LONDON, Feb. 4, 2003 - Delta Air Lines (NYSE:DAL) President and Chief Operating Officer Frederick W. Reid today addressed the Economist’s Third Global Airlines Conference in London, outlining a path to success for airlines in the post-Sept. 11 environment.
“We must evolve as an industry,” Reid said in his remarks. “September 11 was the meteor strike that altered our ecosystem forever, as measured by the dramatic decline in revenue since that day.”
North American airline revenue has dropped 24 percent since 2000, the last year for meaningful comparison. The airline industry had only twice before experienced a year-over-year drop in revenue, in 1981 and 1992, of one to two percent.
“Successful airlines will win mostly on cost and productivity,” Reid said, noting that Sept. 11 “violently accelerated” drivers of change in revenue generation for the airline industry, namely: over-capacity; recession; growth of low-cost carriers; and fare and inventory transparency due to the Internet. “There will be less revenue in the future,” Reid said. “The battle for survival must move to the cost and efficiency equation.”
Airlines must pursue global alliances and other partnerships to optimize revenue instead of organic growth that carries a hefty start-up cost burden to the airline. Growth opportunities for airlines, such as cross-border ownership laws and alliance agreements, are restricted by “irrational revenue limiters,” Reid said, calling for the review of cross-border restrictions.
In addition to cost discipline and building partnerships, airlines must diversify their product offerings. “Airlines might want to rid themselves of the notion that one product - the hub and spoke network - can be all things to all people,” Reid said. Beyond a strong network and global alliances, airlines must create “a viable low-fare product that attacks where you need it to attack, and defends where you need it to defend.”
Delta launched Song, a low-fare subsidiary, on Jan. 29. Song will serve the Northeast United States to Florida leisure markets on Boeing 757 aircraft equipped with industry-leading in-seat video. Song also will offer the first lowest-fare-finder on its Web site flysong.com, a simplified fare structure and full participation in Delta’s SkyMiles frequent flyer program.
Successful airlines will “offer the customer what they want, where they want it, when they want it” at a reasonable cost, he said.
The full text of Reid’s remarks are available at delta.com.