Delta to launch a lost-cost subsidiary

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Delta Air Lines today announced that it will create a new low-fare subsidiary designed to appeal to the growing number of price-driven travelers. The main features include:

* Separate subsidiary. As a wholly-owned subsidiary of the company, the
new operation of 36 Boeing 757 jets will launch in 2003 to compete
head-to-head with other carriers in the low-fare market segment and to
strengthen Delta’s current portfolio of businesses. The new subsidiary
expects that most one-way fares to be between $79 and $299.

* Cost-competitive business model. The subsidiary will create a new,
cost-competitive business focused on increased productivity and the
efficient use of Delta’s current assets, including fleet, operations,
technology and people. Its unit costs will be approximately 20 percent
below the available seat mile costs of Delta’s mainline 757s.

* Distinct brand/customer experience. The new subsidiary will feature low
fares, a distinctive brand, and amenities and services to meet the
expectations of price-savvy customers. It also will feature the elements
required for a discount carrier – simple low fares, low costs,
high-utilization and direct purchasing methods for tickets. This service
will initially operate its dedicated fleet of 757s in the
Northeast – Florida market, with later expansion across Delta’s United
States network.

“The new subsidiary announced today represents an aggressive and proactive
initiative to meet the burgeoning competition from low-fare carriers,” said
Leo F. Mullin, Delta’s chairman and CEO. “We have previously noted that
low-fare carriers represent a real threat to Delta – substantially more than
that from other hub and spoke competition. Low-fare carriers have been making
significant inroads particularly during this period of extreme financial
duress for the industry. Even in the midst of these challenges, Delta intends,
through the actions announced today, to meet the low-fare carriers head on –
first to halt their progress and then to regain competitive share. The goals
are an enhanced competitive position for our company and higher
profitability.”
The announcement follows intensive market analysis and planning. “We’ve
listened to our customers, and we know what they want – low fares and better
value,” said Frederick W. Reid, Delta’s president. “Our research shows that
more than 70 percent of customers make their purchase decision almost
exclusively on price. In response, we’re making aggressive changes to allow us
to better respond to our price-driven customers. Our subsidiary will be
low-fare, and it will be unit cost competitive with this tough airline
segment.”
“Delta’s new service will be a powerful addition to our portfolio of
products that are focused on different customer needs. Delta will leverage its
full array of services – including regional jets, network service through our
hubs, international service, codeshare relationships and, now, a low-fare
subsidiary – as a huge competitive advantage.”
John Selvaggio, 56, named in August to lead the new low-fare strategy,
will become president of the new subsidiary and will report directly to Reid.
Delta plans to announce the new unit’s name, product and service elements
prior to the launch of service in 2003. Details regarding the subsidiary’s
business model, and marketing and people strategies will follow.

New Business Model Focused on Cost Savings
The subsidiary will create a new, cost-competitive business focused on
increased productivity and the efficient use of assets.
Fleet/Operations:
* Bigger, better aircraft. During 2003, the subsidiary will grow to 36
757s with all-coach configurations and 199 seats per aircraft. (The
Delta Express Boeing 737-200 aircraft will be repositioned within
Delta’s network to continue the company’s efforts to match capacity with
demand throughout its system.)
* Higher aircraft utilization. Delta has developed a process that allows
us to reduce the turn-time for a mainline 757 aircraft by 30 minutes and
increases its utilization rate to among the highest in the
industry – 13.2 hours per day, a 23 percent improvement.

Technology: The subsidiary, unlike its low-fare competitors, will be able
to leverage the strength of Delta’s world-class technology infrastructure.
* Aggressive, direct distribution. Additional cost savings and
productivity will be generated from an aggressive direct distribution
goal of having 70 percent of all tickets purchased directly from the
airline’s Web site and reservations service centers. This will be
facilitated by a customer self-service strategy that ties together all
aspects of the flying experience using digital information technologies.
* Dedicated Web site. On the Web, Delta’s technology infrastructure will
enable a simple, easy to use, information-rich site on which customers
can purchase tickets, check-in for flights and print boarding cards from
the convenience of their home or office. The airline also will feature a
dedicated Web site address for the new low-fare initiative.
* Voice-activated reservations. Over the phone, customers will book
directly with the airline through voice-activated technology.
* Self-service kiosks. At the airport, self-service kiosks will continue
to help customers avoid lines by electronically executing high-demand
transactions.
* Efficient gate and boarding. At the gate, exclusive gate information
displays will ensure that customers remain informed up-to-the-minute.
Additionally, gate and boarding technology will facilitate efficient,
expedited boarding.

Efficient Processes:
* Airport. New processes, self-service technology enhancements and
automated aircraft baggage loading systems will reduce staffing in the
airport operation.
* In Flight. The new subsidiary’s efficient single class of service also
will allow each flight to be staffed with fewer flight attendants.

People Strategy Designed for Productivity, Distinctive Brand Delivery
Initially, the subsidiary plans to hire from the ranks of active Delta
employees to staff its needs. New processes and productivity measures will
allow the airline to achieve substantial cost benefits while protecting
employees’ annual earnings. Details regarding the company’s specific
employment programs will be announced in the coming weeks.
“Developing a subsidiary with a separate workforce as well as a separate
look and feel will allow us to create a distinct brand experience for our
customers,” said Selvaggio. “A brand is a set of expectations. Our employees
will manage and set those expectations day in and day out for our customers.”

Low Prices Key to Success
“We’re going to build trust with our customers by offering them easy to
understand, everyday low prices,” said Selvaggio. “Fares will be competitive
with low-fare carriers and designed to appeal to the most budget-minded
customers.”
Delta’s new discount unit will offer customers simple, user-friendly
pricing options, including 14-day, 7-day, 3-day, walk-up fares and sale fares.
All fares will be one-way, nonrefundable and will not require a Saturday night
stay.

Focus on Established Delta Markets
Initially, Delta’s new low-fare product will focus on Delta’s
Northeast – Florida markets, including Boston, Fort Lauderdale, New York and
Orlando. After establishing its presence with customers on these routes, the
subsidiary will expand to support Delta with cost-competitive service in key
hubs or other destinations across its U.S. network.

New Leadership
In addition to Selvaggio, four primary leadership positions have been
established for the new subsidiary. These include:

— Operations & Safety – Dave Pflieger, 39, an attorney and a Delta pilot,
will assume responsibility for the oversight and coordination of the
low-cost subsidiary’s operations and safety. Prior to taking this
position, David was director-Flight Safety for Delta.
— Customers – Joanne Smith, 44, previously from DHL Airways where she
served as vice president of marketing, will lead all consumer-facing
functions, from sales to in-flight service. Prior to DHL, she was
senior vice president-Marketing at Reno Air and Midway Airlines, and
brings with her successful experience and familiarity with low-cost,
start-up airlines.
— Finance – David Pittman, 42, most recently vice president of Delta
Technology-Finance, will lead the Finance group and will serve as the
CFO for the low-cost subsidiary, responsible for financial monitoring
and reporting, as well as business development.
— Productivity – This role will be responsible for achieving and
monitoring the cost savings needed to make the new venture successful.
Delta currently has several highly-qualified candidates, both internal
and external, who are finalists for this position.

New Subsidiary Replacing Delta Express
In 1996, Delta launched Delta Express as its first response to low-fare
competition. In many respects – particularly in restraining the unfettered
expansion of such low-fare competitors that would have taken place in the
absence of Delta Express – it has been successful. However, as low-fare
carriers become stronger, a more powerful Delta response is needed.
Thus, Delta plans to begin operating the subsidiary in 2003. At that time,
the subsidiary will assume operating responsibility for Delta Express, which
will be replaced by the new low-fare unit. The new subsidiary, featuring new
service offerings and reconfigured aircraft, will start flying on a limited
number of routes and continue to introduce new service throughout 2003 while
the company simultaneously discontinues Delta Express.
“This transition will not affect customers’ travel arrangements because
Delta will continue to offer non-stop and connecting flights to conveniently
accommodate their travel plans,” said Selvaggio. “The new subsidiary will
build on the successes of Delta Express to create a cost-competitive service
that’s sustainable over time and offers more low-fare seats.”
Delta Air Lines, the world’s second largest carrier in terms of passengers
carried and the U.S. airline with the most transatlantic destinations, offers
5,843 flights each day to 426 destinations in 76 countries on Delta, Delta
Express, Delta Shuttle, Delta Connection and Delta’s worldwide partners. Delta
is a founding member of SkyTeam, a global airline alliance that provides
customers with extensive worldwide destinations, flights and services. For
more information, please go to delta.com.

Statements in this news release which are not historical facts, including
statements regarding our beliefs, expectations, estimates, intentions or
strategies for the future, may be “forward-looking statements” under the
Private Securities Litigation Reform Act of 1995. All forward-looking
statements involve a number of risks and uncertainties that could cause actual
results to differ materially from the plans, intentions, and expectations
reflected in or suggested by the forward-looking statements. For a list of
factors that could cause these differences, see our Form 10-Q for the quarter
ended September 30, 2002 that we filed with the SEC on November 14, 2002. We
have no current intention to update our forward-looking statements.