....more United woes...and observations


Staff member
An interesting outlook on United that I found and posted below. Looks like little is changing over there. I've heard rumor that United has a new paint scheme coming out (again?); further rumor is that a 777 at AMA and a CRJ at MKE are already painted and under some sort of lockdown. If true, what will this latest ad gimmick buy them? I'm already skeptical of the "Ted" low-cost operation by United that's supposed to compete with Delta's "Song" operation. Wonder if it'll last as long as "Shuttle by United" did.

On a similiar note, US Air's selling off of assets closely mirror's what I saw Pan Am doing just prior to it folding in the late 80's/early 90'. My skepticism of United's future mirrors these:

Shuttle by United- failed.
Delta Express- somewhat a success
Song- Seems to lose money every time they depart for a flight
Continental Lite- failure
Metrojet- Failed against Southwest
Midwest Super Saver service- questionable success.

United's numbers don't fly

Cost cuts not enough to lift airline into the black

The most basic rule of business is that revenues must exceed costs.

After 14 months in bankruptcy, United Airlines hasn't shown it can live by that rule.

Despite squeezing concessions out of its unions, suppliers and aircraft lessors, United still spends more money than it takes in. For all its cost-cutting, the airline is on track to lose $425 million this year, if revenues are flat at the $13.7 billion recorded in 2003.

CEO Glenn Tilton hopes to narrow the gap further by wringing more givebacks out of the lessors and adding more seats to some flights. With a few breaks, United might even edge slightly into the black this year.

That's the financial picture United will present to the bankruptcy judge it hopes will clear the airline to exit Chapter 11 by summer, and to federal officials deciding whether to guarantee a loan to finance United's post-bankruptcy operations.

But even if the judge and the Air Transportation Stabilization Board (ATSB) give their blessings, United's future is far from secure.

"Whether they survive or not is still subject to question," says Morton Beyer, chairman and CEO of Morton Beyer & Agnew Inc., a Virginia-based aircraft appraisal and consulting firm.

Officials of UAL Corp., United's Elk Grove Township-based parent, declined to comment. But in announcing last year's results, Mr. Tilton noted that "our work is not done yet. We have made significant progress on restructuring this company, and we will continue to make the tough decisions to successfully exit from Chapter 11 in the first half of this year."

Under its current cost structure, United's long- term survival depends on significant revenue growth. That will be difficult in an industry dominated by discount carriers, plagued by price wars and hobbled by slumping demand.

"The industry is not going to return to profitability until fuel costs come down and they get an increase in yield revenues, which so far hasn't happened," says Ray Neidl, an airline analyst with Blaylock & Partners L.P., a New York-based brokerage firm. Yield revenues are a function of both overall fare levels and the mix of high-fare and low-fare passengers.

United hasn't used its time in bankruptcy to get in shape to compete with the discounters. In the last quarter, United reduced its operating expenses 16% to 9.85 cents for every seat flown one mile. That's far above the 7.69-cent cost per available seat mile of the leading discount carrier, Southwest Airlines.

Cut-rate competition

Put another way, United needs to fill 83.1% of its seats to break even. That's a big improvement over the last quarter of 2002, when it filed for bankruptcy protection: It then needed to fill an impossible 99.8% of its seats to cover costs. But as of December, it was filling less than 77% of its seats.

"Their break-even load factor has to come down below 75%, and I don't see that happening," says Henry Harteveldt, vice-president of travel research at Forrester Research Inc., a Massachusetts-based market research firm.

But getting costs down further risks renewed labor turmoil, as seen in the fierce pushback by some unions over proposed cuts in retiree health benefits. And United's ability to raise ticket prices or attract more passengers is flying into more competition from low-cost carriers as well as United's peers.

"Every time there's an uptick in fares, someone will throw capacity at it," says Richard Bittenbender, a vice-president and senior credit officer at New York credit-rating firm Moody's Investors Service Inc.

United itself plans to add 5% more capacity this year, including the additional seats it's installing on the planes assigned to Ted, the new low-fare subsidiary that's scheduled to start flying this week out of Denver. Last week, United announced plans for another Ted hub, in Washington, D.C.

A partner turns rival

But that new hub is offset by a bigger threat to United's revenues. Atlantic Coast Airlines Holdings Inc., the United Express affiliate based at United's Dulles International Airport hub, is severing its relationship with United. That will cut off a pipeline of passengers to United at Dulles.

Ted is United's answer to discount airlines. But the low-fare airline-within-an-airline concept has been tried and has failed before. Last week, Atlanta-based Delta Air Lines Inc. halted expansion of its new discount unit, called Song.

As United seeks a 60% government guarantee for a $2-billion exit-financing loan, its prospects are clouded by the experience of Virginia-based U.S. Airways Group Inc. Less than a year after exiting Chapter 11, U.S. Airways is shedding assets and seeking more labor concessions as it struggles to stay aloft.

"U.S. Air's experience has to affect how the ATSB looks at United," says Moody's Mr. Bittenbender.
Don't forget Eastern selling off their Shuttle prior to their demise as well.

I imagine the people at United are looking to the re-birth of Continental, which involved a new corporate identity (don't ya just miss the Gold and Orange?), as the model for their emerging from Ch. 11. I think I've heard it said on another forum that United also wants to escape the image of Flight 175 flying into the World Trade Center by having a new identity to their aircraft. They may feel that images of the gray fuselage going into the building is bad for United. I don't know, but the last thing I think about when I see those images is "hey, that's a United plane," but rather a feeling of sadness reflecting on that day.

As for Ted...it doesn't make much sense to me, but I guess time will tell. The entire airline within an airline concept is confusing to me.

Finally, the Midwest Express Saver Service is an unfortunate turn for the one great domestic airline out there. But, you have to do what is necessary to survive I suppose.
You know its funny, as I type this right now I am sitting in the tower at DIA overlooking our Frontier operation which is what Ted is aimed at and I just don't see it happening for UA. They paint their planes, so what. Everything they do to change cost a fortune and they just dont have it. Sooner or later, they will just end up closing their doors if they dont change the mainline real fast. The sad thing is it will be very unexpected when it happens. I think many people will be blindsided by it and unprepared... Time will tell.
Honestly I dont have the fact here but Northwest Airlines new Paint Scheme was/is a money saver b/c the airplanes were being painted in a cheaper scheme when they came up for their scehduled paint redo's. United's deal could be much the same.

Who knows what the future holds, With the economy supposedly coming back, people may chose to spend more and drive less which would cater to the legacys.

Phil, nice avatar!
Oh yeah, tomorrow morning when the first TED flight takes off out of DEN the real frenzy will be happening over at the main terminal where a fairly large group of UA employees will be picketing against their company spending money on issues other than the real problem.
I'm not sure what more UAL can do. Cut labor costs? Done. Pound the leasors for concessions? Did that, too.

They are so dependent on high fare business travellers that they really need that market to recover. Until business travel picks up, they're in a world of hurt.
I think they ought to plan on them not coming back Tony. They don't have the cash to wait it out it would appear.
Honestly I dont have the fact here but Northwest Airlines new Paint Scheme was/is a money saver b/c the airplanes were being painted in a cheaper scheme when they came up for their scehduled paint redo's. United's deal could be much the same.

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I think NWs paint being a money saver is due to, supposedly, more years before repaint compared to their old paint job. If that's the case, then only time will tell if that pays off.
From nwa.com:

Northwest Airlines Announces New Livery
Implementation to result in 20 percent cost savings as well as communicate airline’s strengths

"The paint scheme will save Northwest about 20 percent in future painting costs, based on several factors: fewer primary colors, simpler design and paint process, and greater durability. The airline made the decision to continue with the project during these difficult economic times because of the number of new jetliners being delivered this year, plus the need to repaint existing aircraft that are due for maintenance and repainting. Had Northwest delayed the new livery it would have forfeited any immediate cost savings.

The livery will allow Northwest to extend paint cycles for individual aircraft from five to six years. A clear coat paint finish makes the livery more durable and dark pigments, which fade faster, have been removed from the fuselage paint scheme. The application process will be five percent less expensive than that currently used. Fewer lines and stripes are involved, requiring less taping and masking. The fuselage paint has been reduced from four colors to one."