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Jettubby 05-07-2008 12:02 PM

Why United Is Failing Again
And I guess according to America West pilots' gorilla math and sense of entitlement; because United is in so much trouble and that a merger would save them, all United pilots should be happy to go to the bottom of a merged list. Bush-league antics.


By Joe Brancatelli

April 24, 2008 -- Even during a week of Big Six crisis, United Airlines' troubles stand out: On Tuesday, it registered a $537 million first-quarter loss, more than American and Continental combined. United shares then plunged by more than 35 percent. Yesterday it was forced to deny that it might default on key loan covenants.The 1Q loss, which offsets most of the profit that United registered since exiting bankruptcy on February 1, 2006, has sent the self-aggrandizing boobs who run the airline into full panic mode. On Tuesday, United imposed a blizzard of new fees and restrictions. It raised fares by 3-5 percent, or as much as $70 roundtrip, this afternoon. And the airline announced it would slash capacity again, ground more planes and lay off more rank and filers.

'The path to sustainable profitability requires us to fundamentally overhaul every facet of our business,' chief executive GlennTilton said Tuesday. He then once again begged someone to buy out his airline under the guise of industry-wide 'consolidation,' a strategy he has pursued since he called in Goldman Sachs six months after United emerged from
Chapter 11.

The problem with Tilton the Terrible's pronouncements? The every-facet overhaul will be on a business plan that is just 28 months old. It's the cynical, horrifically flawed 'strategy' crafted after a 38-month stay in bankruptcy. Tilton's comments are also a de facto admission that his merry band of airline killers got it wrong from Day One, have no business running the nation's second-largest carrier, and may have finally
doomed what I called 'a rotting hulk of an airline' as far back as the summer of 2000.

And that is no second guess. I said it before United exited bankruptcy. While the talking heads, mainstream-media stenographers and fawning airline analysts praised United's new clothes, I stated the painfully obvious: The airline was naked and doomed to fail again.

I reprint that column below. Not as a told-you-so taunt, but because it cogently and clearly analyzes United's current situation. The problems were there to see from the moment Tilton and friends loosed this nightmare on the world in February, 2006. All you had to do was look.

There is a plethora of financial and operational reasons why the United
Airlines that exits bankruptcy early next month will soon enough be back in Chapter 11 or desperately seeking a merger to keep itself afloat.

But United Airlines will fail again primarily because it has no organizational heart, no identity and no definable brand. Most of all, it has none of the vision and discipline that separates the winners from the losers in the deregulated skies.

Consider the airlines that have had success of any meaningful duration in the last decade. There is, of course, Southwest Airlines. Whether you like what it sells is beside the point: You know and understand the product that it sells. And you know that Southwest delivers it at every seat on every flight on every route that it operates. Southwest's management and employees are fanatically devoted to its standards of simplicity and its unabashedly mass-transit approach to air travel.

Ditto JetBlue Airways. You know what you buy every time: a leather with decent legroom; free in-flight satellite TV and radio; a sense of casual style; and rational prices. AirTran Airways has found success because it offers a definable and recognizable product: no-frills, two-class service at simple prices. It even did the unthinkable--dump
commuter flights--because they did not fit the image or the financial model. And before its corporate ego ran amok, Continental Airlines had a profitable run. Why? It crafted a demonstrably higher quality of 'traditional' full-service flying and then reworked its
management, crews, fleet and operations until the airline was a consistent and
marketable whole.

United has done none of those things during its 38 months in Chapter 11. In a market that has proven it will only support consistency, United Airlines is a bizarre amalgam of in-flight products, fleet configurations and service concepts. It cynically tries to be all things to all flyers and careens from idea to idea, cabin to cabin and fare to fare,
sometimes on a route-by-route basis.

In fact, United isn't. Not in concept or in execution. It is a disjointed collection of flights run by executives with no overarching vision, no unifying commitment and no marketing or brand discipline. In every conceivable way, United is the opposite of what works in the sky.

continued >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

Jettubby 05-07-2008 12:02 PM

Continued >>>>>>>>>>>>>>>>>>>>>>>>>>>>>

United will emerge from the most costly bankruptcy in American history
with 26 separate in-flight seat configurations. It dabbles in everything from the up market p.s. service to the down-market Ted. It slaps its name and logo on five types of narrow-body planes, four types of wide body jets and eight flavors of regional aircraft. It befuddles buyers with an ever-shifting combination of one, two, three and even four classes of in-flight service. And like all of the Big Six, its rococo fare structure is repulsive.

It is, simply put, an unholy mess competing in an unforgiving marketplace that only spares carriers with impeccable system wide coherency.

United's intellectually slovenly approach to air travel guarantees its failure. But it's not just theory: United exits bankruptcy as a textbook example of worst-case practices. Consider: United's oil-price projections are fantasy. The five-year plan that United
submitted to its bankruptcy court predicts annual operating profits through 2010. But its projections are based on oil selling for an average of $50 a barrel. The market price of oil is currently north of $65 a barrel. Given the growing demands of China and India and the
upheavals in Iran and Nigeria, the average price of oil could be closer to $100 a
barrel than $50 in the next five years. In fact, this week at the World Economic Forum in Switzerland, experts contemplated the mechanicsof a global economy with $120-a-barrel oil. United is swimming in debt. United will exit bankruptcy saddled with about $17 billion in debt. It expects to issue about 125 million new shares under the ticker symbol UAUA. While some observers predict the stock will quickly trade higher, the opening price is likely to be about $15 a share. That gives United an equity value just shy of $2 billion and a debt-to-equity ratio of about 8.5-to-1. By comparison, American
Airlines' debt ratio is deemed much too high at about 6-to-1. United is mortgaged to the hilt. United made hay this week with its announcement that it quickly secured $3 billion in exit financing. What it didn't mention was that the loan was secured with just about every asset that United owns: fleet; spare parts; Atlantic and Pacific route corporate headquarters building; flight simulators; accounts receivable; and even the Mileage Plus frequent flyer program. And despite boasting that it scored the financing for 75 basis points less than its initial estimate of LIBOR plus 4.5 percent interest, United is still paying through its mortgaged nose. An identically rated (B+) firm recently secured a $4 billion package for just 2.5 percent over LIBOR. United's route network is no longer admirable. The talking-head experts routinely prattle on about the peerless United Airlines route network. But, frankly, they aren't paying attention. United's Chicago hub
is under constant pressure from American at O'Hare and Southwest is growing
rapidly at Midway. Southwest has also returned to harass United in Denver,
where Frontier Airlines is also an established competitor. Independence Air has
disappeared at Washington/Dulles, but that isn't good news for United because two much stronger players, AirTran and JetBlue, are now able to make inroads there. Its Pacific routes are under pressure from some of the world's best airlines. It faces brutal competition in Latin America and Europe, too. United is less competitive than ever. United constantly promotes p.s., its three-class service in the New York-Los Angeles-San Francisco transcontinental triangle, as proof of its commitment to serve higher-fare, higher-profit business travelers. But United has little to offer those customers elsewhere. The p.s. concept, after 15 months, hasn't been added to any other route. Instead, United has turned huge chunks of its domestic route network over to Ted, which has no first-class service. And almost 40 percent of United's network fleet is now comprised of
regional jets. United has equipped some of those smaller craft with first-class cabins, but those planes have generally replaced the larger jets that travelers prefer. Internationally, United has aging premium-class products that are notably inferior to the perks offered by
it major competitors. United is stretched to the limit. United has improved its once-
atrocious on-time ratings during its 38 months in bankruptcy. But those gains are constantly at risk because United has stretched its workforce to the limit. After shedding about 25,000 workers, it no longer has the capacity to cope when a few days of bad weather in Chicago or wonky computers upset daily operations. Operations nearly collapsed under the strain of both occurrences last month and United will probably be back at the bottom of the on-time ratings when December's numbers are published.
United has no capacity to grow. Having dumped more than 100 planes in bankruptcy and deferred delivery of most of the rest of the mainline jets it ordered, United is stalled at its present size. In fact, its five-year business plan predicts no substantive capacity growth between now and 2010. United has a looming frequent flyer crisis. The no-growth scenario and high load factors--United currently fills almost 82 percent of its seats--also means that the airline will be hard-pressed to make good on all of the frequent flyer miles it uses to keep travelers loyal. Worse, it seems clear that there will be a torrent of new miles pouring into Mileage Plus. Earlier this month, United moved its credit card transaction processing to Chase, the bank that also issues the Mileage Plus credit
cards. Why the switch? Chase agreed to make an advance purchase of miles
equal to the hundreds of million of dollars that United must keep in reserve for credit card refunds that would result from its grounding. That means Chase will be churning out an endless series of mileage-accrual offers that United's static capacity won't be able to easily absorb. United's top managers are focused on short-term gains. United's top executives recently rewarded themselves with 8 percent of the new airline's shares. This bonus plan, which The New York Times called ‘insanity squared,' has another intriguing fillip: They vest with head-spinning rapidity. According to court filings, 20 percent
vest after six months and another 20 percent vest after one year. Then 20 percent
more of the shares vest in each of the next three years. Bottom line: Chief executive Glenn Tilton and his 399 top lieutenants now have a financial incentive to make the kind of short-term, shore-up-the-share-value decisions that are often incompatible
with the long-term vitality of an airline. United's employees are angry. How would you feel if you lost your stock--United was largely employee-owned before bankruptcy--had your pension plan gutted when management dumped it on the Pension Benefit
Guarantee Corp., made two rounds of salary-and-benefit concessions and then learned that the bosses rewarded themselves with a stock-bonus windfall? Now you know the state of mind of most of United's rank-and-file employees. It won't make for a lot of happy flights in the weeks and months to come.

Sadly, for all these reasons and many more, from whatever day that United officially exits bankruptcy next month, the clock will begin ticking onthe next, and inevitable, crisis.

ABOUT JOE BRANCATELLI Joe Brancatelli is a publication consultant,
which means that he helps media companies start, fix and reposition
newspapers, magazines and Web sites. He's also the former executive editor of
Frequent Flyer and has been a consultant to or columnist for more business-
travel and leisure-travel publishing operations than he can remember. He
started his career as a business journalist and created JoeSentMe in the
dark daysafter 9/11 while he was stranded in a hotel room in San Francisco. He
lives on the Hudson River in the tourist town of Cold Spring.

THE FINE PRINT All of the opinions and material in this column are
the sole property and responsibility of Joe Brancatelli. This material
may not be reproduced in any form without his express written permission.

This column is Copyright C 2008 by Joe Brancatelli. is
Copyright C 2008 by Joe Brancatelli. All rights reserved.

Spaceman Spliff 05-07-2008 01:00 PM


Originally Posted by Jettubby (Post 380923)
And I guess according to America West pilots' gorilla math and sense of entitlement;

I thought the arbitrator decided (in binding arbitration) the SLI for America West/US Air. Why are you blaming the pilots?

sailingfun 05-07-2008 04:00 PM


Originally Posted by Spaceman Spliff (Post 380952)
I thought the arbitrator decided (in binding arbitration) the SLI for America West/US Air. Why are you blaming the pilots?

That is kind of strange since it was USAIR who pushed it into arbitration in the first place. They even got their first choice for a arbitrator.

DYNASTY HVY 05-09-2008 06:07 PM

:confused:And what has AWA to do with UAL failing again?If they fail that is !

DYNASTY HVY 05-10-2008 02:25 PM

Hmmmm no answer to this?:rolleyes:
Seems like some are waiting for the next shoe to fall at UAL continue to wait for a LONG time .:cool:

757Driver 05-10-2008 03:09 PM


Originally Posted by DYNASTY HVY (Post 383220)
Hmmmm no answer to this?:rolleyes:
Seems like some are waiting for the next shoe to fall at UAL continue to wait for a LONG time .:cool:

The way things are today, the wait shouldn't be that long.

Look out below..........

DYNASTY HVY 05-11-2008 01:26 PM


Originally Posted by 757Driver (Post 383234)
The way things are today, the wait shouldn't be that long.

Look out below..........

ROFL ,so would UAL keep their name in a merger or would it become USAir?And if so would it work? :cool:

Life is like a box of chocolates.

Worldguy 05-15-2008 05:45 PM

The ONLY thing worth watching in this scenario is how much Tilton will walk away with if he can get his company sold/merged. Trust me, it won't be peanuts for all the effort he has expended on putting together a deal. Profitability and/or a viable company have no meaning to those of his ilk.


stbloc 05-15-2008 06:23 PM


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