TITLE: Scrambling to Pile On Perks
REPORTER: DANIEL MICHAELS
DATE: Oct 28, 2005
PAGE: B1
LINK: http://online.wsj.com/archive/retrieve.cgi?id=SB113046534994882161.djm
TOPICS: Airline Customer Satisfaction

SUMMARY: Most air travel has gotten a lot less comfortable recently as airlines
world-wide have slashed perks to cut costs. But in one of the industry's
fiercest brand battles, two British carriers are still dueling to out-pamper
international business-class customers. In August, Virgin Atlantic Airways
capped its second premium-service make-over since 2000 by unveiling a □11
million (.5 million) business-class lounge at its Heathrow Airport hub. The
lounge features a 45-foot-long bar of granite and marble, hand-stitched yellow
leather armchairs, a waterfall and a spa. Ads splashed across London invited
fliers to "Pimp my lounge." Meanwhile, high-end London clothier Ozwald Boateng
has redone Virgin's in-flight goodie bag for business-class passengers. Now,
archrival British Airways plans to raise the stakes, investing more than □100
million in its second international business-class revamp in five years. In the
meantime, it has made the cushions on its bed-seats softer and added fluffier
pillows and duvets. The rivalry "forces us to raise our game," says BA Chief
Executive Willie Walsh. The two British carriers are vying to attract the kind
of business customer who is willing to pay to fly in comfort and land ready for
action. Virgin ads tout "50 Winks" onboard. BA offers a "Sleep Well Guarantee,"
promising that fliers who don't snooze soundly can demand a free upgrade to
first class on a subsequent flight. On short routes in the U.S. and Europe,
much of the rise in traffic is going to budget airlines at the expense of
traditional carriers, including BA. But on intercontinental flights lasting
more than six hours -- enough time to attempt a night's sleep -- the demand for
upscale service continues, and price doesn't seem to be an issue. When it
scanned ticket prices on a range of international routes, air-travel
consultants Harrell Associates of New York found that 10 times as many
business-class fares had risen recently as had fallen. Meanwhile, economy-class
fares were more evenly split between those rising and falling. These days, to
fly business class round trip between New York and London on a ticket purchased
a week in advance costs almost ,000 on BA and Virgin. Fares like that mean
the business cabin can produce richer revenue per square foot of airplane space
than economy class. Business seats are also easier to sell out than first
class. Investing in pricey amenities that draw passengers is "expensive, but
it's incredibly important," says Sir Richard Branson, chairman and founder of
Virgin Atlantic. "It only takes a 1% or 2% movement in passengers to pay for
innovation." In 2003, Virgin invested almost 0 million to develop and
install an elaborate new bed-seat for Upper Class, its business class. But the
investment has paid for itself thanks to passengers wooed away from BA and U.S.
carriers, Sir Richard says. Still, other carriers are trying to keep up, and
they have adopted a number of the business-class innovations spawned by the
BA-Virgin rivalry. Besides bed-seats, these include dinner service on the
ground before red-eye flights to maximize sleep time, and arrival lounges for
passengers to refresh post-flight. AMR Corp.'s American Airlines -- the world's
largest airline by traffic -- said this past August it will introduce
international business-class seats that spread flat. But like most of the other
carriers following the British duo, including Air France, Germany's Lufthansa
and UAL Corp.'s United Airlines, American will squeeze flat seats onto its
planes by tilting them, with each passenger's feet sliding under the head of
the passenger one row ahead. The BA and Virgin business-class bed-seats are
horizontal. But BA and Virgin still innovate faster. The rivals now one-up each
other so quickly that some frequent fliers say it's a coin toss as to which
carrier spoils them more. "You're down to real personal preferences choosing
between the two," says Chris Avery, an equities analyst at J.P. Morgan in
London whocovers airlines and flies both. BA largely ignored the upstart for a
decade. Its global network was far larger, allowing it to land lucrative
corporate deals that Virgin couldn't touch. BA also had a silver bullet: It
could dangle seats on the supersonic Concorde (which since has been scrapped)
as a reward for steady customers. But as Virgin kept expanding in the late
1990s, BA decided it was time to act. When Virgin introduced the first tilted
flat seat in late 2000, BA quickly leap-frogged it with a horizontal seat. And
BA's chief designer, Mike Crump, managed to install the beds without wasting
space by creating yin-yang nested pairs of seats.

QUESTIONS:
1.) What is differentiating business class travel to England from the rest of
the world-wide airline service offerings?

2.) What two airlines are competing vigorously for this market?

3.) What amenity did Virgin Atlantic just unveil?

4.) What is the anticipated response from British Airways?

5.) What guarantee is British Airways offering to its Business Class customers?

6.) What percentage movement in demand does it take, according to BA Chairman
Richard Branson, for these expensive amenity investments to pay off?

7.) What are the other transatlantic carriers that serve London doing to keep
up with these two dueling airlines?

Reviewed By: Steve Carvell, Cornell University

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TITLE: Hotel Reunion's Reservations
REPORTER: PETER SANDERS
DATE: Oct 27, 2005
PAGE: C3
LINK: http://online.wsj.com/archive/retrieve.cgi?id=SB113037786609380829.djm
TOPICS: Hotel Industry Merger and Acquisitions

SUMMARY: Hilton Hotels Corp.'s proposed acquisition of Hilton Group PLC's hotel
division could strengthen the brand by eliminating consumer confusion over the
similar names of the U.S. and international operations, which were split apart
more than 40 years ago. A reunification also would give Hilton Hotels a chance
to compete with its primary rivals, which have been aggressively expanding
internationally in recent years. Marriott International Inc., Starwood Hotels &
Resorts Worldwide Inc. and closely held Global Hyatt Corp. all have been making
aggressive pushes into China and other parts of Asia, as well as into Latin
America. But some investors and analysts aren't charmed by the possible
reunion, pushing Hilton Hotel's stock down nearly 12% in the days following the
companies' confirmations of merger talks Oct. 14. Yesterday, the stock was down
61 cents, or 3%, at .81 in 4 p.m. composite trading on the New York Stock
Exchange, slightly above a 52-week low hit last Wednesday. Hilton Hotels, which
reports third-quarter results today, has a market value of about .5 billion.
The critics worry that Hilton Hotels will end up paying too much for the
international properties. And they aren't pleased that Hilton Hotels apparently
is willing to abandon its strategy of selling assets, reducing debt and
repurchasing its own stock. Instead, in what would be an abrupt about-face,
Hilton Hotels would have to load up on new debt to pay for what has been
reported to be a .3 billion all-cash deal. The U.S. company has spent much of
this year using its cash to fund stock repurchases and reduce debt. Through
June 30, the company spent 1 million to repurchase 12.3 million shares, or
about 3% of the total outstanding. Competitor Marriott spent about .3 billion
on repurchases through Sept. 9. Hilton Hotels' stock has skidded more than 20%
since its repurchases came to a halt in August. "All year long Hilton [Hotels]
has pursued an asset-sale strategy, used the proceeds to buy back stock and
turn itself into a fee-based company," said Robert LaFleur, an analyst at
Susquehanna International Group in New York. He downgraded the stock to
"neutral" after the reunion talks surfaced, saying that the "asset-heavy deal"
isn't in the best short-term interests of investors. Susquehanna doesn't have
any business relationship with either lodging company. Even critics of the
reunion say it could have benefits in the long run. It would remedy the
confusion between the domestic and international brands, which is the result of
a 1964 decision by the U.S. company to sell the international assets to Hilton
Group, then called Ladbrokes Group. That name has been retained by the United
Kingdom company's casino division, which isn't included in the current sale
negotiations. □Uniting those names and brands so they can go forward with less
confusion in the marketplace will help them sell management and franchise
contacts and will improve performance by eliminating the duplication in efforts
and confusion out there regarding who is running what hotel,□ said Chuck
Bedsole, managing director of Alvarez & Marsal Real Estate Advisory Services, a
hotel-consulting firm in Dallas

QUESTIONS:
1.) What two firm's are mergiing?

2.) What opportunity does this merger open up for Hilton?

3.) What company do they plan to compete with more effectively after this
merger?

4.) What are critics saying about the merger?

5.) What other financial strategies to increase shareholder value has Hilton
engaged in over the past year?

6.) What are Stock repurchase plans?

7.) Why reduce debt as a financial strategy?

SMALL GROUP ASSIGNMENT: Using WSJ.com assess the impact of this announcement on
Hilton's stock price. Evaluate the merger and using that information as well as
expert opinion offer your group's opinion as to whether the merger is a good
idea for Hilton at this time?

Reviewed By: Steve Carvell, Cornell University

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TITLE: Delta Shuts Song, but Keeps Its Style
REPORTER: EVAN PEREZ
DATE: Oct 29, 2005
PAGE: A3
LINK: http://online.wsj.com/archive/retrieve.cgi?id=SB113050239758582429.djm
TOPICS: Airline Industry Competitive Strategy

SUMMARY: Delta Air Lines confirmed plans to shut Song, its innovative, low-cost
airline subsidiary, and pledged to incorporate many of Song's best features
into Delta's main U.S. operation. As reported Friday in The Wall Street
Journal, Delta said it would convert its domestic airline into a product more
like Song, but reconfigure Song's all-coach fleet of aircraft to add
first-class cabins. The moves are part of a corporate makeover Delta
accelerated after it filed for bankruptcy-court protection on Sept. 14. Much of
its new approach is aimed at more closely resembling the nimble, low-cost
airlines that have invaded its East Coast territory. Song, launched in April
2003, was part of Delta's earlier response to New York-based JetBlue, which
made a splash in Delta's terrain with a hip, discount service flying leisure
routes. Song became a laboratory where Delta tried out innovations, including
reducing the amount of time aircraft spent on the ground between flights, a
simplified fare structure, and flexible employee work rules that lowered costs.
Those strategies have since been applied to improve Delta's operations and
customer service. Paul Matsen, Delta's chief marketing officer, said Delta was
studying ways in which it may try to preserve the Song name in small ways,
perhaps by naming its in-flight entertainment system for the brand. "This is
not about the demise of Song," Mr. Matsen said in an interview. "We believe in
essence, this is going to give us a superior product. A first-class cabin, and
all the benefits of Song and a high-quality coach experience." The elimination
of Song is part of Delta's overall restructuring plan to transform itself into
a hybrid between the so-called hub-and-spoke route system, in which flights are
grouped around several key airports, and the network of point-to-point routes
that newer carriers such as Southwest Airlines and JetBlue have pursued. Delta
has cut back its hubs while expanding its point-to-point flights in the U.S.
and abroad. The reconfiguration will reduce the domestic seat capacity of
Delta's mainline carrier -- which excludes regional operations -- by 15% to
20%. At the same time, Delta plans to increase by 25% its capacity on
international routes, where fewer low-cost carriers have made headway. The plan
in some ways completes the turnaround of Song, which seemed doomed when Gerald
Grinstein became Delta's chief executive in January 2004. Song was the latest
of several attempts by Delta and other major carriers to launch secondary
brands, all of which had failed. Coming amid the deepening financial crisis at
Delta, even inside the company it was derided for its lime-green paint scheme.
While JetBlue shares closed up 76 cents, or 4.4%, at .05, on the news that
the Song brand was going away, Jamie Baker, an airline analyst with J.P. Morgan
Chase & Co., said Friday that Delta's move was a negative for competitors,
including JetBlue. He downgraded his rating on JetBlue to "underweight" from
"neutral."

QUESTIONS:
1.) What move is Delta Airlines making with its low cost subsidiary, Song?

2.) What moves are they engaging in to keep some of the "Song initiative" to
make Delta a stronger competitor?

3.) Why is Song, to some extent, redundant, given Delta's post bankruptcy
strategy?

4.) By what amount will closing Song and restructuring the routes of Delta
diminish their domestic seat capacity?

5.) Why is Delta looking to become a "hybrid" airline?

6.) What is meant by the term "hybrid" as used in the context of Delta's
reorganization?

SMALL GROUP ASSIGNMENT: Have groups look at the hub and spoke model, the direct
route model and the "hybrid" model proposed by Delta in the reorganization.
Have them assess which strategy is most and least affective given the market's
current and future.

Reviewed By: Steve Carvell, Cornell University

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