State of the Airlines

Friday, January 07, 2005

OPINION: Other info on Delta's fare plans

I punched around the internet to try and track down the genesis of the fare structure that Delta Airlines has put into play. I found these items of interest.

08/14/2004 – Delta announces a new fare plan for its Cincinnati market. Articles on the internet indicate that Wall Street was pleased with the move and their stocks moved up on the announcement of the program.

01/05/2005An article on has some interesting comments from Delta’s chief marketing officer, Paul Matsen. He says that the test of this fare structure in Cincinnati resulted in a 30% increase in traffic there. Now here’s the good stuff …and I quote… "There will be a short-term dilutionary impact from this - as we experienced in Cincinnati," said Paul Matsen, Delta's chief marketing officer, during a conference call Wednesday. "Over time, the effects of fare simplification are offset first by traffic increases...Secondly, we get productivity and efficiency benefits." He goes on to say that Delta is whacking something like 6,000 special fare programs. 6,000! Talk about operational overhead!

So what’s my point?

First, I got a punch in the head for every analyst who is bashing Delta’s new fare structure and saying its going to bring the industry down. You forfeited the right to criticize this move by not nailing it when they did it the first time. In fact, Wall Street rewarded them for it, where is that treatment now? This time the analysts have been swayed by the whining of the other major airlines saying this might hurt them. So this makes Delta’s plan a bad idea?!?! PUHLEASE. Delta is NOT required to stand still for the rest of the industry. If Delta is on to something and the other airlines can't compete then that's too bad. If it shakes out some weak players then so be it. Compete or move on.

Second, Delta believes they know what to expect for their business plan under the new fare structure. They’ve played this game before albeit on a smaller scale. They understand that they are going to take a short term hit for the long term benefit. Let the games begin.