Last August the CEO of Delta Air Lines offered John Selvaggio a new assignment. The job description: Start a low-fare airline to compete with JetBlue and Southwest, the only two carriers that consistently turn a profit. (Delta lost $1.3 billion last year.) Do it with idled Delta jets and company employees who might otherwise be laid off. Start by flying the same routes that the current low-fare division, Delta Express, loses money on, and expand from there. Do it with a launch team of just a dozen people, and don't antagonize anyone, particularly the pilots' union. And, oh, by the way, do it profitably -- fast.
Selvaggio's old job involved helping Delta manage the post - September 11 airport chaos. If anything could be more challenging than that, this was it. Selvaggio, now president of Song, Delta's newly launched startup, accepted on the spot. "I knew it was going to be fun," he says, without a trace of irony. "And I'm not afraid of doing hard work. JetBlue has done very well in the market. We think we can take it up a notch."
Song isn't intended to replace Delta overnight -- if ever. But it will address the one slice of the travel market that could remotely be characterized as high growth: price-conscious leisure travelers. And it will serve as a petri dish for new ideas and processes that could eventually transfer over to the mainline brand, Delta, enhancing employee productivity and asset utilization there. "We're trying to do what Coke did with its Dasani brand for bottled water," says David Pflieger, Song's vice president of operations, safety, and security. (Like Selvaggio, he's a relative newcomer to Delta.) "Dasani went from nowhere to number three in the market. We're not saying Delta's bad, just that we want to do something different."
That's what they're saying at Delta -- and at virtually every other large company. Change from within is the order of the day: How do you use your market clout and resources to battle the agility and originality of new-breed competitors? How do you embrace a new set of strategies and operating procedures? In short, how do you create a new company with the same people?
Song's first flight, on April 15, represented something of an early milestone for Selvaggio and his team as they address those and other thorny questions. For the remainder of the year, amid considerable turbulence in the travel industry, they still have to roll out a total of 36 planes -- in some cases adding more passenger capacity to routes that Delta Express already serves -- and prove that Song can sweeten Delta's bottom line sooner rather than later and help shape Delta's long-term future.
The Checklist: 2,500 Projects in Two Months
It's February, and there are 55 days left before takeoff. Song's Core Team has convened for its weekly meeting. Twenty-two people sit around a conference table at Song headquarters, in a brick building adjacent to Atlanta's Hartsfield Airport. The deck of photocopied PowerPoint slides lands with a thud. It's 34 pages long and deals with about 2,500 projects that must be finished by April 15. Selvaggio keeps the meeting brisk without glossing over anything. Tom Cooper, director at Delta's technical-operations facility, reports on how the IFES, or in-flight entertainment systems, will be integrated into the seat backs. The project won't be rolled out until October. "Let's keep the heat on," Selvaggio says.
The next topic deals with modifying the gate areas that the airline will use, so that they are Song branded. The two launch airports, New York's JFK and West Palm Beach, were on track to be done by mid-April. "Boston I'm concerned about because it's such a bureaucracy up there," Selvaggio says.
Seemingly small issues are studied for the impact that they could have on the airline's on-time performance. Someone wonders whether passengers could be persuaded to clean off their own tray tables and suggests giving them a towelette for that purpose. "Can we give them a vacuum cleaner too?" kids Joe Serratelli, Song's vice president of productivity.
Not every item on the to-do list is stress inducing. Wine maker Barton & Guestier has sent a case of its finest offerings to Song headquarters, hoping to be the airline's exclusive supplier of red and white. Serratelli, who began his career at Delta loading baggage at Newark Airport, suggests that the Core Team can't make that decision without sampling the products. "This is going to be a cork team meeting next week," he quips, as the meeting draws to a close.
The Strategy: From "Dabbling" to Leading
Delta has launched startups from inside the parent company before -- one successfully and one not so. Founded in 1924 as a crop-dusting operation in Macon, Georgia, Delta began carrying passengers in 1929, running a route from Dallas to Jackson, Mississippi. The passenger business was dicey until the mid-1930s. By the 1990s, however, Delta was setting records, becoming the first airline ever to transport more than 100 million passengers in one year.
Almost one-third of all Delta traffic goes to Florida, explains Selvaggio. But when low-fare carriers, such as Southwest and ValuJet (the predecessor to today's AirTran), began serving the Florida market, Delta realized that it would have to create its own low-fare offering -- or simply surrender the cost-conscious leisure traveler to the competition. In 1996, the company created a division called Delta Express -- its last startup prior to Song and the one that Song will replace over the course of this year -- to serve leisure fliers heading to Florida.
The Delta Express operation, a success at first, fell prey to what Selvaggio calls "cost creep." The initial deals with pilots had them working for lower wages, but only until the pilots' union negotiated an increase. And the 737s that made up the Delta Express fleet had just come out of intensive rehab -- which meant that their maintenance costs would only rise over time. As Delta Express's costs steadily increased, other low-fare airlines devised ways to drive their own costs down.
"Express wasn't seen as part of our future," says David Pittman, Song's CFO and an 18-year Delta veteran. "It wasn't a matter of survival, because at that point, we were making billions of dollars on the main line [Delta flights]. We never thought that things would be the way they are today. People think of Song as part of our future."
With Delta Express, Selvaggio says, "we were dabbling. There wasn't a real commitment to win in the market. And that market is growing so much that you don't want to dabble in it. You want to be a leader."
Song's new strategy for leadership is to start with low costs and high productivity -- and hold on to them over the long haul. "We need to make sure the costs stay low every year," says Pittman. "Which means we don't stop reinventing ourselves, asking how we can do more with less. We need to find better processes and technology to take pennies out of the cost."
Passengers will be prodded to buy their e-tickets either online or by phone, using an automated voice-recognition system that will launch later this year. And rather than each passenger receiving the same free snack, passengers will have to pay for their food. That way, they'll have a wider range of high-quality choices. "The customer may put no value on a free bruised apple and a warm bottle of water," says Tim Mapes, Song's managing director of marketing programs and services. "But it's a different experience if you're buying a cold bottle of Evian and a perfect Harry and David pear."
The Change: Same People, Different Company
In Selvaggio's office at Song, two photographs lean against the wall. Both show him playing his fluegelhorn at a Los Angeles Lakers game. (He also played it during Song's flight-attendant audition process, with Serratelli on drums, to emphasize that every flight is really a performance.) When Selvaggio arrived at Delta -- he had previously run US Airways Express and Midway Airlines -- the two photos had to be reframed "in the Delta-standard size and style," he explains. He makes it clear that he's not crazy about how they look.
Still, Selvaggio believes that the advantages of launching a carrier within Delta may outweigh the advantages of the JetBlue approach of starting from scratch. "There are a lot of things you don't want to re-create when you're starting an airline," Selvaggio says. "Delta has a great workforce, an infrastructure, and a digital nervous system that works very well."
A scorecard that measures the effectiveness of Song's leadership has emphasized that the startup needs to improve the "competitive position and greater good of Delta." So while some members of the Song team had proposed staffing the new airline with a 50-50 mix of Delta veterans and new hires, the airport-customer-service personnel, flight attendants, and pilots on Song will in fact all come from within the Delta ranks.
Initially, the idea was that not only would a 50-50 mix help Song create a corporate culture and customer experience that was distinct from Delta's, but it would also help keep costs down, since new hires could be paid lower wages. "But we did a 180 on that," says Joanne Smith, Song's vice president of customers. "We decided that we could get better productivity out of our own people and that we would have lower training costs." (Smith is the lone member of Song's executive team who joined the startup from outside Delta.)
One of Selvaggio's objectives with Song is to revive some of the romance of the early days of jet travel. "It has become mass transportation," he says. "It's boring and a hassle." One idea, cooked up during an early brainstorming session, was to have pilots walk through the cabin before takeoff and greet passengers. But the 50-minute turnaround time -- not to mention union rules -- made that impossible. Song's pilots will be active Delta pilots: They'll be paid at the same scale and wear Delta uniforms when they fly Song planes.
Song will also share some of its airport employees with Delta, which will help the airline get more out of its people. But during check-in, how will the same employees offer a different experience to Song passengers than they do for Delta's? "We will go to those stations, talk to those agents, and work with them on being lighter, more intuitive," Selvaggio says.
At an "audition day" for Song flight attendants in February, executives try to explain to a classroom full of longtime Delta flight attendants how Song will be different -- all while being careful not to snub Delta. A stirring video shows clips of Nelson Mandela, the Beatles, and Steve Jobs declaring, "The revolution begins now." Then Smith, wearing a Song T-shirt over her long-sleeve blouse, says, "This is not an independent airline starting up from scratch. It's taking the best of what Delta has to offer and rebranding it for leisure travel." Then the applicants break up into smaller groups and go off to be screened by assessors from Delta's HR department.
Getting sufficient help from the parent company has been a constant challenge for the Song team, which up until the launch operated with a senior team of just seven executives and a handful of administrative employees. Smith says that the employees at the main-line carrier (as opposed to Delta Shuttle or Delta Connection, the operations under Delta's commuter arm) are "charged up about Song, but resources are tight" because of recent cuts that eliminated more than 12,000 jobs at the company. "There are fewer people available to support us, and that's sometimes a problem," says Selvaggio. "But the flip side is that you deal with less bureaucracy, and you can make decisions faster and easier."
The Brand: Making Song Sing
Song's name has provoked quizzical responses both internally and from the public. Still, says Mapes of marketing, its uniqueness serves to separate the new operation from other airlines. "There was a need to say, 'This is not your father's Oldsmobile,' " says Mapes. On its Web site, the startup has been using the slogan, "It's your Song."
Song will emphasize its roomier planes and the 33 inches of legroom between rows. Later this year, customers will not only be able to watch free live television on a personal screen -- a standard JetBlue feature -- but they will also be able to pay extra for movies, games, or the option to create their own customized digital-music playlist.
One of Song's marketing realizations was that, with leisure travel, women are the decision makers -- and yet airlines are trapped in a mind-set that targets male business travelers. Mapes pulls out "The Song Book," a handbook produced by ad agency Leo Burnett and branding firm Landor Associates. Its purpose is to define the brand for its own executives and for the ad agencies that they work with. Song is "friendly, simple, and approachable," it says. Song is more like comedian Janeane Garofalo ("funny and human") than Martha Stewart ("too uptight, too vanilla"). In the back of the book is a CD containing music that helps characterize the Song brand. It includes tracks from New York punk band The Strokes, Cuba's Buena Vista Social Club, and British band Portishead.
The internal marketing campaign has been almost as elaborate. Song execs have been visiting mechanics, pilots, and baggage handlers throughout the 60,000-employee parent company. "We want people at Song to feel like they're part of Delta and vice versa," says Mapes.
The day before the airline's inaugural flight in April, a Boeing 757 filled with 199 Delta employees who helped get Song off the ground made a repositioning flight from Atlanta, where it was painted and refitted, to JFK Airport. "The hope was that it would create a ripple effect in the pond, even if we could not take every single employee on that flight," Mapes says. Song intends to roll out about one new plane a week after its first passenger flight, from JFK to West Palm Beach. (As this issue went to press, Selvaggio remained ready to adjust that plan, based on how the war's aftermath would affect spring and summer travel.)
Selvaggio receives a daily report, detailing such metrics as the percentage of seats sold on each flight, average ticket value, and on-time departures. "We should shoot ourselves if we don't do better than Delta Express did on those routes," he says. "The game has changed. Now we see that having a great low-fare product is a much bigger part of the business than we thought. It's where the growth is, and we have to succeed there in order to survive."
Sidebar: How An Old Company Gets New Ideas
A make-or-break question at Song is whether the executives and employees of an established operation can fill their startup with new ideas. Song will try to turn its planes around in 50 minutes, which, if successful, could allow it to tack on an extra flight each day. It will try to board planes with just one gate agent, by using video instructions on big plasma screens.
The startup team isn't afraid to experiment with unorthodox boarding procedures -- such as boarding all window seats first, then the centers, then the aisles -- if they can save time. "[Song president John Selvaggio] says, 'Hit me with ideas. If you give me a hundred, and one is good, then we're all better off than we were before,' " says Joe Serratelli, Song's vice president of productivity. Selvaggio refers to this openness to ideas as his "one sigma" approach. "A Six Sigma, zero-defect approach to stimulating new ideas is too limiting," Selvaggio explains. "We want to give people the freedom to express the one or two far-out ideas they might have."
At an early meeting about food, for example, someone blurted out this idea: Why not let passengers vote products on and off the plane? As a result of that, Song passengers will now be able to use the Web to determine which products make it onto the carts. Says Selvaggio: "That was part of a long thought process about how we can give passengers more control in an environment where the airline is always telling you when you can go to the bathroom and when you can use your laptop."
Scott Kirsner (email@example.com) is a Fast Company contributing editor based in Boston. Visit Song on the Web (www.flysong.com).