Delta Air Lines' success in getting a tentative agreement from its pilots on the establishment of a low-cost airline is seen as a direct result of Southwest Airlines' moving into Florida this month. It is also an opening move in the row over pilot concessions.
Delta has studied the concept of a low-cost, low-fare carrier similar to the Shuttle by United, but dismissed the option as unfeasible for its hub-and-spoke system. Instead, during the past three years, Delta has been transferring its less profitable short-haul routes to either subsidiaries or even competitors. More importantly, it has implemented the 7.5 cost cutting plan, which was supposed to take the place of a low-cost carrier initiative.
The problem has been the pilots: Delta has unsuccessfully sought concessions from them for the last two years although it has laid off 400 pilots. As short-haul is the only US market experiencing traffic growth, Delta believes it can increase short-haul flying, re-hiring the furloughed pilots at reduced rates to support lower fares.
As Atlanta-based ValuJet establishes several 'focus city' operations in places like Washington/Dulles and Boston, and Southwest enters the Florida market, where yields are already depressed, Delta is seeing its home area become low-fare territory.
ValuJet is unconcerned about Delta competition. Its unit costs are 7 cents per available seat mile with an average stage length of 500 miles. One ValuJet source says even if Delta gets to 7.5 cents per available seat mile system-wide, it would still only be on 9 cents on the short-haul markets in which it competes against ValuJet.
Mead Jennings
Source: Airline Business
