One Year After Emerging From Bankruptcy, United Has Turned a Profit

The carrier also is leveraging one of its greatest strengths: a coveted, far-reaching network that spans the United States and much of the globe through alliances with other airlines.

International routes, which are more profitable than domestic ones, have played an increasing role in United's game plan. The carrier even recently won a major coup when the U.S. government awarded it a Washington, D.C.-to-Beijing route, choosing United over several competitors.

United said it has increased its focus on customers, upgrading lobbies and gate areas in its major hubs to make them more consumer-friendly. In Denver, United installed several new high-tech jet bridges that reduce the time it takes for passengers to board and exit its Ted flights.

But other changes, including some involving its frequent-flier program, aren't necessarily good for all its passengers. And for some consumers, the positive changes haven't been enough to truly set United apart from its rivals.

"Their people were very nice, and everything was pretty smooth," Al Barret, a Highlands Ranch resident who flew United last week on one leg of a return trip from Chile, said while waiting for his bags. "But overall I'd say they were pretty much equal to other airlines I've flown. Not much better, not much worse."

Cost cuts enough?

From a financial perspective, United has proved some of its critics wrong, at least so far.

Several observers said early last year that the carrier could be back on the verge of bankruptcy by now. Others said it didn't cut costs enough to turn a profit.

Despite racking up a loss in the fourth quarter, United managed to earn $25 million in the 11 months since emerging from bankruptcy. That's no small feat for a company that also bled billions of dollars over a five-year period.

United lost $61 million in the fourth quarter of 2006 - most of it due to snowstorms in Denver and Chicago - but still managed a $23 million operating profit.

The carrier also continues to cut costs, paring $435 million in expenses since its emergence. Employee productivity is up several percentage points, and United is flying its planes 16 minutes longer each day on average, helping boost the bottom line.

"I think the odds are against airlines surviving when they go into bankruptcy," said Bruce G. Allen, head of Bruce G. Allen Investments LLC in Denver. "It was able to emerge from bankruptcy by taking some pretty Draconian steps, but in some ways United emerging from bankruptcy at all is a feat."

United has plenty of cash - $5 billion - and plans to pay down $1 billion in debt.

The company's financial position is healthy enough that it's actively pursuing mergers.

United last year hired an adviser to help it explore such options, and it reportedly has broached the subject with executives at both Continental Airlines and Delta Air Lines.

CEO Tilton also has been vocal about his belief that the U.S. should allow foreign ownership of domestic airlines, a mantra he repeated this week during his presentation in Washington.

Middle of the pack

But even United admits that the work is far from over, and there still are plenty of critics skeptical of its business plan.

United's 2006 profit wasn't nearly as strong as some of its top competitors, excluding those operating in bankruptcy.

When compared with its larger peers, United ranks in the middle of the pack in numerous financial and operational measures, analysts say.

United's workers also are eyeing raises and benefit increases. The company's pilots are looking to win some concessions before their contract negotiations in 2009.

Another union says it will look during the next round of contract negotiations to at least get back what it lost.

"We expect nothing less," said Bill Moons, a spokesman for the Aircraft Mechanics Fraternal Association.

United acknowledges that it still has much to do from a financial perspective. This year it plans to cut another couple of hundred million dollars in expenses, and it continues to look for ways to boost revenue.

"We believe we've got further potential to improve our revenues and cost performance," United's McDonald said.