Delta Air Lines is retrofitting 36 Boeing 757-200s and 36 737-200s to support a major revamp of its low-fare business.

The carrier is forming a new low-fare subsidiary to operate the 757s and is considering applying for a separate US Federal Aviation Administration operating certificate. Meanwhile, it is shutting down Delta Express, a low-fare unit it formed in 1996 that was never a separate subsidiary. Delta Express's 36 737-200s are being transferred back to the mainline operation, where they will remain until scheduled retirements in 2006 to 2008. The new unit's branding will be unveiled in February, with services beginning around March.

The switch from 737s to 757s is aimed at lowering Delta's unit costs by about 25% in markets where low-fare competition is the most intense. By improving employee productivity and aircraft utilisation the new subsidiary will have 20% lower operating costs, compared to the 85 757s that remain in Delta's mainline fleet. Seating capacity on the 757s will be increased by up to 59 seats to a one-class 199-seat layout.

But JP Morgan analyst Jamie Baker warns that the subsidiary's per-seat block hour rate will still be 10% higher than Southwest and 30% higher than JetBlue. "Delta appears to have carefully avoided the use of the 'low-cost' moniker in describing its new unit, instead relying on the tried-and-true 'low-fare' description," he says.

The subsidiary will take over the densest Delta Express routes, predominantly linking Florida with large cities in the north-east and mid-west USA. Some of the weaker Delta Express routes are being handed over to Delta Connection regional jets.

Source: Flight International