Passengers on Delta Express aircraft wave dollar notes in the air when they see the flight attendant coming down the aisle. Having bought their tickets at the right price, they are more than willing to splash out an extra dollar for a box of cookies to go with their free beverage.
The Just Plane Cookies, shaped to resemble aircraft, are cheap, cheerful and a bit different. Rather like the airline that sells them. They are also fast becoming a signature of Delta Express. And that is just fine by the person who now runs this operation. Paulette Corbin herself is a bit different from your average airline managing director.
Corbin joined Delta Air Lines as a flight attendant. Often asked what prompted her to redirect her career into management, she always replies: "Staples". As a flight attendant, she was required at the end of each flight to staple together dozens of sheets of paper. Then she received a memo from management advising flight attendants that, as part of a cost-saving initiative, they should try to use fewer staples. "I thought to myself, if all they are doing is counting staples, then I can be a manager," says Corbin.
It is practically a requirement at Delta Express that its managers think out of the box. This airline-within-an-airline, launched by Delta in 1996, was started not only to protect the mainline carrier from increasing low-fares competition in the USA, but also to prove to Wall Street that Delta management could be innovative and progressive. "We needed to demonstrate that steady old Delta could change and be innovative. There was a lot of doubt on Wall Street that we could create something different," says Corbin.
Delta Express was started with other goals in mind as well. Delta management could see an increased customer demand for new products in leisure markets, but knew that the group was not geared to tap into this market. Specifically, the Florida tourist market - sited practically in the back yard of Delta's home base in Atlanta, Georgia - was growing. But in this market, Delta would have to compete with trains, buses and the car as well as low-cost, low-fares airlines. However, Delta did have the resources available to start up a low-fares airline. There were Boeing 737-200s in the Delta fleet and pilots on furlough that could be attracted to employment, even though Delta Express offers lower salaries than those at the mainline.
Delta also wanted to begin something that might restore the morale of its employees. "The trust factor had been broken in the company," says Corbin, referring to the now infamous 7.5 programme that was instigated in an attempt to cut costs drastically during the last industry downturn. Delta's purchase of the troublesome Pan Am routes and aircraft made it especially vulnerable, and the 7.5 programme's singleminded goal was to cut costs to ¢7.5 per available seat mile (ASM) or ¢4.7 per kilometre. Delta employees, with their almost family-like devotion to their company, were shocked by the changes. "We were looking for something to spark people and motivate them again," says Corbin.
Finally, Delta managers also wanted to have a test laboratory for new ideas that might be translated to the mainline operation if successful, but which would first be proven on a less critical customer base.
As Delta Express approaches its third year of operation, its success on all counts is being lauded by the company. An outside observer, however, must take Delta's word for that success. Delta has never released separate costs or financial data for Delta Express. Corbin says only that the operation is profitable and has been from day one. However, some are sceptical of the figures.
Cost comparisonsIn a recent update of its Scorecard: Airline Industry Cost Management study, California-based consultants Roberts, Roach & Associates states that costs have risen at Delta Express since its launch. Consultant Pete Roberts points out that between the third quarters of 1995 and 1998, Delta's costs for its 737-200s have jumped by ¢1 per ASM. While Delta has increased utilisation of its 737-200s to 11.5h, on a stage adjusted basis it has not been able to reduce costs. Delta Express now operates 37 of Delta's 737-200s, or 70% of that aircraft type. "There was a significant increase in the third quarter 1998 operational costs of the 737-200s, so there may be some unusual costs in that quarter that they have decided to write off," says Roberts. "We will have to wait and see."
The study puts seat costs of Delta Express at ¢10.86 per ASM - some 25-40% higher than other US low cost carriers. Southwest Airlines, for example, has unit cost for its 737-200s of ¢7.75. "It's all about productivity," says Roberts. "That's why Southwest does so well. Its people are motivated, hard working and extremely productive." Delta defends itself and answers that the study is flawed because it is based on data for the whole company and not on figures for Delta Express alone.
Corbin hints, however, that keeping costs down as an airline that is a business unit of a major carrier remains a serious challenge. Beginning in February 1997 the airline took a year off from growth. "We needed to cement our product; stress the processes," she says. Growth resumed after the break and the airline's 37 aircraft now serve 22 cities up and down the US east coast, with Orlando, Florida, the main focus. "We are growing and because we are growing some of the processes we set up with 12 aircraft are getting stressed with growth," admits Corbin. "So we are reassessing some of the processes to keep costs down." Ultimately, the airline could expand to 54 aircraft - the total number of 737-200s owned by Delta - and Corbin believes this would be possible based on the Florida market alone. Some 65% of Delta departures from Orlando are now Delta Express flights. The market is so important to Delta Express, the carrier now occupies a whole wing of a terminal at Orlando Airport.
Even if the actual costs of operating Delta Express are hard to pin down, the enthusiasm and commitment by Delta's new senior management team for this operation seems genuine. Chief executive officer Leo Mullin is encouraging Corbin to grow the airline "as fast as she can" and the mainline carrier is already reaping the benefits of Delta Express experiments. For example, Delta Express staff are always looking for new ways to reduce turnaround times at gates.
"We went to the flight attendants and asked them what delays passengers when they are coming on board? They said 'the magazine rack'. So we put the rack at the back of the aircraft. That's something we can transfer to the mainline. Everything we do is very orchestrated. We taxi in on the left hand engine so that baggage handlers can get to the baggage as quickly as possible. We have put long-life halogen bulbs on the wing tips - that's something else which is now also going to the mainline. And all the time we are releasing the creative skills of our people, which boosts morale. We have seen some terrific innovations and we are able to respond immediately. The cookies are an example. We don't serve any food, but this idea came up to sell cookies. Frankly, we were floored that people went for this, but they wait on the aircraft with their dollar notes out and ready."
Flight attendants, who are non-unionised and have their own, casual uniform, have also suggested holding trivia games to help entertain passengers because video entertainment would be too costly to provide. The airline has since partnered with car rental companies to offer small prizes.
Product differentiationThe key to making Delta Express work, Corbin believes, is defining the boundaries so that the customer understands this is a different product from the mainline. While Delta Express gains leverage from being able to offer Delta Skymiles frequent flier points, the Express product is deliberately kept separate from the mainline. The aircraft have their own livery; there are separate check-in desks at airports where both products operate; Delta Express has its own telephone reservation staff; there are no services into the Atlanta hub; and Delta Express operates a point-to-point service that is not part of the mainline's network.
In Boston, three Delta products are offered because Delta Shuttle also serves that city, but the company maintains the separate identities of each. "Delta Express lives to optimise value to the mainline; we tread the lines very carefully," says Corbin.
Delta Express management is also working to understand its customer base better. About 70% of the customer mix is leisure and Corbin says the market wants a strong on-time performance as well as frequency in the tourist markets and low fares. "We started off with a very simple fare structure that offered three fares. But that required $40 jumps between each fare band and we found that was not manageable. The customer was not prepared to make those jumps. So we went to six fares and a better yield management. We also have seasonal fares because we have discovered this is no different from the hotel business. We have had some very fruitful discussions with the mainline about how to manage pricing and we are still learning."
There are challenges ahead apart from pricing and keeping down costs. Since Delta Express was launched, the former ValuJet has revived itself as AirTran and expanded. Southwest - a truly low-cost operation - has also pushed hard into the east coast market. This year, Southwest will enter Islip, New York, bringing the number of markets where it goes head-to-head with Delta Express to almost 10. US Airways also launched its own low-fares airline in 1998; MetroJet now competes with Delta Express in nine markets and is growing fast in the same east coast market.
Corbin says the markets remain "very strong" despite the extra competition and says the advance seat reservation facility it offers is a useful advantage over both MetroJet and Southwest. Corbin says Delta Express is recording a 93% customer satisfaction rate, with eight out of 10 passengers saying they will choose the carrier again. Employee satisfaction is also "very high" says Corbin, although Delta pilots are due to renegotiate their contract in 2000.
But perhaps the most obvious success of Delta Express is the way it has helped revive the spirit of Delta. Corbin knows she has to keep a sharp eye on costs, but counting staples is not her style.
Source: Airline Business
