Delta Details Discount Carrier Plans

After months of speculation, Delta Air Lines today laid out plans for a new, lower-cost subsidiary to replace Delta Express. The still nameless carrier within a carrier will launch next year with a fleet of Boeing 757 jets configured with 199 coach class seats and compete directly against such successful low-cost carriers as AirTran Airways and Southwest Airlines.

"Delta intends, through the actions announced today, to meet the low-fare carriers head on," said Delta chairman and CEO Leo Mullin, "first to halt their progress and then to regain competitive share."

Delta said it will operate the dedicated 757s at a unit cost of 20 percent below Delta mainline 757s by achieving higher aircraft utilization rates, lowering distribution costs by channeling 70 percent of all ticket sales through the Web and voice-activated telephone reservations centers, and other cost efficiencies.

The fare structure, which will range from $79 to $299, will include five levels: 14-day advance purchase, seven-day advance purchase, three-day advance purchase, walk-up fares and sale fares. All fares will be one-way, nonrefundable and free of Saturday night stay requirements.

The new low-fare operation initially will focus on Delta's routes between the Northeast and Florida, currently handled in part by Delta Express. Delta Express will be phased out--aircraft will be redeployed throughout Delta's domestic system--as the new subsidiary expands "to support Delta with cost-competitive service in key hubs or other destinations across its U.S. network."

Further details, including the operation's name, marketing, business model and product specifics, will be announced in the months ahead and prior to launch.

Anticipating Delta's announcement, critics in the past few weeks have suggested the new strategy won't work. They pointed to past failures of the airline within an airline concept and questioned Delta's ability to achieve lower operating costs while appealing simultaneously to all segments of the travel market.

Even so, United Airlines also is said to be reconsidering its own lower-cost operation, possibly reviving Shuttle by United on the West Coast.

Clearly, major carriers are seeking ways to match cost structures of lower-cost competitors and retain business and leisure travelers--now flocking to smaller airlines--by offering simpler and lower fares. Since Sept. 11, industry observers suggested that a single class of service model, similar to that of Southwest, is a concept that may proliferate throughout the domestic system.