United Airlines Says Goodbye to “the Big B”

Though some airlines remain in bankruptcy and others may have to face it in the future, United has officially left “the big B” behind.

UAL Corp., whose primary wholly-owned subsidiary is United Airlines, applied to the Air Transportation Safety Board (ATSB) for a government guaranteed loan and was rejected. Shortly after, United filed for bankruptcy on Dec. 9, 2002.

After its lengthy stay in Chapter 11, United formally exited bankruptcy on Feb. 1 of this year, and its new stock will be traded under “UAUA” on the NASDAQ.

Crunching Numbers

Overall, United has reduced its average annual costs by $7 billion, says Jeff Green, spokesperson for media at United. United received $3 billion to exit bankruptcy from JP Morgan, Citigroup and GE Capital in a six-year loan. The $3 billion includes $300 million revolving credit facility and a $2.7 billion term loan.

“If you look at our total liabilities going into bankruptcy and our total liabilities coming out,” Green says, “United has shed approximately $8 billion in debt.” United’s last net positive quarterly result was the first quarter of 2001.

In addition to shedding debt, United has significantly less employees than in 2002. The workforce is currently at approximately 56,000 employees—down from 78,000 before filing for bankruptcy.

In another measure to reduce its costs, United has deferred aircraft order until after 2010. Green says United’s plan is to take its first aircraft delivery in 2011.

United ... Outside the States

According to Green, United has less overall capacity (the seats available in a given market), but the airline is concentrating on utilizing its larger aircraft for international routes.

“If you look at the US domestic market, we have less seats than we did two or three years ago and certainly before 9/11 because we converted a lot more of our flying over to smaller regional jets in United Express,” Green says.

For example, United 737s fly domestic business routes between cities like Chicago, New York, Washington, Denver and San Francisco.

“We have, by reducing some of our domestic capacity and focusing more on United Express, been able to increase our international capacity,” Green says.

Services and Customer Service

Since filing for bankruptcy in 2002, United has created two services to cater to specific customers: a low-fare service and a premium service.

“Ted” is United Airlines’ low-fare service. Ted flies out of all United hubs and serves leisure markets like Orlando, Las Vegas, Reno, Phoenix and Mexican beach destinations. Ted recently turned two on Feb. 18.

P.S. stands for premium service and serves transcontinental routes between San Francisco and Los Angeles and JFK in New York City. United’s P.S. Service had its one-year anniversary in November of last year.

In addition to its Ted and P.S. services, United has increased usage of regional jets as well as the presence of United Express. United also improved customer service with more check-in units. They are now in every airport that United and Ted fly to and in most destinations that United Express flies to; those that don’t have them yet are new stations, but they’ll get the easy check-in units as well. United customers also have the option to check in online. Green says these improvements show United’s commitment to improve its customer service throughout the last several years and moving forward.

“One of United’s core strategies going into the bankruptcy was to make the fact that we were restructuring in Chapter 11 as transparent to the customer as possible,” Green says. “We’ve really been deliberate in restructuring our business without affecting the customers and, in fact, improving the services we offer to our customers.”

The Growing Price Tag on Fuel

Everyone that owns or operates a gasoline or diesel-powered vehicle feels the pinch of fuel prices. However, the timing of recent price increases allowed for United to restructure its business plan, Green says.

“The (price of) fuel started to go up at a time when we were still restructuring in Chapter 11,” Green says. “We were building our business plan, and it takes into account high fuel prices ... and not assuming they’re going to come back to 2001-2002 levels any time soon.”

United’s business plan calls for an average per barrel fuel price of $55 over the next five years, Green says. United also tested its plan against higher fuel prices, up to $66 per barrel. Green says United can break even at $66 a barrel and could post profits if the average price is below that.

Efficiency is the Key

Before exiting bankruptcy, United Airlines was restructured, and United Services has also been streamlined for increased efficiency.

“While the company is restructured, the maintenance division, which is United Services, has also been going through a transformation,” Green says. “We’re trying to work more efficiently in virtually everything that we do.”

For repairs and maintenance work, United’s parts are centrally located so instead of going to several different places to pull parts from multiple shelves, a mechanic can go to a single place—perhaps even a kit—for the parts needed for repairs.

“This is all based on what’s called the ‘Lean’ process. It was adopted by Toyota in their manufacturing plants in Japan. What (the Lean process) has allowed us to do is free up some of the capacity at our maintenance center in San Francisco and allowed us to take on more customer work,” Green says.

While United Airlines is its primary customer, United Services also does a number of other repairs for foreign airlines and other domestic airlines.

“We have over 150 customers for maintenance repair and overhaul, flight training and ground handling,” says Linda Hunt, director of promotions and communication for United Services. “United Services has been profitable since its inception (in 1995).”

A Positive Effect

Though bankruptcy may be seen in a negative light, United Services’ customer base has stuck with them.

“Going through bankruptcy, there were customers who were a little bit leery, the parent being in bankruptcy, but what United Services has to offer is really what we’ve become,” Hunt says. “A lot of customers come to us because we’re an airline operator and we know the business ... That has always been a deciding factor for why people turn to United Services.”

A Better Competitor

The airline industry has struggled for the past few years. There’s a lot more competition in the industry than there was 10 years ago, Green says, with a lot of low-fare carriers that have adopted the low-fare kind of “one size fits all” business models.

“Some of our competitors are now dealing with Chapter 11. United has proven that it can successfully restructure and come out of Chapter 11 as a more successful, competitive entity. And that’s exactly what we’re going to do,” Green says. “Our focus is on United, being a good competitor and growing our business going forward.”