Low-fare Carriers Call For United Cuts

[blueskies4ever]

Low-fare carriers call for United cuts
Frontier, others beseech loan board
By Louis Aguilar
Denver Post Business Writer


Thursday, April 22, 2004 -

Frontier Airlines is one of four low-fare carriers that want United Airlines to cut back on its flights and pull out of some cities before it secures a $1.6 billion federal loan guarantee.

The Air Carrier Association of America, which represents Frontier, AirTran, Spirit and Sun Country, says it's trying to persuade the federal loan board to make bankrupt United give up gates at various airports, and even leave certain markets, to prove it is serious about cutting operating costs.

"If you would compare this to any other business, you would expect a company to close some stores and maybe pull out of certain markets," said Edward Faberman, the Washington-based executive director of the discounters' association.

"While United has taken some steps to cut operating costs, they are not doing everything they can to lower their costs and ensure that (their costs) will stay under control," Faberman said.

United is seeking the loan guarantee from the Air Transportation Stabilization Board. The Chicago-based carrier originally applied in June 2002 and was denied loan guarantees. The board was formed after the Sept. 11, 2001, attacks to provide $10 billion in loan guarantees to the airline industry, which was devastated by the attacks.

United, which wants to emerge from Chapter 11 bankruptcy by the end of this year, said scaling back or leaving competitive markets is not going to happen.

"The premise is illogical," said Jean Medina, United spokeswoman. "We are on track for cutting costs by $5 billion annually by 2005. Through a consensual agreement, our annual labor costs have been reduced by $2.5 billion. We reduced our workforce 38 percent. We improved productivity 25 percent. We've identified $900 million in savings through aircraft leases."

Airline industry analyst Ray Neidl of Blaylock & Partners in New York, said the discounters efforts to sway the safety board will not work.

"The ATSB is not really influenced by politics," he said.

"While from (the discounters) viewpoint, it may make sense for United to pull back, it's not in United's business plan," Neidl said.

United and Frontier have plans to expand at Denver International Airport.

In November, the city settled a long-running dispute between the two airlines by agreeing to major expansions on two DIA concourses. Under the agreement, the airport will build United a $40 million expansion on Concourse B. Frontier gets a $77.3 million addition to Concourse A.

 

[Fly]

I would hope that the ATSB loan can't be manipulated by politics but............right, of course they can! Wow, Ted must really have these little guys riled up

 

[UnitedChicago]

What a joke. What a whiney bunch.

 

[Chinook]

Isn't it funny how those low cost carriers demanded slot handouts from the government at congested airports? The same slots that major carriers paid big money for over the years. Sounds a bit like a government subsidy to me, but I guess if you are a new, little airline, it doesn't count.
Cheers

 

[Dizel8]

I doubt UAL paid money for many of their slots, sure LGA and a few others, but far from all. I think the LCC's feel, that UAL is sitting on access while losing money, for no other reason than to keep the LCC's out. Needless to say, the LCC's perceive they can make money.

Obviously, it will be a point of contention between the legacies and the LCC's both now and in the future, that is access to airports. ORD is a good example, with AA/UAL controlling 80% or more of access. (Cannot recall the real number)

Now, this is not to say, that UAL or the LCC's are wrong, just seems to be the way it is, after all it is just business and all wants to make money.

 

[Fly]

From my point of view....it seems that since the LCC's are the "media darlings" the government has been neglecting their first born (the majors). They hold down the majors until they bleed by not allowing them to fight for their turf (helping the LCC's to prosper) then tell the big guys to fend for themselves. Deregulation could only work if government had taken a completely hands off position...but they didn't. Now they have to clean up the mess. Most LCC's wouldn't even be here had the government allowed deregulation to work. But to allow a LCC to low ball flights and NOT allow the majors to do the same is regulation. For the ATSB money to go to any LCC when they weren't even targeted on 9/11 and then to not give it to an airline that was actually targeted is ridiculous. But to allow these LCC's then to turn around and try to stop the loan for United is abominable. :angry:

 

[Dizel8]

U got the loan, they were not targeted, AWA likewise! AA has not applied.

There are plenty, that believe giving the loan guarantee to UAL would be a bad idea. Not saying I agree, but that is not the point.

As far as the statement, that most LCC's would not be here, were it not for the goverment, not sure what you are saying.

It all depends on what side of the table you are on. I am sure, you feel that UAL was fair, when it came to the shenigans about ACA and Dulles, although I think ACA has a different take on the story.

Like someone said, this is a nasty, rotten business!

 

[whatkindoffreshhell]

This is a shot across the bow.

The legacy carriers would employ the same tactics.

Jean Medina's spoutings are amusing though.

 

[Cosmo]

Frontier Airlines is one of four low-fare carriers that want United Airlines to cut back on its flights and pull out of some cities before it secures a $1.6 billion federal loan guarantee.

The Air Carrier Association of America, which represents Frontier, AirTran, Spirit and Sun Country, says it's trying to persuade the federal loan board to make bankrupt United give up gates at various airports, and even leave certain markets, to prove it is serious about cutting operating costs.

This is chutzpah with a capital "C", especially coming from a carrier that might not even exist today if not for its own guaranteed loan from the ATSB. And that recently received four of only 12 new DCA beyond-perimeter slots awarded by DOT. Let's be clear -- this is being driven by Frontier (United hardly competes with the other three carriers in the ACAA) and is simply a major whine-fest by Frontier because it wants more gates at DEN right now.

"If you would compare this to any other business, you would expect a company to close some stores and maybe pull out of certain markets," said Edward Faberman, the Washington-based executive director of the discounters' association.

"While United has taken some steps to cut operating costs, they are not doing everything they can to lower their costs and ensure that (their costs) will stay under control," Faberman said.

Not cut back?!? Then perhaps someone can explain to the ACAA why the following United stations were dropped since 9/11 (just the ones that I can quickly think of):

AKL
BHM
CCS
DUS
EUG
MKE
MXP
ORF
RDU
SCL

Or why all United nonstop international service was recently dropped from BOS and EWR, and from MIA as well in 8 days.

HELLO!!! This is a deregulated industry! If Frontier wants to play in the Big Leagues, fine. But it needs to stop running to the government whining every time United takes a competitive action.

 

[Just Plane Crazy]

As it looks, UA will need all the gates etc at DEN in the future. They have to cut back more flights @ ORD. In order to have the Hub System work, they will have to switch flights from ORD to DEN. Since LAX is overcrowded and to far west, SFO always sitting in the Fog and to far west too, and IAD is to far east DEN is the only alternative UA has and Frontier knows that. Frontier has to start to dress up warm if UA shifts more flights from ORD to DEN. It is possible that UA will shift more Intl. flights to DEN and then have connecting flights from there. That would be practical for them and makes them more independent from what is happening in ORD. At the end ORD will loose some jobs but DEN will gain.

I am not aware of the operating cost in DEN vs. ORD, but I could imagine that it would be more cost effective to operate out of DEN.

 

[mweiss]

This behavior is certainly not exclusive to LCCs. I seem to recall the push that the legacies made to have taxes apply per-hop rather than per-ticket or per-mile, because of WN's structure.

It may be ugly, but it's not like UA has a halo, either.

 

[UnitedChicago]

Very competitive industry yes.

However - these particular LCCs are coming off as rookies in my mind. Their argument that UA should close stations because "retailers close stores" really has no logical basis.

If they want to lobby the board against the loan - they should take the approach NWA took and srcutinize their business plan.

Regardless - I'm hopeful that we hear something from the board soon and that it's positive.

 

[Borescope]

The following United stations were dropped since 9/11 (just the ones that I can quickly think of):

AKL
BHM
CCS
DUS
EUG
MKE
MXP
ORF
RDU
SCL

You must be refering to some other airline besides UA. If you check flights UA still serves many of these stations.

 

[737nCH11]

UAX now serves these stations. The intl ones were dropped.

 

[Cosmo]

You must be refering to some other airline besides UA. If you check flights UA still serves many of these stations.

My apologies. I should have made it clearer that I was referring to United's mainline services, as 737 pointed out above. After all, United is the carrier in Chapter 11, not the United Express carriers.

But you're right in one sense, Borescope, that a passenger can still buy a ticket on "United" to most, if not all, of those cities. It's just that the metal will belong to one of the United Express (for domestic) or Star Alliance (for international) partner carriers.