Taking another look at airline-within-an-airline plan.
United Airlines hasn’t been forthcoming with details about the
low-cost carrier it wants to create.
That’s because the airline is rethinking the concept- everything from
how big it should be to where it should fly and whether it should be
separately branded, said Jake Brace. United’s chief financial officer.
The desire to win back budget-minded vacation travelers from the
likes of Southwest Airlines remains very real, and a high-level strategy
team at United is evaluating how to best do that.
"A lot of things are possible," Brace said in an interview "We have a
lot of tools in our portfolio to compete with mainline carriers and
low-cost carriers. How we deploy them , against whom we deploy them, has
yet to be determined."
Creating a separate discount carrier within United’s system is still
an important strategy, but it isn’t the only one United intends to
pursue. Another course could involve making more use of partner regional
airlines that fly under the United Express banner, Brace said.
Such thinking is a big shift for Unite, which has made a separate
low-cost carrier central to its recovery plan since filing for
bankruptcy protection in December.
In meetings with employees, creditors and the press this year, United
Chief Executive Glenn Tilton emphasized that United had no other
strategic choice but to create an airline-within-in-an-airline that
would offer no-frills service and rock-bottom ticket prices. The project
was code named Starfish, and, at one point, United expected it to take
over a third of its fleet.
Skeptics quickly pointed out that no traditional airline has
succeeded in cloning Southwest’s model of efficiency, although some,
such as Continental Airlines, lost more than $100 million trying.
They added there was no reason to believe that United would be any
more successful this time around than when it launched the Shuttle by
United in the 1990's to fend off Southwest’s expansion in California.
Although moderately successful, the shuttle was folded back into
United’s mainline business in 2001 after its costs began to creep up.
The change in attitude isn’t as abrupt as it appears, Brace said,
because United’s circumstances have changed. "The tools we had then are
not the tools we have now," he said.
He was referring to the $2.56 billion in annual labor savings that
United was able to achieve through new, six year contracts with its
unionized employees, agreements that cut pilots’ pay by 30 percent,
mechanics’ pay by 13 percent and flight attendants’ pay by 9 percent.
The agreements also boost productivity by requiring pilots to work
longer hours and give United more flexibility to outsource such work as
heavy maintenance previously done by its mechanics.
One thing the agreements don’t contain is a second-tier wage scale
for United’s flight attendants and mechanics who would work on the
low-cost carrier. And that means the discount carrier would have many of
the same labor costs as United’s mainline operation.
Which raises the question: How much lower would costs of the discount
carrier really be, especially considering the expense of creating and
advertising a new brand, repainting airplanes and training a separate
workforce?
United says it is committed to some kind of low-cost carrier.
"One way or the other, United is going to find a way to compete with
the growing incursion of the low-cost carriers," said spokesman Chris
Brathwaite. "In 75 percent of our markets, we actually compete with low
coast carriers, and in some of those markets we dominate."
No matter what course United takes, things are looking up for the
nation’s second largest airline. A business plan that includes financial
projections and prospects for post-bankruptcy financing should be in the
hands of United’s creditors this week.
And although United’s reorganization plan remains months away from
completion, the airline hopes to exit bankruptcy as early as this fall,
Brace told employee in a message. That would be more than six months
earlier than United’s original mid-2004 projection.
