Small Airlines Oppose Plan For U.s. Aid To United

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Nov 19, 2002
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March 2, 2004
Small Airlines Oppose Plan for U.S. Aid to United
By MICHELINE MAYNARD

larmed at United Airlines' attempt to enter the low-fare market, an organization representing low-fare airlines said yesterday that it planned to fight United's effort to win $1.6 billion in federal loan guarantees, which would be the centerpiece of its restructuring plan.

Their vow is the first sign of public opposition within the industry to the revised bid by United, which filed for bankruptcy protection in December 2002, only days after its first application for a loan guarantee worth $1.8 billion was turned down.

United, a unit of the UAL Corporation, is the nation's second-largest airline behind American, a unit of the AMR Corporation. United wants to emerge from bankruptcy by the end of June. It has arranged $2 billion in exit financing, most of it contingent on the federal guarantee. The loan board does not face any deadline for deciding on United's application.

Low-fare carriers contend that a federal loan guarantee would give United unfair ammunition against its competitors, said Edward P. Faberman, executive director of the Air Carrier Association of America, a lobbying group whose members include JetBlue Airways, America West Airlines, AirTran Airways, Frontier Airlines and Spirit Airlines.

In particular, Mr. Faberman said those airlines were upset by the recent start of Ted, United's own low-fare carrier, which began service last month from its Denver hub to cities in the West and Florida. Next month, United plans to add Ted fights from Dulles International Airport outside Washington, and it expects to begin service later this year from its main base in Chicago.

Mr. Faberman said the airlines' chief executives would decide in the next few days whether to fight United individually or act collectively under the lobbying group's umbrella. In either case, he said, "We will oppose it."

A spokeswoman for United, Jean Medina, said the airline was "flattered that these competitors consider us a competitive threat."

Yesterday, the airline group also said it opposed measures recently passed by Congress that would allow a group of major airlines, including United, to stretch out delinquent pension obligations over the next few years.

In a letter to the Bush administration, the chief executives of the five airlines called the measure "selective subsidization." The executives - David G. Neeleman of JetBlue, Joseph B. Leonard of AirTran, W. Douglas Parker of AmericaWest, Jeff S. Potter of Frontier and Jacob M. Schorr of Spirit - said pension relief should benefit the entire industry, "not be targeted to help a few airlines."

The letter was reported by Time magazine in this week's issue.

United has said it cannot afford to emerge from bankruptcy without some form of pension relief. It also has applied for waivers from the Internal Revenue Service allowing it to stretch out the payments.

But Mr. Faberman said both the proposed loan guarantee package and the pension bill struck the low-fare airlines as unjustified.

"When it comes down to it, this is a highly competitive industry," Mr. Faberman said. "And the government shouldn't be forwarding money under one pretense to one group of carriers so they can continue their quest against the others."

United originally applied for loan guarantees from the federal Air Transportation Stabilization Board in June 2002. The board was formed after the September 2001 attacks to oversee $10 billion in assistance earmarked by Congress to help the struggling industry.

United's first application was heatedly opposed by several major airlines, including Continental and Northwest, which contended United had not cut costs deep enough to warrant federal help and that its business plan was too optimistic.

Both were reasons cited by the loan board in turning down the initial request. The board also questioned whether United had a strategy to combat low-fare airlines, precisely what the carrier has done by creating Ted, Ms. Medina said.

In fact, low-fare airlines did not oppose United's initial application, Mr. Faberman said. For one thing, United's original bid came little more than a year after the attacks, and emotions within the carriers were still raw, he said.

For another, AmericaWest and Frontier had been granted loan guarantees, while Spirit's application was rejected, and the carriers felt they did not want to become involved in matters before the board, he added. JetBlue and AirTran did not seek federal assistance.

But United's revised application came at the close of a year when low-fare airlines had carried nearly one-quarter of all domestic passengers. Further, the companies have begun aggressive expansion plans, particularly JetBlue, which has ordered 100 new regional jets with options on 100 more planes.

At the same time, all of the carriers are faced with potential pressure from Ted, which shares a home base at Denver with Frontier, and in fact will compete for customers with all the low-fare carriers in at least one market where it flies or plans to fly.

In a reversal, major airlines have kept quiet this time about United's application, which has the support of House Speaker J. Dennis Hastert, a Republican from Illinois. Notably, Southwest Airlines, the largest low-fare carrier, said it would not become involved. It does not participate in the lobbying group, nor did it oppose United's original bid.

"We are not a participant in that fight," Southwest's chief executive, James Parker, said in an interview yesterday.
 
ualflynhi said:
In particular, Mr. Faberman said those airlines were upset by the recent start of Ted, United's own low-fare carrier, which began service last month from its Denver hub to cities in the West and Florida. Next month, United plans to add Ted fights from Dulles International Airport outside Washington, and it expects to begin service later this year from its main base in Chicago.
I love how they take care to express their special concern for the notion that UA may be able to profitably offer low fares to the consumer. All along, the LCCs have essentially been enjoying a competition-free environment by avoiding each other and cherry-picking high density routes served by the majors that had a healthy appetite for junkfares.

While it's questionable if TED will succeed, the howls of protest specifically about TED that are coming from the commodity carriers illustrate just how much they fear real competition.
 
Taken from another forum, "the Big 6 were part of the same lobbying effort to have a segment tax instituted at the point to point carriers. It comes as no surprise that the other airlines are unwilling to extend any olive branches after that type of agenda on part of the Big 6."

In other words, what's good for the goose is good for the gander.

Having just survived UAL's attempted hostile takeover of ACA via MESA, you might imagine I am not that sympathetic.

Interesting to note that now MESA is wanting to buy 737's and start a LCC as well.
 
ITRADE said:
Apparently - as reported in the US forum - these are the same airlines that oppose pension relief.
Of course they do. They want costs to remain as high as possible at the legacy carriers, knowing they have a huge advantage in the simple fact they are new, meaning they enjoy seniority levels that average 1-5 years.

Think about that - even putting aside the fact that they don't have unions - even non-union workers with less than 5 years seniority are going to get paid less than non-union workers that have 20+ years of seniority.

The pension relief would slightly equalize this huge advantage they're enjoying, and they'll fight it tooth and nail, because the last thing they want, despite all their jabbermouthing to the contrary, is real competition.
 
orwell said:
The pension relief would slightly equalize this huge advantage they're enjoying, and they'll fight it tooth and nail, because the last thing they want, despite all their jabbermouthing to the contrary, is real competition.
Kinda reminds you of the good 'ol days of regulated airfares and no upstart carriers rocking the boat, eh?
 
Southwest (even though they were not party to this) is union, ACA is union, I am not sure about the rest. Many of us are wondering if ALPA is relevant, because it exist only to support the Big-6 - and will sell out anybody else in a heartbeat.
And no, I am not a member of the RJDC but I can see where they are coming from with the issue of fair representation.
 
It blows me away that idiots over at AWA and Frontier (yeah I know it's a business) would have the gall to tell the gov't not to help out with an ATSB loan. The fact of the matter is they got an ATSB loan as well. What a bunch of hypocrites. Jetblue, Spirit, and the other guy just can't take the heat that UAL could be invading their turf. Well crybabies let the games begin. Time to open a can of whoop ### on you and your low cost routes. The war is on and you guys just to the first cheap shot!
 
Frontier had a $78 Million loan - and has already paid it off. UAL is asking for a $1.6 Billion (in my best Carl Sagan voice) and has already been turned down once by the ATSB.

As for opening that can of Woop @ss, Delta thought they were going to do the same to AirTran - it hasn't worked out that way.

I am sure that soon enough we are going to be welcoming MESA and its 737's to the LCC parade. I wonder if that violates anybody's scope clause?
 
Frontier and America West weren't affected by 9/11 anywhere near the extent as United. It's sad that a national tragedy (with 2 airlines affected) doesn't support either "victim" and allows political lobbying by the competition to not lend the helping hand to them. :angry: The loan was set up to aid those most affected,.....wonder who that could be?
 
Fly said:
Frontier and America West weren't affected by 9/11 anywhere near the extent as United. It's sad that a national tragedy (with 2 airlines affected) doesn't support either "victim" and allows political lobbying by the competition to not lend the helping hand to them. :angry: The loan was set up to aid those most affected,.....wonder who that could be?
Exactly. And, when you hear the bellyaching about "bailouts," you never here about the enormous amounts of taxes and fees that have been extracted from the major carriers in the last few decades - revenue that often was supposed to be used to strengthen commercial aviation's infrastructure ie runways, etc. but invariably ended up being diverted to bail out some other pet government project.

In addition, assistance has and continues to be doled out to "start up carriers" (how long is Jet Blue going to be called a "start up" I wonder) by airports eager to attract commodity carriers. An example is PIT and PHL - two cities that benefited greatly from the investments made by US - things like route development, marketing and, yes, PFCs etc. But who cares about that now? Let's wine and dine as many junkfare carriers as we can - at taxpayer expense, if need be, bc the public has a constitutional right to cheap fares. And, from the other corner of our mouths, let's lobby against aid to UA!
 
Why do the communities want "junkfare" carriers?
Because they are tired of being held hostage by a legacy carrier with outrageous prices. If the community has low airfare, then it becomes more amenable to both business and tourists travel and more money for the city. AirTran is a prime example - many cities have set up "travel banks" to alleviate the risk of Delta underbidding AirTran and once AirTran leaves tripling the prices again. In this case, it was not the taxpayer's expense but rather the chamber of commerce of many of the cities.

Why do many of the people want to fly JetBlue and some of the others?
Lets compare them to a regular mainline competitor. Cheaper fares, friendlier service, free TV vs none on mainline, better food than just the pretzels that mainline hands out. What you don't realize is that the LCC's now offer better service and more amenities than coach class on a legacy carrier.

As for lobbying against the legacy carriers, turnabout is fair play. How many times have the majors tried to put Southwest out of business, how many times did the majors try and impose taxes on the point to point segment to the detriment of the LCC's. From a personal perspective, UAL tried to put my company (ACA) out of business via a hostile takeover. ACA's pilot's had voted to take a paycut to continue flying UEX but we were hit with the UAL's and the BAIN corporation's decision to take away our flying and give it to MESA and the rest - so much for loyalty. Now even MESA is looking at purchasing 737's and starting there own LCC.
 
The hypocracy of some of these carriers is breathtaking.

Just for fun, I did a comparison of the ATSB's guaranteed portion of the loans vs. the 3rd quarter 2003 revenues (both in millions) of America West, Frontier and United (and since I was having so much fun, I included US Airways also). The results surprised me, and are shown below:

Carrier....Revenues....Loan Amt.....Percent
....HP..........$583.6..........$380........65.1%
....F9..........$165.8............$63........38.0%
....UA.......$3,757.4.......$1,600........42.6%
....US.......$1,748.8..........$900........51.5%

As you can see, adjusted for size (revenues), America West received a guarantee that was much larger on a percentage basis than United is requesting, and Frontier received a guarantee that was only slightly smaller. Moreover, at the time these two guarantees were provided by the ATSB, both carriers' revenues were considerably less than the numbers recorded in the 3rd quarter of 2003, thus making their respective loan-to-revenue percentages actually somewhat higher than shown here. And let's not forget about the DCA beyond-perimeter slots received by these two carriers from the DOT back in 2000, as well as the additional beyond-perimeter slots they are requesting in the current DOT proceeding.

As for JetBlue, would that carrier even exist today if it had not received 75 peak-time JFK slots (or is it slot pairs, I'm not sure) prior to its start-up a few years ago?

All in all, these three carriers appear to have done rather well in attracting U.S. government "hand-outs". So IMHO it is disingenuous, to put it charitably, for these three carriers to oppose United's ATSB loan application simply because United is becoming more competitive.
 
46Driver said:
Why do the communities want "junkfare" carriers?
Because they are tired of being held hostage by a legacy carrier with outrageous prices. If the community has low airfare, then it becomes more amenable to both business and tourists travel and more money for the city. AirTran is a prime example - many cities have set up "travel banks" to alleviate the risk of Delta underbidding AirTran and once AirTran leaves tripling the prices again. In this case, it was not the taxpayer's expense but rather the chamber of commerce of many of the cities.

Why do many of the people want to fly JetBlue and some of the others?
Lets compare them to a regular mainline competitor. Cheaper fares, friendlier service, free TV vs none on mainline, better food than just the pretzels that mainline hands out. What you don't realize is that the LCC's now offer better service and more amenities than coach class on a legacy carrier.

As for lobbying against the legacy carriers, turnabout is fair play. How many times have the majors tried to put Southwest out of business, how many times did the majors try and impose taxes on the point to point segment to the detriment of the LCC's. From a personal perspective, UAL tried to put my company (ACA) out of business via a hostile takeover. ACA's pilot's had voted to take a paycut to continue flying UEX but we were hit with the UAL's and the BAIN corporation's decision to take away our flying and give it to MESA and the rest - so much for loyalty. Now even MESA is looking at purchasing 737's and starting there own LCC.
Commodity carriers have the benefit of daily, free advertising (simply the fact that they're reffered to as "Low Fare" carriers is free publicity when the "legacy" carriers match them dollar for dollar on most routes.

The higher costs the legacy carriers are burdened with come from years of route development and having a more senior workforce. In addition, the legacy carriers were saddled with outrageous regulatory impediments in a supposedly "deregulated" industry. UA could not merge with US - regulators howled at the thought of "insufficient" competition in a country that has dozens of airlines. For some reason, ostensibly because low fares are a literal right, the legacy carriers could not consolidate like other industries could. That's a big reason the darling junkfare carriers that have been en vouge since 9-11 and the dotcom crash are able to feast like opportunistic parasites on a disease-ridden patient.

Also, in many cases, the "chambers of commerce" you mentioned are acting in coercion with local - if not state and even federal - bodies to route public money to the newcomers. Even giving sweetheart gate lease rates are an allocation of public money, if an airport is publicly held, as I believe most are. How many industries have to sit and watch while their partners, in concert sometimes with government bodies and other organized vendors and suppliers - openly court competitors, spending revenue that they themselves helped them accrue? I'm sure it happens elsewhere, but that doesn't make it any less ridiculous. With friends like that, who needs enemies? And, if a legacy carrier does pull out of a city, it is lambasted for "abandoning" a market.

Hub cities are not held "hostage." Hub airlines are, all too often, the carrier the locals "love to hate." They whine and moan about "price gouging" then proudly crow about the nonstop destinations - including international and smaller, low-density cities the junkfare carriers wouldn't dare serve.

The bottom line: be careful what you wish for and the open courting of commodity carriers by public airports is no worse than a bailout for UA.
 
You are absolutely right, to imagine the chutzpah of jetBlue to request slots at an airport that was woefuly underserved, I mean really.
Of course, UAL could have requested them and provided they have a great plan along with the application, UAL may very well have gotten them.

Same thing in Long Beach, a city that was trying to get service from AMR, who flatly said no, not interested. Enter jetBlue, who wanted to service the airport, but who was also smart enough to secure slots, because they were well aware, of what the response from AMR would be. However, I will make you a deal, I will get you some slots at LGB, provided you get a gate at ORD. Sound like a deal?

As far as UAL getting the ATSB loan, I think the LCC are concerned, that UAL will simply use the money, to dump fares and try to run competetion out of town, while losing money while doing it. Of course, that has never been done by a major, now has it.

Someone mentioned, that UAL and AMR suffered the most, so they should be given money. Well, AMR has not applied for a loan, they managed on their own. UAL and AMR did indeed have airplanes involved in the horrific events, but settlements to the pax was paid by the goverment and I do not think, the general public blames neither UAL or AMR for the events, as opposed to had the airplane "simply"crashed. So I agree, that UAL nor AMR should not bear the burden for those two loses.

The ATSB is obviously cautious, one because of what we are seeing U do and secondly, because your CFO now says, that emergence hinges on getting the loan. Perhaps overplayed, but it is starting to sound kind of desperate. That is not to say, that UAL cannot or will not obtain money, but it may be from other investors. That means, that they will direct where UAL is going, muck like we are seeing with U and probably, they will demand a high return on the money, along with a solid plan. Does such a thing exist now, it may very well, in which case, the ATSB application should be a slam dunk.

But being mad at the LCC's for doing exactly the same thing that UAL would have done, had the shoe been on the other foot, is just silly.