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 31 All of the amenities designed to options that were musical in nature, and environment,” Selvaggio said. “It keeps “The U.K. was at the forefront of benefit passengers make flying enjoy- after sifting through some 600 options, things a little lighter for our employees, the low-cost airline development in able again, Selvaggio said. Song stood out. who we call our talent, by the way, and Europe,” he said. “It became clear to us “The airline business used to be “Everyone has a favorite song,” that transfers to our passengers.” that it was going to become increasingly exciting and romantic,” he said. “We Selvaggio said. “And when you think of With capacity up about 50 percent difficult to compete against low-cost air- have made our planes safe, clean, on your favorite song, you get a smile on year over year in its Florida markets and lines if they started expanding outside Photo courtesy of bmibaby time and affordable, but we’ve kind of your face. That’s how we want our pas- load factors on the rise — between 70 their London hubs. lost the romance along the way. So sengers to come to us and that’s how percent and 77 percent — Song has cer- “If we didn’t adjust our model, we we’ve strived to get that back by intro- we want them to leave … with a smile.” tainly achieved the goal of returning this would effectively end up in a position ducing an airline with a more unique According to Selvaggio, music is a part of Delta’s network to profitability. In where the bmi business at East Midlands universal language that can “calm a lot September, the airline announced it had Airport was unsustainable,” he said. of beasts,” so the carrier plays music carried its one-millionth passenger in In setting up the low-cost carrier, The airline business used to be on its jetways, Web site and airplanes. less than six months of operations. Davis said bmi transferred several 737s “exciting and romantic. We have In keeping with its motif, the carrier asks “We’re taking back our territory, but from its fleet and incorporated traditional made our planes safe, clean, on employees to use musical metaphors we’re not giving (our product) away,” low-cost philosophies, such as a point- time and affordable, but we’ve whenever possible, and even at its Selvaggio said. “Our ticket values are to-point route network, a single cabin, a headquarters, conference rooms are improving every month, and I think it’s single fleet type, half-hour turnarounds, kind of lost the romance along referred to as studios. remarkable that we’ve been able to add distribution nearly exclusively through the way. So we’ve strived to get “In fact, in staying within a musical that much capacity without sacrificing the Internet and foregoing interline that back by introducing an airline lexicon, we ‘auditioned’ our employees,” load factors or ticket value. agreements. with a more unique flavor than he said. “We hired people for attitude — “We have a motto, ‘Song was “We took a very, very, very strict view Tony Davis, the managing director of bmibaby, has seen the airline grow tremendously the ‘traditional’ types.