even Delta's precursor to Song, Delta Express. Delta is
shutting down Delta Express as Song increases its flights,
which are to number 144 a day by November.

John Selvaggio, the president of Song, said the new airline
operated differently from Delta, so cutting costs will be
much easier than at the parent. The key is increased
productivity, he said.

For example, Song's planes will be used 12.7 hours a day,
while Delta's are used slightly more than 10 hours a day,
Mr. Selvaggio said. What is more, he added, flight
attendants will work on a different pay structure and with
more efficient work rules.

But pilots, the only unionized group at Delta, will work
under the same contract at both carriers. Delta's pilots
also have the most generous contract in the industry. Using
Delta's pay scale at Song could hobble Song's attempts to
keep its costs down, said Jamie Baker, an analyst at J. P.
Morgan Chase.

"We do not believe that Song can achieve profitability on a
fully allocated stand-alone basis, in part because its
pilots will be the highest paid in the industry," Mr. Baker
said.

He added that Delta also faced a major challenge in
overhauling the culture of its work force. Passengers on
low-cost carriers like Southwest and JetBlue often praise
the relaxed, cheerful attitudes of the flight attendants.
Song's flight attendants come from the labor pool already
at Delta and need to be retrained to work on Song with a
more lighthearted attitude, Mr. Selvaggio said.

Even if Song attracts passengers with its extra amenities
(many of which will not be available until next year), even
if it achieves significantly higher productivity levels
than Delta, it still has to operate in bleakest air-travel
environment in decades. The American-led invasion of Iraq
has done little to reduce fears of terrorist attacks, and
concerns over the new respiratory illness SARS have led
many people to cancel trips.

But Mr. Selvaggio said that the industry downturn only
justified Delta's decision to start a low-cost operation.

"We really decided this would still be the best time to
launch this low-cost product," he said. "There's no time
like the present to find a reduced-cost alternative."

http://www.nytimes.com/2003/05/11/travel/repsong.html?ex=1053832450&ei=1&en=bbaba3ec574d42a3



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