United Flying Out of Bankruptcy

United Airlines finally leaves bankruptcy today, a leaner and more cost-efficient carrier after a painful restructuring that began in 2002 and lasted a record 1,150 days.


United Airlines finally leaves bankruptcy Wednesday, a leaner and more cost-efficient carrier after a painful restructuring that began in 2002 and lasted a record 1,150 days.

The nation's No. 2 airline was expected to make its emergence from Chapter 11 official with a morning announcement.

"Now it's really time to fly, to move forward," Glenn Tilton, CEO of United and parent UAL Corp., said in an interview with The Associated Press on Tuesday.

Passengers are unlikely to notice an immediate difference, since United never stopped flying even when multibillion-dollar losses forced it to seek protection from its creditors in federal bankruptcy court. But the Elk Grove Village, Ill.-based airline has made one change after another since early in its three-year overhaul.

It now has about 30 percent fewer employees (58,000), 20 percent fewer airplanes (460) and 20 percent lower operating costs (7.5 cents per seat per mile), excluding fuel, than it did when the bankruptcy began on Dec. 9, 2002. Labor costs are down by more than $3 billion annually after two steep pay cuts and the elimination of defined-benefit pensions. Dozens of daily domestic flights have been eliminated.

Some things are up, too, including the number of international routes, on-time arrivals, the percentage of seats filled and the cost of on-board meals, no longer free to all.

United also has added or expanded products targeting both ends of the price spectrum. It has its two-year-old discount airline Ted for leisure travelers, an enlarged Economy Plus program with more leg room for those willing to pay for it, and a premium service called "p.s." between New York and California that offers DVD players and specialty drinks.

The multipurpose approach bucks the prevailing industry trend toward cheaper as better at a time fares remain near levels from the early 1990s. But John Tague, United's executive vice president for marketing, sales and revenue, said both Ted and p.s. are showing double-digit margin improvements - payoffs from a strategy that relies in large part on United's unrivaled network of routes.

"Customers are beginning to appreciate that United is different," Tague said. "We're not all things to all people. When you have the global route structure, you don't pick one market and one product structure."

United's target customer, he said, is "clearly the business customer, but not just one with a briefcase in hand but when they're going to the beach as well."

Leading banks have given a vote of confidence to United's prospects after bankruptcy, with JPMorgan Chase & Co. and Citigroup Inc. leading a $3 billion financing package. So have investors, who have lined up in large numbers to try to get in on the company's new stock, which begins trading Thursday on the Nasdaq Stock Market.

The big cloud on the horizon for United and other carriers remains near-record fuel prices, which are likely to extend its 5 1/2-year money-losing streak by at least another year.

An upbeat Tilton said, however, that until the airline industry "sorts itself out," an immediate return to profitability should not be the primary gauge of whether United succeeded in Chapter 11 bankruptcy.

"We've put ourselves in a position to be able to compete with the effect of high oil prices in 2006," he said in an interview at United's headquarters. "The way we want to be measured is how we perform relative to peers. I'm confident that the work that we've done will put us in a position to have a competitive result whatever the market environment may be."

___

On the Net:

http://www.united.com


Noteworthy dates in United Airlines' bankruptcy restructuring:

Dec. 9, 2002 - UAL Corp.'s United Airlines files for Chapter 11 federal bankruptcy protection in Chicago. It remains the largest bankruptcy filing by an airline and was at the time the sixth-biggest by any U.S. company.

Feb. 13, 2003 - United says it intends to shift 30 percent of its U.S. capacity to a new low-cost carrier to compete with Southwest Airlines and other discount carriers.

This content continues onto the next page...

We Recommend