Thursday, February 6, 2003

United plan cites low-cost carrier, regional planes

Airline seeking to return to profitability

By Dave Carpenter
The Associated Press

CHICAGO - United Airlines said Wednesday that it plans to return to profitability through a combination of reducing costs, launching a low-cost carrier and using more regional jets.

In the most extensive comments yet on its new strategy in bankruptcy, United told its employees it needs its discount carrier to become more competitive in the leisure travel market.

It defended the plan to create a separate, low-cost airline - which has been assailed by unions and questioned by industry experts since it was first disclosed in December - saying it will entail a new business model that "has learned from the industry's past mistakes."

But unions remained cool to the plan, and analysts said there were not enough details available yet to fairly assess it.

While disclosing few specifics about either the discount carrier or the overall strategy, United said its plan is centered on the strong network of routes and hubs that give it a "distinct revenue advantage" over its competitors.

"We simply generate more money with our network," executive vice president Doug Hacker said in a taped message on a company hot line. "What we don't have are cost advantage and the flexibility that allow us to respond to substantial changes in the market."

United, the world's No. 2 carrier, filed for Chapter 11 bankruptcy protection eight weeks ago and lost a worst-ever $3.2 billion in 2002. It has been scrambling to overhaul its financial strategy, slash labor costs by $2.4 billion a year, renegotiate aircraft leases and mortgages and restructure its fleet.

It said in a monthly operating report filed with the federal bankruptcy court in Chicago this week that it lost an average $7.2 million a day during its first 23 days in bankruptcy, from Dec. 9-31.

The company briefed union leaders on the developing strategy in a meeting Tuesday.

The pilots and flight attendants unions have criticized management for not presenting more specific data to justify the dramatic changes and concessions it is seeking; they pledged to fight the plan for a low-cost carrier. Another sore spot with pilots in particular is the planned reliance on more regional jets, which affects pay and seniority.

Pilots' union spokesman Dave Kelly said the union learned "absolutely nothing new" from the presentation the company gave Tuesday and hasn't changed its stance.

"We're not opposed to a low-cost carrier if it's structured under the United umbrella and uses current United employees. But we will not accept a low-cost carrier that means a separate employee group and hiring pilots and employees off the street as a separate company," he said.

The company told employees in the recorded message that it is discussing the structure, size and operational plans for a discount carrier with unions.

It said it wants to expand United Express and use more 70-seat aircraft because it's falling behind in the industry in the use of regional jets, which are significantly cheaper to operate. Only 23 percent of its fleet is in regional jets, compared with 54 percent for Delta Air Lines and 50 percent for Continental Airlines, it noted.

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