fireman0174

United left to fly on its own
Unable to conclude a merger with several potential partners, airline chief Glenn Tilton must come up with a viable operating plan
By Julie Johnsson
Chicago Tribune reporter

May 31, 2008

United Airlines is turning its attention inward to the painful cost cuts it will need to survive a forbidding economic environment as a stand-alone company now that its merger talks with US Airways are ended and other tie-up possibilities exhausted.

It's an abrupt change of course for Chief Executive Glenn Tilton, a former oil executive who gained a reputation as a dealmaker after helping craft the $35 billion merger of Texaco and Chevron in 2001.

Tilton hasn't enjoyed similar success in the airline industry, where talks with Delta Air Lines, Continental Airlines and US Airways failed to yield the deal he long advocated.

Now, the pressure is on Tilton to prove he's an airman. Tilton, who prefers the role of high-level tactician, must show he has mastered the operating details that will determine whether United improves its customer service and financial results that lag peers, analysts said.

He also must articulate how Chicago-based United intends to navigate the uncharted territories of $130-per-barrel crude oil and a softening global demand for travel that is igniting a wave of airline bankruptcies.

"The airline has been operating on hold, if you will, for the past year to two years," said analyst Henry Harteveldt of Forrester Research. "Now, they have to say we're here, we're going to be survivors."

Financial experts at United, the nation's second-largest carrier, are studying the carrier asset by asset, route by route, for ways to best preserve its $2.9 billion cash reserves, said people close to the airline.

"Our action plan is aggressive, and we remain confident in our ability to put our company in a position to succeed," Tilton told employees Friday. He wasn't available for an interview.

United is exploring redistributing its fleet, including ending Boeing 747 flights from Washington-Dulles International Airport, cutting the number of flight attendants on larger planes and offering leaves of absence to employees to forestall layoffs, sources said.

The airline has awarded unpaid leaves to 134 flight attendants during June and July, typically busy travel months when its staffing is stretched, said Sara Nelson, spokeswoman for United's flight attendants union.

The carrier is pulling out of routes where rising fuel prices have wiped out profits. United plans to end service between Los Angeles and Hong Kong on Sept. 1. United also plans to replace the Boeing 747 jumbo jets plying the skies between Washington and Beijing with smaller, fuel-efficient Boeing 777s, sources said.

United also has said it will trim its domestic mainline flying by 9 percent later this year, grounding 30 gas-guzzling aircraft. Executives are contemplating deeper cuts after rival American Airlines said this month that it would cut domestic capacity by about 12 percent and retire close to 75 planes.

The operational changes and cost-cutting intensified after a critical May 15 board meeting, when directors determined the financial burdens of a merger with US Airways outweighed the gains, and at times sharply questioned United's direction, say people familiar with the discussions.

United is still pursuing a code-sharing deal that would bring Continental Airlines into the Star Alliance, the global marketing alliance that includes Germany's Lufthansa and Singapore Airlines. But Continental also is mulling overtures from American Airlines, as well as the merging Delta and Northwest Airlines, Continental's SkyTeam alliance partners.

An alliance that allowed United to take full advantage of Continental's Newark and Houston hubs could generate several hundred million dollars in new annual revenue, analysts said, but would fall far short of the benefits the carriers would have reaped from linking their international networks in a merger. It also wouldn't be sufficient to offset the $3.5 billion in higher fuel costs that United faces this year at current prices.

"The truth is there is going to be no merger with US Airways, and there is going to be no virtual merger with Continental," said Chicago restructuring expert William Brandt, president of DSI. "It's time to look at costs, to do what they should have done in bankruptcy with their routes. Some cities just don't work."

Brandt questions why United didn't tackle its cost structure earlier. He notes United emerged from three years in bankruptcy in 2006 with higher expenses than American, which avoided bankruptcy and kept its employee pensions intact.

Others question whether United's board will ultimately hold Tilton responsible for relying on a merger strategy that didn't pan out.

"It's got to be an embarrassment to United's board of directors," said aviation consultant Julius Maldutis. "What is United's business plan going to be now?"


http://www.chicagotribune.com/busine...,2981634.story

Short Bus Drive

I hope all this brings to light the kind of "manager" Tilton is. Then maybe we can get rid of him, and find somebody who has a better plan than just merging!
Is Bethune available?

fireman0174

JMHO, but I think you'll find find Tilton not up to the task of being a "manager".

Also, remember the UAL BOD is the real authority behind Tilton, so they are just as much of a problem as he is.

stinsonjr

Has there been ANY succesful leader of an airline since de-regulation (other than SWA people)? I am too young to remember if Crandel was any good at AA. Bethune maybe at Continental? UAL should identify a person that has success at actually running an airline and throw whatever deal at them it takes to have them run UAL. Tilton will not get it done.

shiftwork

Word is that Ben B. is looking..... I know that would make you happy as a clam

iahflyr

Tilton was brought in to orchestrate a merger. That is what he is good at. When he worked for Chevron, he orchestrated a $35 billion dollar successful merger. Chevrons profit has jumped 600% in the past 6 years. Why are oil companies able to make massive profits? Because they are large, vertically integrated companies (read that as MERGED) and because of the small amount of competition, they are able to raise prices to match costs (among other reasons). Imagine if major airlines were able to merge, and price their product at or above cost. This is only part of the reason we need mergers in the airline industry. Merging airlines leads to less competition. Less competition leads to higher fares. Higher leads to more profits. More profits are GOOD for the airline industry.

DAL/NWA was able to combine first. UAL/AA is way too big, and I don't think it has a successful chance of getting approval from the government. So that leaves CAL and US Air as merger partners for UAL. US Air is in pretty bad shape and does not bring things to the table that UAL wants. They fly heavily out of low cost, low yield, LCC dominated markets (LAS and PHX), and they have the weakest international presence of any of the legacy carriers. While I think any merger is better than no merger, UAL did not see enough advantages if they were to merge with US Air.

That leaves CAL. A UAL/CAL merger would produce the world's biggest and strongest airlines. Take UAL's west coast presence with CAL's east coast presence. Take UAL's Asia presence with CAL's Europe presence. Take their relatively similar fleet types. Take United's name and most profitable frequent flier program. Take CAL's management. I don't think you will find a better airline combination. Just look at what happened when two successful airlines (Air France/KLM) merged. Now they have billions of dollars sitting around to invest in US Airlines.

I believe that CAL is going to decide to join Star Alliance. Maybe after a few months of success with UAL's alliance, they will realize the benefit of a UAL/CAL merger, and the merger may still be back on. We can only hope. This fall is going to get very ugly. I predict without a UAL/CAL merger, both carriers will be forced to furlough. I just don't want to see that happen!

Linebacker35

If CAL joins star alliance would USAIR get the boot? Or would they create an alliance of all three

bryris

Lets think long term here. Assuming oil stays where it is (it may get higher), how are the airlines going to make it? You can only cut costs so much. Its seems the first way to cut costs is to lower pay for the employees and furlough. This just flies in the face of SWA success - who comes first? Employees come first, and customers come second. Who is going to be out there on the line increasing quality of service and making sure the customer remembers that they had a good experience with United Airlines and comes back next time they fly? We don't work for free. We do it for money! The execs keep reducing pay and the with the possibility of furloughs hanging over the pilots heads, what is the incentive to produce a good product? Its like the movie "Office Space", you only work hard enough not to get fired.

I digress. So, if you can only reduce costs so much, the only way to make money is to increase prices. So who does it first? And even so, some will hold out in hope of securing more market share in time. The way I see it, it will be a long time before prices go up. No one will make the first move. The carriers who can hold their breath the longest will eventually be gasping for breath and will then raise prices. It won't be a second before then.

Something has got to give. I am just curious what that is going to be? These legacies are so old in their styles. These execs need to go fly some flights in the system and take notes of where the problems are and devise solutions to increase the quality of their product. Cutting costs is only going to go so far.

Andy

Dude, where have you been? UAL's led something on the order of 11 fare increases so far this year, the bulk of which have stuck. Other airlines have led with several other fare increases. Fares are getting raised; just not fast enough.
As those fares get raised, air travel demand is falling. Compounding that problem is that most consumers are pretty much tapped out and will have to cut back on leisure travel. Businesses are also reducing their travel budgets.
We're staring in the face of air travel demand destruction. The airlines must reduce capacity in order to control costs. This will done by several more airlines going chap 7 along with those that survive reducing their ASMs. The airline industry is going to look significantly different by 2010.

Lighteningspeed

Skyrocketing oil price is compounding the already existing problems at most legacy carriers. The top management at major carriers like United are run by members of the old boys' network who's primary responsibility is to enrich their own pockets and that of their friends who got them their top jobs at the airline. Just look at the roster of top management at legacy carriers like UAL, NWA, USAir, American, DAL. How many of them have been at other legacy carriers which were badly mismanaged before they got their current jobs. Until this is fundamentally changed, you are not going to see any turnaround in the airline industry. Airline needs to be led by leaders with a passion for aviation.