Delta Gets Down to Business

The airline tests out an all-business-class flight.
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For years business travelers have been flying coach, cramming into seats with limited legroom and nibbling on stale sandwiches in order to get a better deal. But a new all-business service being tested by

Delta

(DAL) - Get Report

may change that.

The airline last week began flying one-class service on all flights between its Atlanta hub and two business travel destinations, Kansas City and Houston. The service, which will be tested for 12 weeks, uses Boeing 737-800 planes outfitted with all leather seats, 36 inches of legroom (compared with the usual 31 inches), Toblerone chocolate bars, Goldfish crackers and TV shows like Law & Order.

"With this particular test, we wanted to explore one-class service and see if business travelers would find value in these amenities and options," said Katie Connell, spokesperson for the airline. "After Sept. 11, the industry was very focused on finances and costs and may have lost touch with customer service. We're focused on bringing back the service customers expect and deserve."

Delta said its test flights are priced between business-class rates and coach rates.

A similar service aimed at business travelers by

PrivatAir

has seen some success. PrivatAir partners with

Lufthansa

to provide first-class service along a few international routes. In June of 2002, PrivatAir began flying between Newark and Dusseldorf, Germany, on Airbus 319s, featuring 48 leather seats that fully recline, gourmet menu offerings and a Sony Watchman at every seat with nearly a dozen movies from which to choose.

While the cost runs as much as $4,000, PrivatAir said the service is profitable and that the company has moved to expand it to other markets. In March 2003, the company announced that it would add a flight from Newark to Munich and begin flying between Chicago and Dusseldorf.

"We're planning on expanding in the United States, working with major American carriers. They've been coming to us and we've been in talks with one of them for a new route," said Nicole Gildea, marketing manager for PrivatAir. "But what we do is totally different than what Delta is doing. We're international and all first class."

Indeed, Delta's test looks a lot more like the low-cost, leisure class Song product it rolled out earlier in the year. Both are domestic operations and Song has 33 inches of legroom, all leather seats, upgraded snacks and a brand-new in-flight entertainment system. This lack of differentiation has left some industry watchers unimpressed.

"Frankly, I don't see anything new about offering 36 inches of legroom. This sounds like the Delta shuttle to me and in fact, those Boeing 737-800s they're using were moved from the shuttle markets," said Prashanth Kuchibhotla, senior airline analyst with eCLIPSE Advisors, an airline consulting firm. "I frankly see their results being mixed or showing no change."

While Song and the test may look alike at first glance, a big difference is the choice of routes where the one-class service will be deployed -- on business-travel dominated markets also served by

AirTran

(AAI)

, Delta's low-cost rival. Delta seems to be targeting AirTran by increasing service levels while matching AirTran's ticket prices. (According to both companies' Web sites, a round trip between Atlanta and Houston is $173.50. The usual business class fare for Delta would be $525 on that flight to Houston.)

With better levels of service -- and lower prices to get it -- business travelers may warm to Delta's one-class service. According to an October 2003 study by Travelocity, 25% of business travelers said that legroom has been the hardest amenity to give up, ranking it above Internet access and food service.

"Some business travelers can't stomach paying for a first class seat, but cringe when they're stuck with 31 inches of

legroom in the back. They don't want to be in the back with the screaming kids, but they don't want to pay $1,000 to sit in the front, either," said Stuart Klaskin, a founding partner at KKC Aviation Consulting. "How do you meet that demand in a two-class plane? This has some serious potential implications."

If Delta's one-class test is deemed successful when it ends on Jan. 31, expect other carriers to possibly follow suit. It didn't take long for other network carriers to knock off Delta's low-cost Song unit, with

UAL

(UALAQ)

, parent of United Airlines, announcing the birth of Ted, a new low-cost unit serving the Denver market.

"If you look at Song and this test, these services are showing us what the backbone of Delta could look like in three, five, 10 years down the road," said Klaskin. "Is the Delta strategy to bifurcate the market? I can picture a world where the Delta brand has three tiers, flying single class planes on business routes, Song in the markets where there's high volume and low revenue, with a hybrid of those two on international routes."

Delta wouldn't reveal its initial results for the test, which has been in the market for a little more than a week. But with low-cost competition looming over the next few years as

Southwest

(LUV) - Get Report

,

JetBlue

(JBLU) - Get Report

and others expand rapidly, network carriers will be testing the waters with new products to gain an edge with customers.

"There are a lot of markets where this one-class product could work, and I've reviewed a lot of start-up plans from entrepreneurs who are looking at it. The major network carriers would be foolish to let someone pioneer a new model that would take high-yield traffic from their hubs," said Kevin Mitchell, president of the Business Travelers' Association. "I think this has a lot of promise."