Chairman''s Report Council 34


Nov 19, 2002
Chairman''s Report

Renewed Opportunity

There has been a plethora of negative news and few positive opportunities for the pilots to latch onto a light at the end of the tunnel for a very long time. But with the second-quarter financial improvements at most airlines - coincidentally after the large government cash infusions for tax and security refunds - possibly the tide is turning. If the Bush administration, along with the TSA, would temper its constant alarmist warnings from its so-called clandestine sources, intimidating the traveling public against flying on commercial airlines, yield improvements could signal a turnaround. The wild card is still the economy, which must improve to allow corporate America to hire back employees at good wages and increase their corporate capital spending.

In the last week, a number of other events have also given hope around opportunities that have been handed to UAL management - not by their choosing - that will give insight into the future direction of our airline. Atlantic Coast''s foolish decision to break ties with United and venture into the low-fare East Coast bloodbath portends risks for both United and ACA. Ironically, ACA''s
decision vindicates many in ALPA who have been warning UAL management for years about putting all its trust, operational integrity, corporate reputation, and finances into an independent third party with no equity control over that company''s decisions or commitment to UAL. This is precisely what the entire Buy and Fly or equity ownership battles historically fought on this property are all about. ACA leaves United in the lurch by controlling all the gates and being the primary feed to a major part of our network. With Dulles an important hub for UAL''s future and our East Coast gateway to Europe and South America, UAL has the opportunity to vigorously add A-320/B-737 flying to select Florida, Northeast, and Southeast markets. Quickly using the inherent advantages of our costs per available seat mile, available pilots, and aircraft to squash ACA like a bug will send a stunning message to the airline industry: United is back and is prepared to dominate our markets! This must happen before ACA can team up with a slimy competitor or irrationally take us on in a cash-flow war that would jeopardize a cog in our network. The answer is not with Mesa, Trans States, Air Wisconsin, or even US Airways. The answer is to use United employees and airplanes to respond at Dulles, adding the huge benefit of improving morale and hope for the future of United!

Second, AMR''s announcement that it will dramatically downsize St. Louis portends both problems and opportunities for UAL if we are willing to respond. Clearly, American will allocate surplus equipment and crews to Chicago and other hubs, including DFW and Miami, adding to its strengths. United''s largest hub, located in our company''s hometown of Chicago, requires a competitive, aggressive, and decisive response. We must increase our market presence and ultimately take more market share from American while blunting competitive forays by ATA and Southwest at Midway and St. Louis. The diversity of our mainline aircraft gives United and advantage to restart old routes and initiate new growth opportunities. The UAL-MEC again pointed out to Mr. Tague and Captain Forte the furor among many pilots about not even flying from O''Hare to Hawaii nonstop, although American serves Honolulu and Maui daily. American''s actions must be blunted and countered for United to have any legitimate self-respect.

Third, Frontier has announced new routes to a number of markets that overlap with United in Denver. Their growth is becoming more insidious; the announcement of more service from DEN to five Mexican markets not served by United is a direct in-your-face shot by #2. United has a great opportunity to grow DEN with its across-the-board strengths while competing against an airline in a fleet transition, including a poor aircraft choice in the A-318. With strong name recognition, a powerful frequent flyer program, terminal capabilities, and exceptional crews and airplanes, we must silence the squeaking noise from the Front Range. The lack of respect shown by the previous Denver mayor is indicative of how far we have fallen, but, if we are willing, we have the opportunity to improve our relationship with the politicians and citizens of Denver.

Fourth, Alaska Airlines continued its sinister growth into UAL markets on the West Coast, affecting the San Francisco, Seattle, and Los Angeles bases. Look at an OAG and see how many flights from our bases are being flown by an Alaskan jet with higher seat-mile costs than United. Their management has a penchant for competing and taking advantage of United''s lack of interest or withdrawal from many popular, profitable markets. From SFO alone, Alaska flies nonstop to Ixtapa, Los Cabos, Palm Springs, Puerto Vallarta, and Tucson, with no response from United. In the opinion of the SFO LEC, Alaska keeps pushing into United''s markets, along with Horizon, because they can, knowing full well there will be no fallout from UAL. According to the Alaska MEC, senior management at Alaska believes there is huge growth potential in the Bay Area in numerous markets, due to UAL''s lack of response.

Fifth, Southwest''s announcement that it will add 92 aircraft in the next 4 years, amounting to 37 percent growth, is indicative of how the landscape is changing into the haves and have-nots. The shakeout in the U.S. airline industry is coming, and we have the ability to be a strong survivor if given the right tools and leadership. The impending labor problems at Delta, American, Northwest, and US Airways can be countered and taken advantage of with a motivated, trustful United workforce. Employees looking for a legitimate road map and leadership from Chicago must believe Tilton and the Board have the acumen and commitment to contend. Dangling a carrot is not going to repair the many years of mistakes and distrust on the property. United employees have already proven with the Shuttle the ability to take on Southwest. When the Shuttle was growing, LUV took their resources to Florida and initiated their Sunshine State plan, allowing United to grow California and the West. When the decision was made to kill the Shuttle, Southwest returned with all its resources to strategically swarm over the under-served West, undermining United''s historical strengths up and down the coast.

Sixth, the shakeout and financial problems of global airlines in Asia and Europe have weakened the marketplace for new and used aircraft. Some analysts have suggested that Boeing and Airbus will not see deliveries of new airplanes until at least 2006. The supply-and-demand equation has severely depressed lease rates and customers. This is a golden opportunity to reevaluate the fleet plan and take advantage of lessors'' newfound religion about market demand. Using United''s excess capacity and employees will generate increased revenue and profits, while crushing the competitors threatening our future. We are beginning to see criticism of the RJ proliferation policies that the large airlines are so enamored of. ATC delays and negative customer reactions are only part of their liabilities. These aircraft were effectively designed to be scope and salary busters. Taking a stretched corporate jet platform and making it the airplane of United''s future is unconscionable. United management must embrace the golden opportunity to restructure our aircraft costs in the 1110 process while maximizing the profit and market potentials these airplanes bring to United. The cessation of furloughs and surpluses would allow flight operations to be an effective part of the financial turnaround at United. As your LEC succinctly stated to Mr. Tague at the recent MEC meeting, The pilots are angry and want to slap the living s--t out of someone - preferably not you in management or the MEC, but our competition! Fully utilizing our pilots and aircraft with a sound business plan will do just that.

While continued downsizing to impress the ATSB for a loan appears to be the business plan du jour, a continued lack of competitive response in our hubs and core markets will ultimately capsize this airline. Opportunities abound on the landscape. The industry''s competitive decisions and the constant undermining of United''s position, including the application for the ATSB loan, is akin to a stranger coming in your home threatening to ransack your house and mortally harm your family. Let us hope Mr. Tilton and Mr. Tague will not sit there idly, frozen by fear or ignorance. We must defend ourselves and return our employees to work, get our jets in the sky and fully utilize them, and restore the pride and soul of United. Everyone employed by United has the ability and opportunity to take advantage of the events before us. The pilots of United saved this airline and made the transfusion needed to get healthy, if only we have a management that can understand opportunity!

Fly safe, support your fellow aviators, respect your fellow employees, and don''t carry the trash!

Captain Dan Ashby Chairman, Council 34
While the opportunities espoused are certainly delicious...

The truth is there is no proof that the pilots of United are better at cost analysis than management.

Undergoing multiple expansions simultaneously would push the airline further towards Ch 7.

Why do airlines go from Ch 11 to Ch 7? Because they take a step backwards when they have an opportunity to completely change their walk altogether.

The point is, United must not resort to old "market share" battles but instead must find a way to overhaul its business to more closely align revenues with expenses -- i.e. the stuff that fare simplifcation, rewards system rationalization, etc. are made of.
Interesting comments. I know Herr Schadenfreude will weigh in with the counterpoint, but before he does one would have to say that the apprarent optimism is a change from the gloomly news that seems to have been so prevelant. Is it really optimism however?
The question that arises is if this missive is directed at his followers within the labour organization alone? By this, I mean it is indeed a fine "pre Agincourt" St Crispins day speech to the lads about to join battle, but how seriously are these ideas being championed directly to those who make decisions? It is one thing to appeal to the followers, it is quite another to doggedly pursue an idea with those who can implement it.
What one would have liked to see is if the top labour leaders at United are day and night, minute and hour, gaining no rest due to their efforts in meeting with the managment to pursue the aforementioned opportunities of revenue gain. One would expect that the toil is constant are arduous yet no report of it is given! Do the pilot's still have a chair on the board? If so, the letter would have had better impact if it had detailed the step by step plans that are being hammered out and will lead to success. Rather it seems to say "I have an idea and management does not therefore we are destined for failure."
I must say that by the end of the letter the writer was in admission that nothing has changed, probably will not change, and that the future is inalterable. Overall an extraordinarily depressing performance. While the nimbleness to react whilst in bankruptcy is simply not there, one gains no impression other than that United will continue to shrink, dole out flying to ther Star partners, and rely on smaller jets that are not even owned by United.
I do not know the dynamics of labour relations at United, but I think Mr. Ashby's letter does more in terms of pessimism than optimism.
In addition, before I am faulted for recommending that the labour leadership should document the steps that are being taken for recovery I will acknowledge that many business plans and negotiations are in camera and therefore not for public purview. However, information saying that there are changes a-coming and that the compnay expects to join battle etc. do a lot to bolster perception. If it were not for this forum and the occasional article in the business press, one would have the idea that United is simply disappearing.
"Don't carry the trash?"

I hope he is not talking about a human being as that is a poor
thing to put in a letter like this...
"Carry the trash" indeed! Whatever the author's intention, this choice of words is distressing, even reprehensible.

This "Chairman's Report" is all tired rhetoric in a soggy, crushed package.

It's not even amusing. Even Baghdad Bob had better speechwriters.

Meanwhile, the fat lady's a hummin...
I agree with this pilot's opinion 100%. The company is still mismanaged. The only reason we are surviving is because of the cost reduction that has taken place in the bankruptcy proceedings but not because of sound business operation. The only reason we have more operating cash flow is because of an aircraft sale for $54 million used to pay down the DIP financing and enabled us to draw another $31 million of DIP financing. Another cash added was the irs refund and the $300 million wartime act assistance from the government. That is the only reason we improved our operating cash flow from $1.9 billion, at Dec 31, 2002 to $2.3 billion, at June 30, 2003.

Although we are at a cost advantage to get out of this hole we're in, I think management has to be agressive like Captain Ashby is saying in his report.

One positive thing that I would like to mention is an agressive move by management, the Fly Three, Fly Free advertising in major newspapers, which increased our load to record highs for the month of July.

Like Captain Ashby says "Don't carry the trash"(hate), which still lingers because of management squandering our record profits by bad spendings(US Air, Avolar, etc.), the hate towards the pilots for the Summer of Hell, Amfa vs. Iam opinions, etc. Respect your fellow employees and work as a team and we will regain the customers trust to fly the friendly skies once again.
Capt Ashby,

You seem to be blaming UAL’s problems on other airlines instead of looking a little closer to home. Frontier’s “insidious†growth. Alaska’s “sinister†growth. I wonder why people would fly on Alaska with higher seat costs. An Alaska 737 Captain makes more than a UAL 767 Captain. Which should make you happy, you may want to use it someday to help with your own negotiations. Also if Alaska’s costs were lower their growth most certainly would increase and UAL would be a target. There is nothing sinister about that though it is business 101. UAL would be the target not because they are picking on you. UAL has a poor product with an arrogant corporate culture that customers notice and try to avoid. The Mexico flights you mentioned out of SFO that Alaska fly’s. United didn’t want them a few years ago because they were leisure markets. United wasn’t interested in neither them nor the Mexico flights Frontier wants out of Denver. Is this the “trash†you mentioned. Purely a lack of foresight by UAL. I hope the handouts are over. I wish UAL the best of luck. UAL is not a victim though, go back to basics and focus on your product.
>>>United employees have already proven with the Shuttle the ability to take on Southwest. When the Shuttle was growing, LUV took their resources to Florida and initiated their "Sunshine State plan," allowing United to grow California and the West. When the decision was made to kill the Shuttle, Southwest returned with all its resources to strategically swarm over the under-served West, undermining United's historical strengths up and down the coast.
"This is revisionist history told just to make the pilots feel good."

During the first 5 years of shuttle, UAL's intrastate CAL traffice went up substantially, while SWA's WENT DOWN. Who's the revisionist?
Go to the library and get a book, or take a college course on "Organizational Behavior". United might be the next one to die. Pan Am - TWA -United? The higher ups do not realize that the airline game has changed---the unions have not realized this either.

Good Luck

Flaptrack said: Go to the library and get a book, or take a college course on "Organizational Behavior". United might be the next one to die. Pan Am - TWA -United? The higher ups do not realize that the airline game has changed---the unions have not realized this either.

Chip comments: Flaptrack, I agree with you and apparently Captain Ashby has not read the McKinsey & Co. analysis and reports, which have been provided to UA management and the Board. In addition, it may be a good idea to read a couple of recent story's published by the USA Today - Money Section. Here are the articles:

Discounters' determination to grow is likely to shrink fares

AirTran, JetBlue, and Southwest set to expand
WASHINGTON (USA Today) - Atlantans have seen what low-fare air service can do to prices. Four months ago, a non-stop Atlanta-to-Los Angeles flight bought at the last minute ran a stunning $2,221 round-trip because only Delta Air Lines flew it.
Complete Story: [url=""][/URL]

Cost of flying for business gets cheaper
Discount airlines now looking for transcontinental profits
NEW YORK (USA Today) - If Rich Mansmann could always count on getting a $600 round-trip fare with no advance planning, "my business travel would increase 20%," he says. "And my quality of home life would increase proportionally."
Complete Story: [url=""][/URL]
Best regards,
>>>During the first 5 years of shuttle, UAL's intrastate CAL traffice went up substantially, while SWA's WENT DOWN. Who's the revisionist?