December 24 Airline News



The Silver Lining in United''s Clouds: Good Lease Deals
NEW YORK (New York Times) - Travelers are spurning high-priced plane tickets. Jets are flitting through the sky half empty. Aircraft values have deflated with the speed of a punctured balloon.
In a few significant ways, all that is actually working in favor of United Airlines as it struggles to reorganize under bankruptcy protection.
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UAL''s 401(k) plan manager no longer holds UAL stock
CHICAGO (Reuters) - The manager of United Airlines'' employee 401(k) retirement plans no longer holds any of the airline''s stock, according to a filing with the U.S. Securities and Exchange Commission on Monday.
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Here''s a blueprint for Continental to soar
UNITED Airlines'' much-publicized troubles represent a once-in-a-lifetime opportunity for hometown airline Continental to grab the brass ring and cement Gordon Bethune''s status as the greatest turnaround CEO in the history of the industry.
Traditional big airlines are undergoing dramatic changes as low-fare airlines like Southwest and JetBlue reach critical mass and accelerate their growth, with some forecasts showing them moving from 20 percent to 40 percent market share over the next few years. Continental''s stated strategy is to be the Target to Southwest''s Wal-Mart, commanding modest premiums in a price-sensitive world with a distinctive product (assigned seats, in-flight meals, convenient connections to more destinations, international flights, business lounges, seat upgrades and a top-rated frequent flyer program).
Continental has rebuilt itself into a solid competitor from bankruptcies in 1983 and 1990, with a combination of excellent service and a cost structure per seat-mile lower than any other major hub-and-spoke carrier. It is widely acknowledged as the best managed traditional carrier.
But Continental is now at a crossroads. While very successful, it has remained a niche carrier that is the smallest of the Big Five traditional airlines, relying on an alliance with Northwest and now Delta (pending government approval) to provide complete geographic coverage -- a poor substitute for the frequent flyer accustomed to Continental''s level of service. The alliances have certainly helped Continental''s short-term revenue, but in the longer term they are painting themselves into a corner on growth.
Offering something Southwest can''t, Continental has excellent international routes to Europe and Latin America from its hubs in New York-Newark and Houston, but it has essentially ceded fast-growing Asian routes to Northwest.
Continental needs to take control of its own destiny, break out of its niche status, and make a play that propels the best managed and lowest cost hub-and-spoke airline past cash-hemorrhaging American and Delta to be the world''s largest airline. United is that play.
United''s attractions are significant:
·A northern east-west route network with major hubs in Chicago, Denver, San Francisco, Los Angeles and Washington D.C. (Dulles) that is extremely complementary to Continental''s East Coast (Newark) and southern (Houston) networks. This lack of network overlap also boosts the likelihood of government support for any deal.
·A very strong market presence in California, where Continental is weak. According to the U.S. Census Bureau, California is projected to add more people than any other state over the next 25 years -- some 17 million potential new flyers on top of the 32 million already there. That''s the equivalent of adding the entire state of New York to its population. Valuable Asian routes that complement Continental''s European and Latin America routes, as well as providing growth options in international markets where low-fare airlines don''t compete.
·Landing rights at London''s Heathrow airport, the world''s largest international hub, where Continental is currently blocked from flying.
The combination would be a fearsome competitor with a compelling value proposition. For the less price-sensitive business traveler, their choice of loyalty airline is usually based on the availability of nonstop flights to major business centers. With major hubs providing nonstop flights to New York, Los Angeles, Chicago, Washington, D.C., San Francisco, Houston and Denver, the new Continental would be the loyalty airline of choice for most business travelers in non-hub cities. (And Continental knows how to compete against Southwest with 31 years of head-to-head competition in Houston, where Southwest runs their third-largest operation at Hobby airport.)
Of course, the obstacles to such a merger are daunting, the largest of which would be bringing United''s labor costs in line with Continental''s. United''s unions would simply have to accept the same terms Continental''s unions currently have. They''re not going to be too happy with it, but given the potential alternatives of a long and unpredictable bankruptcy process, dramatic shrinkage and layoffs, and potential piecemeal sale to other airlines, they''re likely to come around, especially with Continental''s strong management, turnaround reputation and a Fortune magazine ranking as one of the 100 Best Companies to Work For in America.
Another major obstacle would be financing the deal. This is where Continental''s sterling turnaround credibility with Wall Street, labor and other airlines would be crucial. Continental would need to arrange backing by United''s creditors, global alliance partners and employees (who might be able and willing to put their pension fund behind the deal).
The other airlines in the Star Alliance, like Air Canada, Singapore Airlines and Lufthansa, will be particularly interested in any deal that saves United, since United is the backbone of their global route network. Even states with large numbers of United employees, like Illinois, California and Colorado, might be supportive with tax abatements and other incentives.
While other airlines are certainly eyeing specific pieces of United''s route network that they hope to pick up on the cheap in a bankruptcy process, only Continental is positioned to acquire the whole -- which is certainly much more attractive to United''s creditors, employees and alliance partners. Northwest and American have far too much network overlap, the government would certainly block Delta as being anti-competitive (concentrating something like 40 percent of the domestic market in a single airline) and, in any case, both American and Delta still have high labor costs, are running huge losses and have no turnaround credibility. They are in no position to make such a move.
Right now, Continental is probably leaning toward the safe and easy route: Sit back, watch the bankruptcy unfold and take incremental opportunities as they present themselves. But this is the path to stagnation and irrelevancy, and not the Continental or Gordon Bethune I know.
I Say: Seize the moment. Be bold.
Gattis, a Houstonian and a Rice graduate, is a former strategy consultant with a major consulting firm and a Platinum OnePass member. He can be reached at [email protected].
US Airways Express Will Begin Nonstop Roundtrip Service Between Washington Reagan National and Birmingham, Ala. To Operate 50-Seat Regional Jets on New Route
ARLINGTON (PRNewswire-FirstCall) - US Airways Express will
introduce daily nonstop roundtrip service between Ronald Reagan Washington National Airport and Birmingham, Ala., using 50-seat Embraer-145 Regional Jet aircraft beginning Feb. 9, 2003. US Airways Express carriers Mesa Airlines
and Midway Airlines will operate the new service.
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Re Co and UA speculation by Tory Gattis

We'll Ive always thought that CO and UA combo made the most sense. Oh, and I went to Rice, too. hmmmm.

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