Case 9: Song
1. Shortly after 9/11, with a slow economy and new –found fears of air travel, most airlines were losing tons of money and several major airlines went bankrupt. Despite this, some low-price, low-cost airlines, such as Southwest and JetBlue still managed to make profits. Delta took notice of this and after three years of the company losing billions of dollars they decided to try something radically different by creating a separately branded airline called Song.
To compete with traditional airlines like American Airlines and upstarts like JetBlue, Song completely altered the common way of flying. Song got rid of sky-high airfare rates and priced the flights between $79 and $299 and increased utilization of the same fixed cost asset by flying planes more hours a day, using gates more frequently, and driving distribution to lower cost channels like the Internet. Song bought large planes, removed first class seats, and added 70 percent more economy seats. They increased the number of flights per day by turning the planes faster. Labor is another big cost for airline, they changed the way they scheduled flight attendants by having them fly more hours in a day and giving them more days off while keeping their pay static. Song ended up operating at 23 percent to 25 percent lower operating costs than the same plane in what was a traditional Delta configuration.
Delta learned a lot from its Song experience. By changing its planes, removing first class, adding more seats, increasing the use of fixed costs, and offering lower fares, they were able to create a profitable airline despite a slow economy and people’s attitudes about flying post 9/11.
2. The amenities in the airline business are very important; price is not the only thing the customers want to ...