David Siegel, CEO, US Airways

A MAGAZINE FOR AIRLINE EXECUTIVES OCTOBER 2003 T a k i n g y o u r a i r l i n e t o n e w h e i g h t s EXTREME AIRLINE MANAGEMEN T A conversation with … David Siegel, CEO, US Airways INSID E Traditional carriers launch low-fare subsidiaries How airlines weathered "the perfect storm" Cathay Pacific Airways’ crisis management process © 2009 Sabre Inc. All rights reserved. [email protected] industry industry – and a growing percentage in Europe carriers that have started their own five destinations with a fleet of four they also have key differences in the way An and Asia/Pacific as well – traditional car- low-cost airline. Airbus A320 aircraft. And Delta, with they operate. While both have a single riers have been forced to take extreme Despite a checkered history of such Song, and bmi, with bmibaby, have fleet type, Song uses larger 757s com- measures to deal with the growing offshoots, in the past couple of years, sev- used their low-cost subsidiaries pared to bmibaby’s 737s. Song also has Inside threat. The low-cost carriers have put eral airlines have launched, or announced to aggressively compete in their maintained the pay scale of the parent tremendous pressure on traditional plans for, low-cost subsidiaries. Air Canada dominant markets. airline while bmibaby forged complete By B. Scott Hunt and Job network carriers to cut costs in order has launched Tango and Zip. Qantas is Although some consider such new labor agreements. Each also offers Stephani Hawkins | Ascend Editors to compete with the LCCs and match now examining the possibility of launch- endeavors risky, early returns have been different amenities to its customers. their discount fares. ing a domestic low-cost carrier. United positive for Delta and bmi, who show While their approaches to their t may not be a case of “if you can’t beat assets, incorporating elements of the Traditional airlines have fought Airlines recently announced it will that, perhaps, such a new venture is low-cost carrier startup differ somewhat, I’em, join ’em.” But several traditional low-cost model in their own “carrier- back by reducing labor costs, develop- launch a new low-cost operation from not quite the flight of fancy many peo- both Delta and bmi are committed airlines, faced with increasing competi- within-a-carrier” startups. ing “rolling” hubs and simplifying its Denver hub beginning in February. ple once believed. Although they share to using their new subsidiaries to tion from low-cost carriers, have begun With low-cost carriers now control- their fleets. But none of those steps The low-cost operation, currently code- similarities – including drawing upon compete strongly against the low-cost looking at ways to re-deploy their ling nearly a quarter of the U.S. market match the radical approach of those named Starfish, will begin by serving the resources of the parent airline – competition. Song Reaches You’ve Come a Top of the Charts Long Way, bmibaby! By Stephani Hawkins | Ascend Editor By Stephani Hawkins and B. Scott Hunt | Ascend Editors ith 30 percent of its traffic coming own backyard. direct service from the northeast to key ack in 2001, officials with bmi, the low-cost carrier would identify as being Go, announced that December it would Wfrom Florida, Delta Air Lines defi- The carrier looked at several Florida leisure destinations, also Bsecond largest carrier in the United attractive. Really, the decision for us was begin operations at East Midlands. nitely wanted to protect its market share options. It could follow the lead of other recently added service between Atlanta Kingdom, predicted someone would if we as a company had to start setting “Because we had laid a lot of the in a vital area. airlines and pull out of Florida. It could and Las Vegas, Nevada. eventually bring a low-cost carrier to the up our own low-cost carrier mindful of groundwork, we were actually able to Long the state’s dominant carrier, maintain the status quo, continuing to When the concept of a new, low- airline’s East Midlands Airport home base. some of the pitfalls that people like British announce our own low-cost airline within Delta faced the growing presence in lose money and hoping to make it up in cost airline was introduced to Delta So, they thought, why not do it Airways with Go and some of the U.S. three days of Go announcing it was Florida of low-cost carriers such as stronger markets. Or, ideally, it could employees, it was welcomed with themselves? carriers had with their own ‘light brand.’ coming here,” Davis said. “The immedi- Southwest, AirTran and jetBlue. Fending find a way to rejuvenate its Florida tremendous support and cooperation, “It became fairly clear to us that our Could we set up a low-cost airline and ate reaction to Go’s announcement was off the upstarts, however, posed a chal- routes and make money. said John Selvaggio, president of Song. home base here in the Midlands was ripe learn from some of the mistakes before that we would stand and fight.” lenge. Historically, yields in Florida were The third option led to the concept for a low-cost airline,” said Tony Davis, someone actually came into our home Although a radical move by a full- low and, with low-cost carriers entering of Song, Delta’s low-cost “carrier within managing director of bmibaby. “It had base airport and attempted to do that?” service carrier, Davis said the decision the market, were actually spiraling even a carrier.” all the attributes for an airport that a In the summer of 2001, bmi began for bmi to start a low-cost operation further downward. The Atlanta, Georgia- On April 15, Song took to the skies planning its new low-cost operation, but made perfect sense. based carrier knew it had a lot at stake if with its maiden voyage from New York those plans were put on hold after the it didn’t find a radical way to meet the City, New York, to West Palm Beach, events of Sept. 11 of that year. As demands of the changing market in its Florida. The airline, which provides continued on page 32 expected, however, a low-cost airline, continued on page 35 30 ascend october 2003 31 industry continued from page 30 Every department assisted in setting up Because it is an offshoot of a well- resource, and at the same time, you’re “If you feel you can make the rev- said. “Our passengers have access to the new operation. established brand, the carrier wasn’t getting better utilization of your people enue side of the equation work, you’ll live, all-digital satellite television pro- “I think people were in the mood to burdened with a large capital outlay or and your airports. come out ahead,” said Selvaggio. “True, gramming, digitally streamed MP3 do something different and build a win- the need to purchase or lease several “It doesn’t cost more to lease the you’re going to have about a 30 percent audio programming, pay-per-view pro- ner, and everybody wanted to be part of new aircraft and bid on new airport aircraft or the gates,” he added. “And higher operating cost, but you’ve got gramming and an array of video games. the team,” Selvaggio said. “So while it in most cases, you don’t need additional an opportunity to make 70 percent And to top it off, we offer buy-on-board was a challenge in that we were always staff. It’s just that they have less down- more revenue.” snacks and meals.” up against the media and Wall Street time in between flights. So we found we The structural savings allowed Song Passengers can purchase meals saying it couldn’t be done, we found could do this at very low marginal costs to maintain the same employee pay scales onboard, including freshly made sand- that there were more optimists in the while putting more seats into the market as its parent company, from where it wiches, salads and wraps; healthy world, and fortunately, a lot of them Photo courtesy of Song place, and that’s how we drove our cost drew the majority of its employees. snacks such as yogurt, breakfast bars work for Delta.” structure down — we simply optimize “Many of our flight attendants and juices; old standards such as chips In creating a new low-cost carrier, the use of our assets. make more money now than they did and candy; and top-shelf cocktails — Delta learned from its experience with “We knew that to get the utilization when they flew for the mother airline, Cosmopolitans, Martinis and Mimosas. its earlier carrier within a carrier, Delta we needed, we had to turn them (air- but they’re working more flights and “People hate airline food, but they Express, which started in the late ’90s planes) faster, which meant we wouldn’t more hours,” Selvaggio said. “We’ve still love to eat,” Selvaggio said. “And connecting airports in the northeast be able to offer some of the amenities, changed the methodology in the struc- people will eat no matter what the airline United States to Florida. such as pre-departure cocktails or special ture of how people get paid, but it “We had a pretty strong position in boarding privileges, that Delta’s frequent encourages them to fly more. And the We have a motto, ‘Song was Florida, and we weren’t making money flyers were getting,” Selvaggio said.

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