United Airlines Budget Cuts Into Promotions, Staffing

United Airlines plans to scale down promotions as part of a $60 million cut to its marketing and advertising budget, the company said yesterday. The news comes as the airline said Wednesday it would lay off 1,000 salaried employees by yearend in an effort to save money.

"We need to do a better job of lowering our costs," United Airline spokesperson Robin Urbanski said. "It would be prudent for us to cut costs in areas that are focused on increasing customer volumes. In the industry, we are seeing strong demand."

"Consumers will see less [promotion], but our customers will also see a much better product," she added.

United Airlines spent $78.4 million on media in 2005, per TNS Media Intelligence. The airline spent $103.1 million in 2004.

The staff cuts, which began this month, impact salaried and management positions, including operations, marketing and all non-union labor employees. Glenn F. Tilton, president, chairman and CEO of UAL Corp. (United's parent company), told attendees at the Merrill Lynch Global Transportation Conference in New York Wednesday that the job cuts would save the airline about $100 million a year.

The staff cuts make up about 11% of United Airlines' 9,400 salaried employees. United Airlines employs about 57,000 in total. The layoffs and budget cuts come more than four months after United pulled itself out of bankruptcy. In addition to trimming the advertising and marketing budget, Tilton said United Airlines plans to reduce purchased services by $200 million.

As a result of the cost savings, United is shifting its dollars by investing in certain services it offers. For example, the airline plans to invest in a $165 million upgrade to its first- and business-class seats on all of its international flights, Urbanski said. The renovation effort, one of United Airlines larger initiatives, focuses on customers who spend the most and who are most loyal to the airline, she added.

The first planes to feature the upgrade will be available in 2007. The effort is expected to take two years to complete.

The budget cuts aren't expected to negatively impact sales, the company said. The Elk Grove, Il-based airline said demand is high and customer volume is on the increase. Passenger volume for May 2006 was 84% compared to 81% in May 2005, according to Urbanski.

"We are seeing strong demand and we are focusing efforts on improving customer experience by providing better customer service," Urbanski said. "When we do that successfully, our customers will give us their repeat business."

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