Negotiators for Delta Air Lines and its pilots union reached a tentative pact Wednesday for Delta to launch a lower-cost service that would better compete with smaller, prosperous rivals such as ValuJet and Southwest airlines.
The idea is that Delta would be able to offer the service profitably because its planes would be flown by pilots receiving new, lower wage packages and operating under more efficient work rules.
United Airlines, the biggest U.S. carrier, took a similar step in October 1994 when it launched its no-frills Shuttle by United on routes in California and elsewhere in the West. The Shuttle is now locked in a ferocious battle for market share in the region with perennial low-cost operator Southwest.
Although Delta said it has yet to decide which routes will be flown under the new service, such an "airline within an airline" would be an ambitious shift for the Atlanta-based carrier. Delta is the nation's third-largest airline and one that has long prided itself on catering mainly to business travelers paying top dollar for their seats.
But Delta, like most full-service carriers, is under intense pressure to slash its operating costs in order to boost profit, especially with low-cost airlines such as ValuJet nipping at its heels.
Indeed, the tentative agreement struck Wednesday by negotiators meeting in Atlanta is only part of Delta's overall negotiations for a new pilots contract, which Delta insists must provide the carrier with $340 million in annual savings.
And the plan for a new service--under which Delta would fly 100-seat jetliners on short routes and with few passenger amenities, as ValuJet and Southwest do--must pass several hurdles before it can be formally launched.
The plan remains subject to approval by the Air Line Pilots Assn.'s master executive council, which is meeting this week in Scottsdale, Ariz., and by the 8,500 Delta pilots the union represents.
The plan is also contingent on Delta and ALPA signing a new overall contract that provides the annual savings Delta has demanded, airline spokesman Neil Monroe said. "This is all still very tentative," he said.
But the pilots have indicated a strong willingness to consider a new, lower-cost service at Delta even if it means flying those routes at reduced wages, because they believe the new service would enable Delta to jump into markets where it's not currently competitive.
"The pilots have said all along they would accept lower pay in exchange for . . . job security, and this does address the job security issue" by giving Delta new opportunities for revenue, said Jane Langley, a spokeswoman for ALPA in Atlanta.
ValuJet, also based in Atlanta, is a young airline that has thrived in Delta's shadow by offering low-fare, no-frills service predominantly in the Southeast.
The threat of stronger competition from Delta clearly unsettled ValuJet's investors Wednesday. The airline's stock tumbled $3.25 a share to $24.375 on the Nasdaq. On the New York Stock Exchange, Southwest's stock edged up 12.5 cents to $25.875 a share, and Delta's stock slipped 12.5 cents to $79 a share.