Song, the new airline

Posted: Feb 17, 2003 12:00 AM
ATLANTA--America's airline industry, which has not netted a nickel since Kitty Hawk, has never been sicker. United Airlines, the second-largest carrier, lost $3.2 billion last year ($1.47 billion in the fourth quarter--$16.3 million a day) and is in bankruptcy, as the largest carrier, American, may soon be, having lost $3.5 billion last year, the worst loss in aviation history. Shares of US Airways, the seventh-largest, which entered bankruptcy last August, trade over the counter for 20 cents. Yet in the teeth of this torrent of numbing numbers, and with war and a possible spike in fuel costs impending, the third-largest carrier, Delta, which last year lost a comparative pittance ($1.3 billion), is launching a new airline. The start-up's whimsical name--Song--is intended to promise something other than the routine grimness that passengers experience nowadays. Not since Henry Luce began a new business magazine, Fortune, during the economy's free fall in February 1930 has there been such an act of business bravado. But Delta CEO Leo Mullin notes that the airline began passenger service in June 1929, five months before the stock market crash that triggered the Depression. Song, he says, is not a flight of fancy. It will enable Delta to take on its most significant competitor--an airline that did not exist when Mullin came to Delta five and a half years ago. About 25 percent of Delta's business has something to do with Florida as an origin or destination, mostly involving leisure travelers. Delta has been losing a lot of that business to the 3-year-old, New York-based JetBlue Airways. It and Song are emulating the business model of ``no-frills'' Southwest, the so-called ``flying Wal-Mart'' which is flying relatively smoothly through the industry's current turbulence, having recorded in 2002 its 30th consecutive profitable year. But Song and JetBlue have frills. JetBlue has 24 channels of live satellite TV. By October Song, too, will have that. It also will have on-board shopping, interactive games and maps and digital MP3 audio so passengers can make their own listening menu from 50 albums. Song's first green-and-white, all coach, 199-passenger 757s will take off April 15, and all 36 will be in service by December. Delta's operating advantages include having only one union, the pilots'. Flight attendants in 2002 rejected unionization by a vote of 71 percent to 29 percent, and ramp workers rejected it for a second time in 2000, 83 percent to 17 percent. Mullin, who is from Boston, credits Delta's ``Southern heritage,'' meaning a sense of graciousness that has become, among employees, a kind of ``covenant.'' However, Delta's pilots are the industry's highest paid. Delta, United and American have generally moved in lock-step regarding pilots' pay. United's pilots used a slowdown--which cost the airline $500 million--to win a lucrative contract in 2000. Delta then agreed to United's terms plus 1 percent. American then offered its pilots the Delta deal, but Sept. 11 happened before the pilots agreed. And now that the exigencies of bankruptcy are forcing concessions from United's unions, Delta is left with the highest labor costs of the big three carriers. Asked if he resents the competitive advantages that United gains from bankruptcy, Mullin pauses, then carefully says, ``We worry about it.'' But he hastens to add that there are, of course, severe costs to bankruptcy: An airline loses control of its destiny to a judge. Shareholders are devastated. Employee moral plunges, taking a toll on quality of service. Small and midsize communities suffer from service cutbacks. Mullin says more than half--$700 million--of Delta's $1.3 billion loss last year resulted from post-Sept. 11 security costs, many of them federally mandated. These include fees for passenger screening, increased insurance costs (in 2001 Delta paid $2 million for terrorism insurance; in 2002, $145 million), new postal service and freight restrictions, cockpit door modifications (a $40 million item), the cost in displaced passengers of carrying air marshals, etc. Mullin, who was a Conrail executive for five years, sees ``a slight possibility'' of an airline industry ``collapse'' resembling the domino of railroad bankruptcies that followed the Penn Central bankruptcy in 1970 and resulted in Conrail in 1976. He notes that it took another 11 years to get Conrail sold back to the private sector. Government, he says, should compensate the airlines for security costs because these costs are aspects of national defense. And Congress might approve binding arbitration for airline industry labor negotiations, now that labor sees that the alternative is the hammer of bankruptcy. Then, perhaps, the industry will stop singing such a sad song.