Delta Air Lines today announced that it will create a new low-fare subsidiary designed to appeal to the growing number of price-driven travellers.
As a wholly-owned subsidiary of the company, the new operation of 36
Boeing 757 jets will launch in 2003 to compete head-to-head with other carriers in the low-fare market segment and to strengthen Delta`s current portfolio of businesses. The new subsidiary expects that most one-way fares to be between $79 and $299.
Cost-competitive business model.
The subsidiary will create a new, cost-competitive business focused on increased productivity and the efficient use of Delta`s current assets, including fleet, operations, technology and people. Its unit costs will be approximately 20 percent below the available seat mile costs of Delta`s mainline 757s.
Distinct brand/customer experience.
The new subsidiary will feature low fares, a distinctive brand, and amenities and services to meet the expectations of price-savvy customers. It also will feature the elements required for a discount carrier - simple low fares, low costs, high-utilization and direct purchasing methods for tickets. This service will initially operate its dedicated fleet of 757s in the Northeast - Florida market, with later expansion across Delta`s United States network.
“The new subsidiary announced today represents an aggressive and proactive initiative to meet the burgeoning competition from low-fare carriers,” said Leo F. Mullin, Delta`s chairman and CEO. “We have previously noted that low-fare carriers represent a real threat to Delta - substantially more than that from other hub and spoke competition. Low-fare carriers have been making significant inroads particularly during this period of extreme financial duress for the industry. Even in the midst of these challenges, Delta intends, through the actions announced today, to meet the low-fare carriers head on - first to halt their progress and then to regain competitive share. The goals are an enhanced competitive position for our company and higher profitability.”
The announcement follows intensive market analysis and planning. “We`ve listened to our customers, and we know what they want - low fares and better value,” said Frederick W. Reid, Delta`s president. “Our research shows that more than 70 percent of customers make their purchase decision almost exclusively on price. In response, we`re making aggressive changes to allow us to better respond to our price-driven customers. Our subsidiary will be low-fare, and it will be unit cost competitive with this tough airline segment.”
“Delta`s new service will be a powerful addition to our portfolio of products that are focused on different customer needs. Delta will leverage its full array of services - including regional jets, network service through our hubs, international service, codeshare relationships and, now, a low-fare subsidiary - as a huge competitive advantage.”
John Selvaggio, 56, named in August to lead the new low-fare strategy, will become president of the new subsidiary and will report directly to Reid.
Delta plans to announce the new unit`s name, product and service elements prior to the launch of service in 2003. Details regarding the subsidiary`s business model, and marketing and people strategies will follow.
Initially, the subsidiary plans to hire from the ranks of active Delta employees to staff its needs. New processes and productivity measures will allow the airline to achieve substantial cost benefits while protecting employees` annual earnings. Details regarding the company`s specific employment programs will be announced in the coming weeks.
“Developing a subsidiary with a separate workforce as well as a separate look and feel will allow us to create a distinct brand experience for our customers,” said Selvaggio. “A brand is a set of expectations. Our employees will manage and set those expectations day in and day out for our customers.”
“We`re going to build trust with our customers by offering them easy to understand, everyday low prices,” said Selvaggio. “Fares will be competitive with low-fare carriers and designed to appeal to the most budget-minded customers.”
Delta`s new discount unit will offer customers simple, user-friendly pricing options, including 14-day, 7-day, 3-day, walk-up fares and sale fares. All fares will be one-way, non-refundable and will not require a Saturday night stay.
Initially, Delta`s new low-fare product will focus on Delta`s Northeast - Florida markets, including Boston, Fort Lauderdale, New York and Orlando. After establishing its presence with customers on these routes, the subsidiary will expand to support Delta with cost-competitive service in key hubs or other destinations across its U.S. network.
In 1996, Delta launched Delta Express as its first response to low-fare competition. In many respects - particularly in restraining the unfettered expansion of such low-fare competitors that would have taken place in the absence of Delta Express - it has been successful. However, as low-fare carriers become stronger, a more powerful Delta response is needed.
Thus, Delta plans to begin operating the subsidiary in 2003. At that time, the subsidiary will assume operating responsibility for Delta Express, which will be replaced by the new low-fare unit. The new subsidiary, featuring new service offerings and reconfigured aircraft, will start flying on a limited number of routes and continue to introduce new service throughout 2003 while the company simultaneously discontinues Delta Express.
“This transition will not affect customers` travel arrangements because Delta will continue to offer non-stop and connecting flights to conveniently accommodate their travel plans,” said Selvaggio. “The new subsidiary will build on the successes of Delta Express to create a cost-competitive service that`s sustainable over time and offers more low-fare seats.”
Delta Air Lines, the world`s second largest carrier in terms of passengers carried and the U.S. airline with the most transatlantic destinations, offers 5,843 flights each day to 426 destinations in 76 countries on Delta, Delta Express, Delta Shuttle, Delta Connection and Delta`s worldwide partners. Delta is a founding member of SkyTeam, a global airline alliance that provides customers with extensive worldwide destinations, flights and services. For more information, please go to delta.com.