Comair still a valued asset of Delta

HEBRON, Ky. -- Even after suffering an embarrassing and costly computer failure on Christmas that stranded thousands of fliers, regional carrier Comair remains an important asset for Delta Air Lines, feeding it passengers from small airports nationwide.

Analysts are divided, however, on whether and how much Comair's value has depreciated since the fiasco, which could leave a lasting stain on the carrier's image and turn potential customers away.

And the emergence of independent, low-cost regional carriers including SkyWest, American Eagle, Chautauqua and Mesa has large airlines like Delta rethinking whether they really need to own small carriers like Comair, a wholly owned Delta subsidiary. Airlines are already under competitive pressure to keep fares steady and are coping with rising fuel costs.

"The relationships of all major carriers with their partners, whether they're wholly owned or not, is clearly in a state of flux," Doug Abbey, a partner with The Velocity Group, an aviation consulting firm in Washington, D.C., said Friday. "This is still a cost-driven industry."

Delta doesn't reveal how much profit Comair brings to the Delta system. But former Delta chief executive Leo Mullin said several years ago that collective revenue from Comair and other Delta Connection carriers that coordinate schedules with Delta was in the billions of dollars annually, Abbey said.

While Delta owns two of its regional carriers -- Comair and Atlantic Southeast -- United Airlines doesn't own any of its regional partners, including Republic Airlines, Air Wisconsin and SkyWest, which is based in St. George.

"There's a hybrid relationship in the industry," said Debby McElroy, president of the Regional Airline Association, a trade organization. "The major carriers are looking at what is the appropriate relationship -- whether that be ownership or a marketing agreement -- given the environment in today's market."

Delta and Comair spokesmen wouldn't comment on Delta's long-term plans for Comair, or whether the Christmas problems would affect those plans. However, Delta CEO Gerald Grinstein said last month that Delta would not necessarily need to own Comair or Atlantic Southeast to enjoy the benefits of receiving passengers from them.

Comair now faces a public relations problem because of its computer failure, said Richard Gritta, a University of Portland (Ore.) professor of finance and transportation.

"It looks foolish, coming over the Christmas break," Gritta said of Comair's one-day shutdown. "The fact that it happens right at Christmas and vacations are ruined. . . . How do you replace somebody's ruined Christmas?"

"It's a serious PR blow. And any blow like that is going to affect the market value," Gritta said.

The more than 10-year-old computer system Comair uses to schedule flight crews collapsed on Christmas Eve, prompting Comair to scrap all its Christmas Day flights. Comair resumed flying a partial schedule the next day and was back to a normal schedule on Wednesday of 1,160 daily flights to 119 cities, including Salt Lake City. The airline carries about 30,000 passengers daily in the United States.

The carrier's management said it already planned to replace its old computer system within the next few months.

Comair is focusing on reliably and safely serving its passengers and doesn't believe the Christmas fiasco will be the standard for judging the airline, company spokesman Nick Miller said.

"An airline's reputation usually is not going to be based on an unprecedented, extraordinary, onetime event like the one that we experienced over the last few days," Miller said.

Comair's failure occurred as US Airways canceled hundreds of flights around Christmas when an unusually large number of flight attendants and baggage handlers failed to show up for work.

U.S. Transportation Secretary Norman Mineta on Monday asked the Transportation Department's inspector general to investigate the problems that caused at both airlines. The inspector general, Kenneth Mead, said he would also review whether all major airlines are meeting their 1999 commitments to improve service for customers.

Mead said Friday his office has set up a toll-free hotline and Web site for travelers to share their experiences or insights about the flight disruptions. Mead said travelers can call 866-670-3341 or send e-mail through www.oig.dot.gov.

Comair said it will cooperate with the investigation. Miller declined to discuss what backup capability Comair had for the computer that failed, saying that will be a subject for the investigation.

Delta and Comair officials say they will do their own review as well.

"We have a lot to learn from this experience, so that we can be confident we will address future events in the most effective manner possible," Joseph Kolshak, Delta's senior vice president and chief of operations, wrote in an internal memo Wednesday to Delta employees. "Operational reliability is one of the fundamental promises we make to our customers, second only to operating a safe airline."

Kolshak said in the memo he has asked Delta and Comair managers to review the Christmas weekend problems to see whether Delta needs to improve procedures for coping with bad weather and still being able to get passengers to their destinations.

Comair, based at Cincinnati-Northern Kentucky International Airport, has coordinated its schedules since 1984 with Delta. That coordination helped Comair grow from humble beginnings in 1977 as a commuter carrier operating three propeller-driven planes. It now operates a fleet of more than 150 jets and carried more than 10 million passengers in 2003, up from 8.7 million in 2002.

Since Delta's January 2000 purchase of Comair, it has not disclosed separate financial results for Comair, which employs about 6,000. But in a recent report to the Transportation Department, Comair reported a net profit of $32.1 million in the second quarter of 2004.

Comair's earnings report for the quarter ended Sept. 30, 1999, showed net income of $34.65 million on total operating revenues of $216 million.

Comair has been a productive and reliable airline and should be able over time to put the Christmas failure behind it, especially if it reaches out to customers at some point with a onetime offer of reduced fares, said Darryl Jenkins, an airline management professor at Embry-Riddle Aeronautical University in Daytona Beach, Fla.

"It's not like they do this every weekend," Jenkins said. "They'll fly through this. In a year, this will be just a memory."

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