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DLX And New Business Unit: Cannibalization?  
User currently offlineChrisNH From United States of America, joined Jun 1999, 4164 posts, RR: 2
Posted (12 years 1 month 1 week 1 day 6 hours ago) and read 1500 times:

Next week we're supposed to learn about the new low-fare business unit from Delta. From what I've been able to infer, the 757 will be the horse of choice, JFK will be the stable of choice, and Delta Express will continue galloping along. I don't know all the details that some of you may know, so I pose these questions:

If Delta Express sticks around, won't that create market confusion? It seems to me that to leverage all that is good about Delta, the Delta name and/or logo will have to be part of the branding. That in itself breeds confusion in the eys of the travellers. Take the hypothetical (but rather likely) scenario of an elderly couple arriving at Boston's Logan for their flight to Orlando. Can you just imagine them looking at the signage and wondering aloud, "Now which 'Delta' are we supposed to go to?" That prompts me to ask whether this new business unit will cannibalize DLX, leading to two mediocre business units and costs associated with them? If the answer to that is 'No,' then I'd like to hear an explanation.

Also, as a strong advocate of regional airports with MHT and PVD serving as excellent bookends for the Boston market, I question the logic of serving Boston with this unit as opposed to one of these other fine airports. Apart from the market confusion resulting from DLX and this new business unit operating from the same fields (see above), they seemingly run the risk of not getting the most out of those 757s if they are sitting in conga lines at BOS, JFK, PHL, EWR waiting to take off or land. Indeed, 'asset utilization' appears to be a major element of this new plan. Here in Manchester, I've seen Southwest 737s take no more than 30-45 SECONDS from the time their wheels touch to the time they're chocked at the gate. That ain't gonna happen too often (if at all) at the 'Big City' airports. And the regional airports have proven themselves, to a large degree, because of their air-side and land-side convenience.

If the aim of this new business unit is to go head-to-head with JetBlue and Southwest (as was implied in the WSJ article), then it seems Manchester and/or Providence make more sense than Boston. Indeed, the differentiation thus becomes pronounced: 757s versus 737s; deli-style boarding versus non-deli-style; and video/audio entertainment versus a small bag of peanuts. I say, if you're gonna fight these guys you can't do it from behind a curtain. And leaving MHT and PVD Southwest will make them happy to no end. Then again, Delta may be looking at Southwest as a horse that already escaped, and is setting their sights more on JetBlue...which has yet to reach a critical mass and is thus more vulnerable. We hear that B6 favors Logan, so maybe Delta is trotting out the old 'The Best Defense is a Good Offense' strategy.

Thoughts?

Chris in NH

28 replies: All unread, showing first 25:
 
User currently offlineMD88Captain From United States of America, joined Nov 2001, 1338 posts, RR: 20
Reply 1, posted (12 years 1 month 1 week 1 day 6 hours ago) and read 1492 times:

DAL Express will be gone by next summer. All the pilots and planes will go to the mainline. The new LCC will not even have Delta in the name according to the rumour mill. The FA's are being hired off the street now as DAL furloughs mailine FA's, et al.

User currently offlineDeltaSFO From United States of America, joined Nov 2000, 2488 posts, RR: 22
Reply 2, posted (12 years 1 month 1 week 1 day 6 hours ago) and read 1492 times:

DLX is going away when the new business unit comes into existence.


It's a new day. Every moment matters. Now, more than ever.
User currently offlineDeltaSFO From United States of America, joined Nov 2000, 2488 posts, RR: 22
Reply 3, posted (12 years 1 month 1 week 1 day 6 hours ago) and read 1486 times:

The FA's are being hired off the street now as DAL furloughs mailine FA's, et al.

Can you prove that statement somehow?



It's a new day. Every moment matters. Now, more than ever.
User currently offlineMD88Captain From United States of America, joined Nov 2001, 1338 posts, RR: 20
Reply 4, posted (12 years 1 month 1 week 1 day 6 hours ago) and read 1473 times:

A Captain I know told me 2 days ago that he sat beside a young lady while deadheading. She was flying home after having been interviewed and hired in ATL for the LCC. She was very happy. It is no secret that the new LCC will be staffed with non-mainline employees (except for pilots). That had been said in many roadshows and briefings.

User currently offlineChrisNH From United States of America, joined Jun 1999, 4164 posts, RR: 2
Reply 5, posted (12 years 1 month 1 week 1 day 6 hours ago) and read 1466 times:

Thanks for the information about DLX. That makes sense to me, and an overlap of service between the two carriers is probably unavoidable. On the 'branding' side, I can see how capitalizing on the 'Delta' name would be a plus. But I can also see how much of an impact this new outfit could have, coming out with guns blazing and a whole new look. Essentially it would be a 'startup' with a critical mass already in place in terms of planes and gates...something B6 is trying to build from the ground up. If I were going down that route (a new non-Delta brand), I would stay away from the red-white-and-blue motifs. If they're not going to use Delta in the branding, better to distance yourself with all-new colors (maybe gold-and-green?). Obviously there is a 757 somewhere that is already painted to serve as a backdrop for the big announcement. Maybe it's being done in secrecy out at one of those desert storage places. God knows prying eyes can't get in there!

Chris in NH


User currently offlineGD727 From United States of America, joined Mar 2002, 925 posts, RR: 10
Reply 6, posted (12 years 1 month 1 week 1 day 4 hours ago) and read 1409 times:

Ooh, this is getting interesting. Being a huge fan of Delta, I have been sticking to this topic like crazy glue aver since the announcement of a new low fare division in August. I will kind of suck to not have "Delta" in the new name, perhaps it will be like the old Metrojet where it said "Metrojet by Us Airways", maybe this one will be "_____ Airlines by Delta". They are not stopping service to smaller cities like PVD, are they? That would totally suck for us New Englanders because, everyone hates Logan (I seriously dislike Logan, but I don't hate it). I am going to miss those 732's in the DLX livery though.

-GD727



Mmmm forbidden donut.
User currently offlineDeltAirlines From United States of America, joined May 1999, 8913 posts, RR: 12
Reply 7, posted (12 years 1 month 1 week 1 day 4 hours ago) and read 1407 times:

As for the current Express operation, I would expect it to go mainline. I can remember the early to mid 1990s (prior to Express) when Delta would have several 767s or L-1011s going from BOS to MCO (as well as BDL, etc.). There is clearly a market for the larger planes, and mainline would be the right choice to serve these routes.

As for the new LCC, I think it would be best if it kept Delta in the name. The best choice would be have DL and the LCC pax checkin at the same consoles, with one large check-in operation. On the ticket confirmation, it should say "Use Delta check-in desks" or something akin to that.

Now the reason for JFK...AirTran has already gotten 10% of the ATL market, and have over 300 flights a day with ATL being a terminus or departure city. AirTran is here to stay. However, JetBlue is relatively small. They serve few markets, and have fewer planes. What DL can do is offer a competitive/superior product to JetBlue, and they have the planes to start service to cities that B6 can't yet serve due to lack of aircraft. If Delta offers leather seats (which I think they will), food, and I am assuming that the overhead monitors are staying, then DL might siphon some B6 traffic. Also, DL has a MUCH superior FF plan than JetBlue (DL - over 250 cities to choose from, B6 about 25...) which might be some bait for those who had jumped from DL to B6.

Jeff


User currently offlineDCA-ROCguy From United States of America, joined Apr 2000, 4528 posts, RR: 34
Reply 8, posted (12 years 1 month 1 week 1 day 2 hours ago) and read 1332 times:

What DL can do is offer a competitive/superior product to JetBlue, and they have the planes to start service to cities that B6 can't yet serve due to lack of aircraft. If Delta offers leather seats (which I think they will), food, and I am assuming that the overhead monitors are staying, then DL might siphon some B6 traffic. Also, DL has a MUCH superior FF plan than JetBlue (DL - over 250 cities to choose from, B6 about 25...) which might be some bait for those who had jumped from DL to B6.

The Justice Department will need to watch this situation like a hawk. If DL uses 757's as some of you have suggested, that could mean capacity dumping. JetBlue also has some heavyweight political support in Washington, and they won't look kindly upon any predatory nonsense by the Cartel. If Delta does break the law, DOJ should come down on them hard.

If anything happened to JetBlue, we can be sure that a Delta LCC based at JFK would disappear, and prices would get jacked back up. These sorts of units are *strictly* a way to stem losses from real low-cost carriers, and consumers can expect a Delta LCC to be no different.

But just as AirTran has held its own and flourished at ATL despite Delta's bigger choice of FF destinations, so JetBlue isn't afraid of the big bad wolf. B6 has a good product, good business plan, and great employees. The Washington Post reports that B6 is defeating UA on IAD-OAK with higher load factors; they'd probably hold their own fine against a DL assault at JFK.

Jim




Need a new airline paint scheme? Better call Saul! (Bass that is)
User currently offlineTu154m From United States of America, joined Oct 2001, 683 posts, RR: 5
Reply 9, posted (12 years 1 month 1 week 1 day 1 hour ago) and read 1307 times:

It will be using 757s.
It will be called Del Cheapo.
The slogan "If you can afford to ride the bus you can fly with us!" has been chosen by advertising/marketing.
The logo is rumored to be a dollar sign with a red circle around it with a red line through it.
You will be allowed to bring on food if desired.
Steve



CEOs should swim with cement flippers!
User currently offlineTu154m From United States of America, joined Oct 2001, 683 posts, RR: 5
Reply 10, posted (12 years 1 month 1 week 1 day 1 hour ago) and read 1302 times:

JUST KIDDING!!!!!!(But nothing would surprise me right now!!!)
Steve



CEOs should swim with cement flippers!
User currently offlineChrisNH From United States of America, joined Jun 1999, 4164 posts, RR: 2
Reply 11, posted (12 years 1 month 1 week 1 day 1 hour ago) and read 1275 times:

"Capacity Dumping??"

Oh geez...I guess that means we have to bring out all those CAB manuals from days of yore (is 'yore' like a 'yout?'...what's a 'yout?'). This is what the old Civil Aeronautics Board would invest their time in, no?

Chris in NH


User currently offlineDelta-flyer From United States of America, joined Jul 2001, 2676 posts, RR: 6
Reply 12, posted (12 years 1 month 1 week 22 hours ago) and read 1233 times:

Capacity Dumping..... interesting terminology...
Dumping is selling a product below cost and is illegal as you imply ... but do you think Delta doesn't know about dumping? Do you think they do not have legal counsel? Do you think only JetBlue has friends in Washington?

.... won't look kindly upon any predatory nonsense by the Cartel. Cartel? Just because there is a concentration of market power among the top few airlines does not mean they are in collusion -- which "Cartel" implies. And the government will not have the balls to prosecute a large airline when they are already losing money.

I sense from your post that you have a great deal of animosity toward Delta.

Pete


User currently offlineSllevin From United States of America, joined Jan 2002, 3376 posts, RR: 6
Reply 13, posted (12 years 1 month 1 week 22 hours ago) and read 1228 times:

I suspect that one of the core reasons the LCC is being spun off as a different company rather than being "Delta" is specifically so Delta can itemize their cost structure outside their current mainline structure.

Why do this? Because it's easier and more palatable to everyone if the LCC has lower costs and then offers B6-like fares to B6 destinations. This will allow them to more cleanly offer capacity without allegations of 'dumping.' The dicohotomy of service and pricing will probably continue over time -- and it's not clear how smaller markets are going to do in the end. Certainly they will face dramatically higher fares or no service at all.

Steve


User currently offlineDelta-flyer From United States of America, joined Jul 2001, 2676 posts, RR: 6
Reply 14, posted (12 years 1 month 1 week 22 hours ago) and read 1211 times:

Steve...I agree with you. The LCC will in fact have a much lower cost structure, as they will require much less infrastructure compared to the mainline DL. Their business model, in fact, will be much like JB's.

Ultimately, smaller markets will see an increase in prices because they are not as competitively attractive.

Pete


User currently offlineFlashmeister From United States of America, joined Apr 2000, 2903 posts, RR: 6
Reply 15, posted (12 years 1 month 1 week 21 hours ago) and read 1186 times:
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While DCA-ROCguy has a point about the big carriers needing a response -- any response -- to the lowfares, I am very skeptical about the case for capacity dumping from JFK. I think it would be fairly difficult to prove.

Even if it could be proven, I'm not sure that I would object to it. I've argued here before that airlines are businesses like any other, and if they want to offer loss-leaders that other competitors can't match, that's the nature of the market. The market will dictate what can be charged for what routes, and what types of services can be offered.

Let's just say we see this sequence:
DeltaLCC comes in and pushes JetBlue into history
DeltaLCC capitalizes and becomes the leader at JFK
DeltaLCC morphs back into Delta and raises fares

If that happened -- and I would argue that it probably would not -- don't you think that the Southwests and AirTrans out there would see that a lowfare market at JFK exists and can be done at a profit? Do you really expect that no one would respond?

To add to this, the traffic we're talking about here is very price sensitive and not all that brand loyal. If Delta jacks up fares and AirTran comes in and offers lower ones, we'd see the large share of that traffic going to AirTran.

We're seeing the one of the first salvo's of Delta's experiment. If DeltaLCC works out, expect to see more routes added to LCC and taken away from mainline. Mainline can serve the higher yield routes at a profit, and it will. LCC serves the lower yield routes at a profit, and it will as well. I have a feeling that we should get used to this: it may be the way things work now that air travel is a commodity rather than a luxury.


User currently offlineGD727 From United States of America, joined Mar 2002, 925 posts, RR: 10
Reply 16, posted (12 years 1 month 1 week 21 hours ago) and read 1175 times:

Wait, if this new division is based in JFK and there are no more New England-Florida routes, this would be terrible, Southwest would be the only airlines operating the routes! Any idea if they are going to stay at smaller airports (PVD, MHT, ISP) size?

-GD727



Mmmm forbidden donut.
User currently offlineTwaneedsnohelp From , joined Dec 1969, posts, RR:
Reply 17, posted (12 years 1 month 1 week 16 hours ago) and read 1124 times:

Probably smarter to remove any connection to Delta for this new carrier. As the original poster implied - it will serve to confuse customers and sully the Delta brand and image. Refer to case studies on Metrojet by US AIRWAYS and CONTINENTAL Lite.

TNNH


User currently offlineChrisNH From United States of America, joined Jun 1999, 4164 posts, RR: 2
Reply 18, posted (12 years 1 month 1 week 13 hours ago) and read 1111 times:

Can anybody post the WSJ article from this past week that summarized some of these thoughts? On the New England issue, I somewhat selfishly hope they see the sense in Manchester/Providence rather than go with Logan. I think if the 'Get-em-In/Get-em-out' asset utilization is a driver, then they certainly SHOULD look at our secondary/regional fields. It has been demonstrated over and over and over that this is a big part of what makes Southwest (and more recently, B6) successful. A big 'They'll Get What They Deserve' to this LCC if they (again) focus on the big cities in the Northeast. Also, what is preventing this carrier from tapping Sandford near Orlando rather than MCO? If regional/secondary airports work up here, they surely can work down there.

User currently offlineChrisNH From United States of America, joined Jun 1999, 4164 posts, RR: 2
Reply 19, posted (12 years 1 month 1 week 12 hours ago) and read 1109 times:

Coincidentally, there's an article in today's Manchester Union Leader talking about the chances of Delta's LCC tapping Manchester. Makes for interesting reading, but there's not a lot of substance...it essentially frames the issues we've been speaking about here.

http://www.unionleader.com/articles_show.html?article=15806

Chris in NH


User currently offlineChrisNH From United States of America, joined Jun 1999, 4164 posts, RR: 2
Reply 20, posted (12 years 1 month 1 week 12 hours ago) and read 1108 times:

here's a clickable link to that story in the Manchester Union Leader:

http://www.unionleader.com/articles_show.html?article=15806


User currently offlineBucky707 From United States of America, joined Aug 2000, 1028 posts, RR: 3
Reply 21, posted (12 years 1 month 1 week 10 hours ago) and read 1084 times:

I think all of you who think LCC will serve its purpose by driving some others out of business then morphing back into the mainline, are wrong. Deltas LCC will be lowering costs by trying out some new ideas. If Deltas LCC is successful, I think you will see it dissappear......as the rest of the airline begins to utilize the ideas that work, and therefore there is no longer a reason for a seperate LCC.

User currently offlineChrisNH From United States of America, joined Jun 1999, 4164 posts, RR: 2
Reply 22, posted (12 years 1 month 1 week 9 hours ago) and read 1077 times:

Bucky707, I'm having a hard time understanding your post. In the first sentence you say that it's 'wrong' to think that this new LCC will eventually morph back into the mainline carrier after competitor(s) have been vanquished. Then you go on to say in your second and third sentences that this is exactly what you think will happen. I'm of the opinion that brands are very special things. They cost a lot to think up, and even more to launch and promote. I hardly think this is 'just a short-term ploy' to vanquish competitors and I think once launched the plan will be to have this business unit last as long as it has legs.

Southwest, obviously, is the big Kahuna in this high-stakes game of poker...and NO ONE is going to 'vanquish' them. As for JetBlue and other lesser competitors, time will tell. What Delta has going for them, as I mentioned, is the ability to almost literally snap their fingers and voila...a bunch of 757s, a bunch of gates at nearly any airport they can name, and personnel to staff the operation. This 'instant' creation of critical mass is perhaps one of the most powerful things supporting Delta's LCC, in my opinion.


User currently offlineMD88Captain From United States of America, joined Nov 2001, 1338 posts, RR: 20
Reply 23, posted (12 years 1 month 1 week 9 hours ago) and read 1069 times:

Here's some bits and pieces that are coming out about the new LCC operation:

-It will be manned by DAL pilot's under current contractual work rules.
-All non-pilot employees will be compensated a a much lower level than
current mainline employees. Those payrates will be at Airtran/Jetblue parity.
-It will at least initially be comprised of 37 formerly 2 class 757's.
-Those 757's will be reconfigured into 198 seat aircraft with leather seats,
increased seat pitch, and (I read lately) PTVs.
-The new airline will not be branded as DAL.
-The new airline will be primarily used on the East Coast and will fly many of
routes that DAL Express uses.
-The pilots flying these flights will be used out of the ATL 757/767 pilot
category.
-The trips will not be constructed for LCC purity. In other words a trip can
consist of 767 flights, mainline 757 flights, and 757 LCC flights.
-It is projected that the LCC 757's will realize another 20% usage per day
on the LCC schedule.
-The currently annouced non-pilot employee layoffs DO NOT include those
positions which will become surplus when 37 757's are moved into a different
division.
-DAL will use the new LCC division as a competitve response to Jetblue and
SWA. I do not believe that Airtran is that big a target because the LCC will
not be in ATL. Airtran may see a dilution of connection traffic through ATL, but not ATL origination traffic.
-The LCC's per seat mile cost should be very competitive given lower employee
costs, a 198 seat aircraft, and increased aircraft usage. The LCC will also
benefit from DAL's fuel hedging program, frequent flyer program, CAL/NWA
code share, and all the infastructure that is all ready in place.

Disclaimer: Do not rely on this stuff, because even though most of it comes from various company sources, everything can change tomorrow and usually does.


User currently offlineDelta-flyer From United States of America, joined Jul 2001, 2676 posts, RR: 6
Reply 24, posted (12 years 1 month 1 week 8 hours ago) and read 1051 times:

I wonder if the LCC will benefit Delta's transatlantic operations by feeding some traffic into JFK -- for destinations that are not served from ATL -- eg - Moscow, Prague, etc.

As far as Bucky's post, I think he means that DL will reconfigure their mainline operations along the LCC business model, thereby making the LCC division obsolete. If that's the case, I disagree. The mainline DL requires a more comprehensive infra-structure that will drive up cost per seat-mile, while the LCC can remain a niche player like JB and Airtran.

If the LCC model works out, it should be profitable with or without JB, and will remain in place as long as it benefits the company. As someone stated, this market is price-sensitive, and raising prices after competition is pushed out will be counter-productive.

Pete


25 ChrisNH : MD88...Many thanks for that thoughtful response and shedding light on some the possibilities/probabilities. Inasmuch as this entry is being crafted to
26 MD88Captain : DAL is a hub and spoke airline that is morphing into a hub and spoke/point to point operation. And DAL is not going to eliminate competition, but I th
27 Fanoftristars : So Delta is going to use a bunch of 757's for this operation. How will they replace these in the mainline operations? Are they cutting capacity?
28 GD727 : Delta does not have to consider PVD, it already has DLX flying 2 daily nonstops to MCO. The routes are very popular, I am just hoping they don't pull
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