Originally created 11/16/02

Delta plans to add new airline unit

ATLANTA - Delta Air Lines is launching a low-fare mini-airline at the same time it cuts costs by $2.5 billion during the next three years.

Delta needs to further reduce spending by 2005 to deal with the lingering effects of the Sept. 11 attacks, Chief Financial Officer Michele Burns announced Friday at an industry conference in Key Biscayne, Fla.

The cost cuts come on top of $1 billion in previous cuts, which included plans announced last month to eliminate up to 8,000 jobs.

Ms. Burns did not specify how the airline would save an additional $2.5 billion, although she said it would try work-at-home programs and would review employee benefits before seeking labor concessions.

Details of the coach-class airline-within-an-airline will be made public by the end of the month, spokeswoman Peggy Estes said.

Also on Friday, Delta said it reached a tentative agreement with the Air Line Pilots Association for a marketing agreement with Continental Airlines Inc. and Northwest Airlines Corp. The agreement allows airlines to sell seats on one another's flights as if they were their own, and to cooperate on frequent flier programs. The proposal must be approved by federal regulators.

J.P. Morgan airline analyst Jamie Baker said the new low-fare unit, which hasn't been named, would help Delta, the nation's third-largest airline, fend off increasing competition from lower-cost carriers such as AirTran, JetBlue and Southwest.

"Delta's goal is to retard the growth of its discount competitors and, at the same time, more closely align its costs with discounters," Mr. Baker said.

He said he expects the new Delta unit will try to avoid traditionally congested hubs and concentrate on routes between the Northeast and the Southeast.

Ms. Estes would not say what the low-fare division would be named, what type of planes it would use or whether pilots would be paid less.

Increasing competition from Delta won't hurt JetBlue because it's growing fast and its customers are loyal, spokesman Gareth Edmondson-Jones said.

"We feel secure nothing can touch us," he said. "Imitation is the sincerest form of flattery, and the airline-within-an-airline model hasn't worked so far."


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