Delta Air Grounds Expansion Plans For Its Song Uni

[JS]

I think the ultimate point was that if you're going to carry the same number of passengers, the airplane that does the job for the lowest trip cost wins even if the unit cost is higher. Which in this case, it isn't anyway. Only if given the same load factor (and revenue) does the lowest unit cost win. Song's extra 43 seats are nice if you can fill them, but since that's not usually the case, they're just a full-time expense with a very part-time benefit. If a typical load is 130 passengers, would you rather fly them on a plane with 156 seats, or one with 199 seats that costs 40% more for the trip?

First of all, Delta can't just order a bunch of A320's (well, they could, but that would be pretty stupid). It makes much better sense to use an aircraft you already have.

Secondly, you are assuming quantity demanded is a constant, which is false.

 

[Blue Dude]

Demand quantity is a factor of marketing and economics, not plane size. It's fairly obvious that Song has in effect A320 (or B737) size loads, not B757 loads. For every flight that Song fills more than 150 or so seats, there are many others where every one of those extra seats goes empty. All this at a 40% higher cost to take that plane to its destination. CASM is an accurate gauge of relative cost, but it must be paired with RASM to determine the economic feasibility of the flight. More seats means a lower CASM, but unless you put bums in those seats, it means an even lower RASM. I think operating B757's in this fashion will prove to be a mistake.

 

[JS]

Demand quantity is a factor of marketing and economics, not plane size. It's fairly obvious that Song has in effect A320 (or B737) size loads, not B757 loads. For every flight that Song fills more than 150 or so seats, there are many others where every one of those extra seats goes empty. All this at a 40% higher cost to take that plane to its destination. CASM is an accurate gauge of relative cost, but it must be paired with RASM to determine the economic feasibility of the flight. More seats means a lower CASM, but unless you put bums in those seats, it means an even lower RASM. I think operating B757's in this fashion will prove to be a mistake.

What's your solution? Order A320's? Take 737-800's out of mainline service for Song and use 757's on the old 737-800 mainline or Shuttle routes? Would that not simply move the high capacity problem to a different market, most likely one that doesn't need the higher capacity?

Besides, I think you and all the other JetBlue afficionados, including the CEO, are focusing on just one metric (load factor) and assuming that it's the end of the world for the competition. How do you explain Southwest's unusually LOW load factors yet consistent profitability?

 

[Blue Dude]

How do you explain Southwest's unusually LOW load factors yet consistent profitability?

Relatively high yields, many on monopoly routes. Their trunk routes have much higher loads, but they often compete on those. Not gonna get high yields on NY-FL, especially when you dump 200 seats at a time on it. And yes, I think DL would have been smarter using 738's on Song. Surely they could have better used such a capable airplane as the 757 on more appropriate routes. That capability doesn't come cheap. The 757 is too much airplane to take 130 pax to FL. I wonder how serious they really were about Song. Why go through all the effort to build a new brand and cripple it from the very start with the wrong equipment? Did they ever intend to make money or did they just seriously misjudge the market?

 

[downline7]

from ajc.com ...

Song bleeding red ink to Florida, analyst says

By RUSSELL GRANTHAM
The Atlanta Journal-Constitution
Published on: 02/10/04

Delta Air Lines' Song offshoot is being "soundly trounced" by JetBlue Airways on some competing flights to Florida, according to a Raymond James analyst who estimates that Song is losing thousands of dollars per flight.

Analyst James Parker estimated that, on four Florida routes from New York's John F. Kennedy International airport, Song's operating losses in the third quarter last year were $4,042 to $7,944 per one-way flight. JetBlue made an operating profit on the same four routes, Parker said, because it had lower operating costs, got higher average fares and filled more seats on its smaller planes.

Delta executives have said Song, launched last year, is making a slight profit and holding its own against JetBlue and other discount carriers. But Delta has also effectively put Song's previously rapid growth on hold amid a strategic review by new Chief Executive Officer Gerald Grinstein.

"I don't think Delta is going to shut down Song," said Parker. But he added, "It does not appear that they're going to expand it."

Parker disclosed that his employer handled JetBlue's initial public offering in 2002 and subsequent investment banking work. Delta is not a client of Raymond James.

Parker's estimates on the key Florida routes were based on traffic and revenue statistics reported to the U.S. Department of Transportation, plus unit cost figures from their public statements. He said Song's results were probably modestly better than his estimates, in part because his estimates don't include revenue from passengers on connecting flights or from food sales.