Here is a short 3-pager I had to write for class.
While most (possibly all) of this is nothing new to you, I hope that this will help you answer this question.
With respect to Shuttle's failures, how do you see Starfish doing things differently?
My take on Starfish is that it will be a little bit of everything: hub feeder, growth platform, and market share loss reducer
Published differences so far:
Instead of First Class, Economy Plus
Instead of fare matching under existing structure, all-new fare structure
A more distinct branding than Shuttle
This time, Shuttle aircraft can serve the same route as mainline, or even Express, just like how Express can run alongisde mainline
As you can see, from what we have been given, it is easy to see why most people think this is just a half-baked United Shuttle re-do. It's not all that different. However, I think United is holding back on some details.
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It’s no question that Low-Cost Carriers (LCCs) are presently the darling of the airline world. The LCC business model is increasingly being hailed as the new standard for a forever-changed industry landscape. With recent runaway successes such as JetBlue and AirTran riding on the coattails of Southwest’s thirty-year-plus winning streak, the rift between LCC and network carrier profits and growth rates becomes more dramatic going forward. By 2006, LCC aircraft will comprise 40% of the entire US fleet , which is bound to increase their market share past their 27.8% in 2002 . Even though network carriers have done little to become more competitive with LCCs, Delta and United are experimenting with creating their own, titled Song and codenamed Starfish, respectively. During the previous airline industry recession, at a time when Southwest was the lone LCC success story, the same carriers (and others) had set up similar operations which, by most accounts, failed. United Shuttle was one of the first airline-within-an-airline operations; its story is one United is hoping to learn from as it develops Starfish.
In 1994, United was reeling from what was, at that time, its worst annual loss. Contributing to that loss was heavy competition in United’s strongest market, the west coast, and in particular, California. The longtime dominant airline in California, especially on the heavily traveled San Francisco to Los Angeles corridor, United and its intrastate franchise were weakened by Southwest’s aggressive expansion following USAir’s exit from intra-California markets. Southwest was depressing yields at the same time as stealing market share, and it was doing this rapidly. As part of the unprecedented ESOP deal struck to restructure the company, United set-up a low-fare carrier, initially called Shuttle by United, to try to take back market share and win back customers.
United identified its problem on the west coast as an operational one: it did not have the same efficiency at running intrastate flights as Southwest. It assessed these key components of Southwest’s success: a single aircraft type, no-frills service, quick turns, and low crew costs. Indeed, these are some of the most integral aspects of the LCC model. United set aside 59 737-300/500 aircraft configured for Shuttle by United service. These aircraft would have extra economy seats afforded by replacing the bulkhead separating first class with curtains and removing galley ovens and carts, as no meals would be served. The shuttle fleet would be completely isolated from the mainline operation and would fly wholly within the shuttle system. There would be no routes where the shuttle would operate alongside mainline. Finally, while not able to lower crew costs across the board, a separate wage scale for pilots on shuttle duty was established.
Along with starting new routes to compete with Southwest on a market share basis within California, Shuttle by United replaced mainline flights on existing routes which faced stiff Southwest competition. United counted on the linkage of its low-fare product to the mainline brand to differentiate the product. By matching Southwest’s fares in competing markets, United hoped that the opportunity to have assigned seating, upgrade into or pay for a seat in the first class cabin, and earn and redeem miles in United’s Mileage Plus global rewards program would make Shuttle very appealing.
Shuttle by United launched in October 1994 with main bases in San Francisco and Los Angeles and quickly ramped up to 342 flights among 15 western cities by 1995. In 1995, a third anchor of operations at Denver was established to compete with the Denver-market LCCs, Western Pacific and Frontier. Initially, Southwest felt an impact and incurred losses or lost market share to United’s new operation. However, this was only on routes to/from shuttle bases. Southwest was holding its own on the numerous smaller intra-California routes, such as Sacramento to San Diego. Southwest also had the advantage of using secondary airports to maintain a bigger market presence. For instance, in the San Francisco to Los Angeles corridor, Southwest served Burbank from Oakland and San Jose, instead of just from San Francisco, as Shuttle was doing.
It didn’t take long before operational problems started to plague United’s shuttle. While the Shuttle by United fleet essentially operated point-to-point within the hub network, it encountered the same delays brought about by the congestion at the California hub airports as traffic surged along with the state economy. Since San Francisco was the biggest base of operations, congestion delays were compounded by the notorious and frequent weather delays due to fog, and these delays rippled throughout the system.
United altered Shuttle by United’s operation in 1998 due to losses on non-hub point to point routes, delay costs, and a new corporate focus on the high-yield business traveler. The operation was rebranded as United Shuttle and became mostly a hub feeder. While the shuttle schedule was still independent of mainline, the frequency of flights dictated strong connecting opportunities to the hub network, and in particular, to lucrative transcontinental routes. Riding high on the US and state economy, United Shuttle reached a peak of 468 daily flights before the economic downturn and massive 09/11 traffic loss. After the 2000 pilot contract, the cost to run United Shuttle paralleled mainline costs, and after the retirement of the 727/737-200 fleets came the need to integrate Shuttle’s aircraft back into the mainline fleet. United phased out United Shuttle on October 31, 2001.
Despite United Shuttle’s failure, United hopes do things differently in launching Starfish during January 2004. This time, it claims to know more about running an LCC.
While most (possibly all) of this is nothing new to you, I hope that this will help you answer this question.
With respect to Shuttle's failures, how do you see Starfish doing things differently?
My take on Starfish is that it will be a little bit of everything: hub feeder, growth platform, and market share loss reducer
Published differences so far:
Instead of First Class, Economy Plus
Instead of fare matching under existing structure, all-new fare structure
A more distinct branding than Shuttle
This time, Shuttle aircraft can serve the same route as mainline, or even Express, just like how Express can run alongisde mainline
As you can see, from what we have been given, it is easy to see why most people think this is just a half-baked United Shuttle re-do. It's not all that different. However, I think United is holding back on some details.
-------------------------------------------------------------------------
It’s no question that Low-Cost Carriers (LCCs) are presently the darling of the airline world. The LCC business model is increasingly being hailed as the new standard for a forever-changed industry landscape. With recent runaway successes such as JetBlue and AirTran riding on the coattails of Southwest’s thirty-year-plus winning streak, the rift between LCC and network carrier profits and growth rates becomes more dramatic going forward. By 2006, LCC aircraft will comprise 40% of the entire US fleet , which is bound to increase their market share past their 27.8% in 2002 . Even though network carriers have done little to become more competitive with LCCs, Delta and United are experimenting with creating their own, titled Song and codenamed Starfish, respectively. During the previous airline industry recession, at a time when Southwest was the lone LCC success story, the same carriers (and others) had set up similar operations which, by most accounts, failed. United Shuttle was one of the first airline-within-an-airline operations; its story is one United is hoping to learn from as it develops Starfish.
In 1994, United was reeling from what was, at that time, its worst annual loss. Contributing to that loss was heavy competition in United’s strongest market, the west coast, and in particular, California. The longtime dominant airline in California, especially on the heavily traveled San Francisco to Los Angeles corridor, United and its intrastate franchise were weakened by Southwest’s aggressive expansion following USAir’s exit from intra-California markets. Southwest was depressing yields at the same time as stealing market share, and it was doing this rapidly. As part of the unprecedented ESOP deal struck to restructure the company, United set-up a low-fare carrier, initially called Shuttle by United, to try to take back market share and win back customers.
United identified its problem on the west coast as an operational one: it did not have the same efficiency at running intrastate flights as Southwest. It assessed these key components of Southwest’s success: a single aircraft type, no-frills service, quick turns, and low crew costs. Indeed, these are some of the most integral aspects of the LCC model. United set aside 59 737-300/500 aircraft configured for Shuttle by United service. These aircraft would have extra economy seats afforded by replacing the bulkhead separating first class with curtains and removing galley ovens and carts, as no meals would be served. The shuttle fleet would be completely isolated from the mainline operation and would fly wholly within the shuttle system. There would be no routes where the shuttle would operate alongside mainline. Finally, while not able to lower crew costs across the board, a separate wage scale for pilots on shuttle duty was established.
Along with starting new routes to compete with Southwest on a market share basis within California, Shuttle by United replaced mainline flights on existing routes which faced stiff Southwest competition. United counted on the linkage of its low-fare product to the mainline brand to differentiate the product. By matching Southwest’s fares in competing markets, United hoped that the opportunity to have assigned seating, upgrade into or pay for a seat in the first class cabin, and earn and redeem miles in United’s Mileage Plus global rewards program would make Shuttle very appealing.
Shuttle by United launched in October 1994 with main bases in San Francisco and Los Angeles and quickly ramped up to 342 flights among 15 western cities by 1995. In 1995, a third anchor of operations at Denver was established to compete with the Denver-market LCCs, Western Pacific and Frontier. Initially, Southwest felt an impact and incurred losses or lost market share to United’s new operation. However, this was only on routes to/from shuttle bases. Southwest was holding its own on the numerous smaller intra-California routes, such as Sacramento to San Diego. Southwest also had the advantage of using secondary airports to maintain a bigger market presence. For instance, in the San Francisco to Los Angeles corridor, Southwest served Burbank from Oakland and San Jose, instead of just from San Francisco, as Shuttle was doing.
It didn’t take long before operational problems started to plague United’s shuttle. While the Shuttle by United fleet essentially operated point-to-point within the hub network, it encountered the same delays brought about by the congestion at the California hub airports as traffic surged along with the state economy. Since San Francisco was the biggest base of operations, congestion delays were compounded by the notorious and frequent weather delays due to fog, and these delays rippled throughout the system.
United altered Shuttle by United’s operation in 1998 due to losses on non-hub point to point routes, delay costs, and a new corporate focus on the high-yield business traveler. The operation was rebranded as United Shuttle and became mostly a hub feeder. While the shuttle schedule was still independent of mainline, the frequency of flights dictated strong connecting opportunities to the hub network, and in particular, to lucrative transcontinental routes. Riding high on the US and state economy, United Shuttle reached a peak of 468 daily flights before the economic downturn and massive 09/11 traffic loss. After the 2000 pilot contract, the cost to run United Shuttle paralleled mainline costs, and after the retirement of the 727/737-200 fleets came the need to integrate Shuttle’s aircraft back into the mainline fleet. United phased out United Shuttle on October 31, 2001.
Despite United Shuttle’s failure, United hopes do things differently in launching Starfish during January 2004. This time, it claims to know more about running an LCC.
