Airline Spin-offs Expand, But Questions Remain United Airlines and Delta airlines are trying to solve problems with Ted and Song, the low-cost offspring of the traditional carriers. Both have been flying for some time now and both have shown some growth. But would the new startups be profitable on their own?
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Airline Spin-offs Expand, But Questions Remain

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Airline Spin-offs Expand, But Questions Remain

Airline Spin-offs Expand, But Questions Remain

Airline Spin-offs Expand, But Questions Remain

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  • <iframe src="https://www.npr.org/player/embed/4776336/4776337" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
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United Airlines and Delta airlines are trying to solve problems with Ted and Song, the low-cost offspring of the traditional carriers. Both have been flying for some time now and both have shown some growth. But would the new startups be profitable on their own?

RENEE MONTAGNE, host:

Two years ago, United and Delta Airlines created new discount start-ups to better compete with rivals like JetBlue and Southwest. United's start-up is called Ted, Delta's is Song. They were supposed to copy the lighthearted attitude and the lower cost of their competitors, but their parent companies continue to lose money. Delta just posted a quarterly loss of $388 million; United lost nearly $1 1/2 billion. That's left many wondering whether these spin-offs are having the intended effect. Christopher Elliott reports.

CHRISTOPHER ELLIOTT reporting:

How do you become as successful as Southwest or JetBlue? You hire Barry White, or someone who sounds like Barry White, to do your in-flight safety announcements.

(Excerpt from Song in-flight announcement)

Mr. BARRY WHITE: Don't let the soul fool you, people. You are not lying on a bearskin rug in front of a warm fireplace with a drink in your hand and a friend by your side. You're on a big beautiful airplane.

ELLIOTT: Song crew members shuffle to this tune while they demonstrate the safety features on the aircraft. And in that respect, and many others, flying on Song and Ted is dramatically different from taking a flight on their parent airlines. The planes are newer and there are free in-flight entertainment systems with interactive games and movies.

Ms. JOANNE SMITH (President, Song): What we set out to do and I think what we are accomplishing is creating a different personality.

ELLIOTT: Joanne Smith is Song's president. She says its personality goes beyond what customers see.

Ms. SMITH: We built our platform on a sustainable low-cost structure. I mean, that is predominantly done by high productivity on the aircraft. It is really making the assets--the fixed assets that we have as productive as we can.

ELLIOTT: But are the changes more than cosmetic?

Mr. PHILIP BAGGALEY (Airline Analyst, Standard & Poor's): It's actually very hard to tell how well these units are doing.

ELLIOTT: Standard & Poor's airline analyst Philip Baggaley.

Mr. BAGGALEY: One can infer that they are at least reasonably satisfied with their performance. Now that may well mean that they are only losing less money using these low-cost units in certain markets than they would otherwise lose. It doesn't say that Song or Ted are actually profitable.

ELLIOTT: Both airlines insist that these start-ups are successful. And to prove their point, they are expanding them. Sean Donohue is the vice president of Ted and United Express.

Mr. SEAN DONOHUE (President, Ted, United Express): Ted is adding financial value to the overall enterprise, which is a good thing. It's bringing new customers and it's having a positive competitive impact.

ELLIOTT: But some skeptics, like Michael Boyd, president of the Boyd Group, think Delta and United shouldn't have bothered. He believes at least one of the airlines amounts to nothing more than smoke and mirrors.

Mr. MICHAEL BOYD (President, Boyd Group): United is trying to convince the world that they have a low-cost entity inside of United Airlines, and all they've done is taken some airplanes, painted them and put--have exactly the same cost and the same fares as before and trying to convince the public that somehow United has lowered its costs. They haven't.

ELLIOTT: How about Song? Boyd says Delta has made more of an effort to change its cost structure and go after new customers.

Mr. BOYD: Song is almost totally separate from the rest of the Delta system. It doesn't fly mainline Delta passengers. There's very little interaction.

ELLIOTT: But even so, there's little evidence that either of these start-ups is contributing to a turnaround at the parent company. United, which spent $20 million to create a new airline, is flying under bankruptcy protection. Delta, which invested $60 million in Song, is widely believed to be close to a Chapter 11 filing of its own. And while no one wants to see that, it might give Delta the flexibility it needs to cut costs and allow the airline to become more like its offspring, Song.

For NPR News, I'm Christopher Elliott.

MONTAGNE: You're listening to MORNING EDITION from NPR News. I'm Renee Montagne.

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