Analyst: Will United's Restructuring Make it a Fearsome Adversary for Major Carriers?

As United emerges from its lengthy excursion through Chapter 11 proceedings, analysts agree that the streamlined airline is a far cry from its former, bloated self.


Still, United has been able to slash expenses in bankruptcy that American and other carriers can't touch. The airline has shed billions of dollars in obligations by jettisoning $10 billion in liabilities in its traditional pension plans, which will save it $645 million annually.

American, meanwhile, faces significant pension payments. That airline doled out $310 million in 2005 to maintain its retirement plans, and it will pay hundreds of millions more this year.

"The pension is probably the single biggest advantage United has over American, in terms of costs," Warlick said.

United has also been able to slash $13 billion in debt and renegotiate aircraft leases, which American has been unable to do outside of bankruptcy.

Nonetheless, United still has a significant amount of debt -- about $17 billion, compared with more than $20 billion at American.

In addition to its progress in cutting costs, United has vowed to boost its revenue by luring top-paying business travelers with high levels of service. The airline has also bucked some trends by keeping magazines and pillows on board and continuing to hand out free snacks.

"We are offering United's customers the wide range of choices in products and services they demand in today's market, at prices they are willing to pay," John Tague, United's executive vice president of marketing, said in a prepared statement.

American, meanwhile, has been cutting back on many luxuries to reduce expenses.

United even ran a series of ads last year poking fun at American, after that airline reduced legroom in its coach cabins by adding more seats.

Still, American's revenue outpaced United's during the fourth quarter. American collected 12.3 cents per seat-mile from customers, while United's customers paid 11.5 cents per seat-mile.

Gerard Arpey, American's chief executive, acknowledged that customers like some of the perks that United is offering, like slightly more legroom.

"Of course customers love having more legroom," he said. "But we've found that while they like it, they don't want to pay more for it."

American, however, is clearly paying attention to United's focus on business travelers and has made some changes. On Monday, American unveiled new first-class and business-class menus featuring a host of gourmet selections on transcontinental flights, as well as on some flights to Brazil.

It was the first time American had revamped its menus since 1999.

Despite United's progress, most analysts say the airline still has to prove that it can return to profitability in and era of high fuel prices and brutal competition.

"This may be a hot stock initially out of bankruptcy," Neidl said, "but then could fall when some of the potential problems emerge."

AMERICAN VERSUS UNITED

America United
Costs* 11.6 11.1
Passenger Revenue* 12.3 11.5
Debt $20 billion $17 billion

*cents per seat-mile

All figures are for the fourth quarter of 2005.

Fort Worth Star Telegram


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