Smaller United

[Just Plane Crazy]

I read this article. JP Morgan is just conforming what I have said some time ago.



With the rejection of the ATSB, JP Morgan sees the potential of United shrinking its fleet, which would have serious implications on the industry as a whole.
It hypothesizes that United could shrink its 33-unit 747-400 operating fleet that would have an immediate negative impact on Boeing's sales and put the program at risk, should the aircraft hit the open market, as all of United's -400s are less than 15 years old. United's total 45-unit 747-400 fleet (includes 12 parked) is 10 more aircraft than Boeing's backlog.

It added that United would likely remove some of its 149 737s, 97 757s and 55 767s. All of its 777s would most likely remain in fleet, as would all 152 Airbus A319s/A320s, giving Airbus greater share of US market with a more Airbus-oriented United.

JP Morgan concludes that on balance, a shrinking United would result in more parked Boeing aircraft, which should not directly compete with new aircraft sales (with the exception of 747s). Most of the aircraft would fly again in some capacity.

 

[ITRADE]

If United does any shrinking, its going to be domestic - those Asian routes make good money and are full flights.

 

[JungleClone]

Well, there are very well-sourced rumors floating about that the 737-500's will all be parked in the Fall. I wouldn't be surprised to see several 747-400's go away, also. And the domestic 767-200's are being retired anyway. It's safe to assume that more shrinking is on the way. Expect a significant system furlough shortly after the Labor Day holiday period.

 

[737nCH11]

The 737s leaving is not a rumor. It has been common knowledge for months.

Do you have sources for your furlough information? If not, quit speculating. All you accomplish is worrying folks who are close to the bottom of the seniority list.

 

[lpbrian]

I would'nt call that speculating, just common sense. If you park large numbers of A/C, You are not going to need as many employees.

 

[767jetz]

Ummmm....

Before everyone gets into a panic, there are no furloughs planned at this point.

The current plan is and has been to park some 737's at the end of the summer. Manpower planning projects their needs at least 6 months out. Often longer to account for training cycles. They shrunk the pilot group to the bare minimum they thought they could get away with for the summer. (In fact they went too far as evidenced by the shortage in the 737 fleet and cancelations due to lack of crews.) their reasoning was that come fall the airline would be back to normal staffing levels based on projected block hours in fall and winter. There are also vacancy bids out for the 747, 777, and 320 fleets, which will create some upward movement and absorb some of the manpower from the bottom.

Therefore, the current pilot population already takes into account the parking of the 737s and reduction of flying in the fall and the increase of Pacific flying. This is common knowledge around campus. It has been advertised and discussed in detail at several union and company meetings that I have attended over the last 6 months.

Additionally, to the disappointment of our competition, there is no plan to shrink United Airlines. Tilton and our management team are keenly aware that UA's route structure is our greatest strength and has no intention of making the same mistake as Eastern/Pan Am/TWA by trying to shrink to profitablity. I hate to sound like a certain other poster on these boards, but this information comes from a pretty high level source.

Now, back to you regularly scheduled speculation and rumor mill...

 

[C54Capt]

Additionally, to the disappointment of our competition, there is no plan to shrink United Airlines. Tilton and our management team are keenly aware that UA's route structure is our greatest strength and has no intention of making the same mistake as Eastern/Pan Am/TWA by trying to shrink to profitablity.

jetz,

I don't think your competition cares whether UAL shrinks or expands, they only care about their own profitablity. UAL on the otherhand should not be focussed on their fleet size and current network, rather they should focus on a model that works and can lead to profitability. We only know one thing for certain, and that is that the current model isn't working. So UAL, logically, will either expand or shrink in it's efforts to find that successful model in the new environment.

 

[Boeingguy]

C54,

You're exactly right. For years all I ever heard, and often still hear from UAL employees is concern over size, concern over Int'l slots and flights, concern over # of wide-bodies, concern over alliances, etc etc and untill very lately, never ever heard much concern over costs or profitability.

....as opposed to a company like Southwest who ONLY cared about profits, grew slowly out of internal profits, only flew where profitable to fly, and doesn't care about alliances or being the biggest.

 

[local 12 proud]

C54,

You're exactly right. For years all I ever heard, and often still hear from UAL employees is concern over size, concern over Int'l slots and flights, concern over # of wide-bodies, concern over alliances, etc etc and untill very lately, never ever heard much concern over costs or profitability.

....as opposed to a company like Southwest who ONLY cared about profits, grew slowly out of internal profits, only flew where profitable to fly, and doesn't care about alliances or being the biggest.

yes sir, and this goes for AA as well! funny how legacy carrier's like to compare cost with southwest but yet try to be all things to all people. its the simplicity that works at southwest, they care not about being the "WORLDS" carrier!

 

[767jetz]

jetz,

I don't think your competition cares whether UAL shrinks or expands,

With all due respect that statement is false.

First, when I refer to our competion I refer to AA, NW, DL, &CO as well as Frontier.

They most certainly do care if we expand or not. In fact IMO part of their business plan has been for UA to disappear. If UA shrinks, it gives ths other airlines pricing power in many markets. With less seats available the supply/demand landscape completely changes. Just ask Frontier, who is losing market share and money since Ted came to DEN.

As for all the comparisons to SWA, how many times do we have to point out that the legacies are a different type of business than the LCC's. SWA is successful in what they do, and it is impossible for the legacies to copy their business model. On the other hand, SWA could never do what the legacies do. it is still, and always will be an apples to oranges comparison.

This has never been a matter of UA being the biggest. Size doesn't matter, and in fact UA is #2 in size behind AA. It is about having the best route structure, international alliance, FF program, etc. No matter what anyone says, it is a well known fact throughout the industry that UA has the best franchise. Management intends to leave that franchise intact.

 

[C54Capt]

They most certainly do care if we expand or not. In fact IMO part of their business plan has been for UA to disappear. If UA shrinks, it gives ths other airlines pricing power in many markets. With less seats available the supply/demand landscape completely changes. Just ask Frontier, who is losing market share and money since Ted came to DEN.

jetz,

I'll agree with your pricing power arguement. There is currently very little pricing power in the industry and a significant recovery will not take place until that issue is resolved. My point is that nobody cares whether UAL expands or shrinks, they only care about their own profitability. Now, in the case of TED in DEN F-9 probably would prefer UAL to shrink because nobody is making money because the yields have been trashed by TED expansion. Conversely, F-9 couldn't care less if UAL expanded in every market that they don't compete with each other, so size really doesn't matter to your competitors except where it effects them specifically.

 

[Borescope]

This has never been a matter of UA being the biggest. Size doesn't matter,

Jetz,
I bet if you look in you shoe box you might still have that "#1" button the company passed out in the late 80's /early 90's. If UA shrinks in size so they are the number 6 or 7 carrier, I would expect to see a lot of employees upset. You say size doesn't matter, but i don't think you would say that if the shrinking started.

 

[Fly]

I wouldn't expect to see any shrinking anytime soon. Isn't that the ol' mantra we hear on this board "You can't shrink to profitability"? Boyd group has this to say:

Boyd on UAL Part I

--------------------------------------------------------------------------------

United: Where From Here?

Now that the ATSB has finally closed the door on United for a loan guarantee, the lemming-section of the media over the past week has been casting lots to determine just where United will be cutting service, selling off assets, and generally taking a knife to itself.

The Issue Is Cost v Revenue. Not Big v Small. Here's a concept that many aviation reporters have missed: Who says that United will need to significantly downsize to survive? Somehow, we can't find that extra Commandment anywhere in all the stuff that Moses brought down from Mount Sinai.

True, the airline is losing money, even after huge reductions in labor costs, and cram-downs on many of its aircraft leases. True, United needs to get costs down further. True, oil prices have spiked United's fuel bill up by a reported $750 million. As a result, the usual suspects in the media are speculating what United will sell-off, close, or discontinue. This is because the assumption is that a cost problem is solved by just getting smaller. Here's some news: the cost/revenue equation is not necessarily fixed by downsizing.

No, They Don't Need To Match Southwest CASM. The contention that United needs to get costs down further is completely correct. But to survive, it's got to do a lot more. It must re-focus on the extraordinary strengths United has in the areas of market position and brand-equity. This is where the airline's real future lies, not in just cost-cutting.

A common - and inaccurate - belief is that UA must have Southwest CASM to survive. Wrong. Instead it must have a cost/revenue equation that produces numbers that aren't in brackets at the bottom of the P&L. What these compare-it-to-Southwest people miss is that United is a different airline from Southwest or JetBlue, or AirTran. Different route system, different revenue mix, and a different part of the air transportation system.

If CASM alone were the Source Perrier of airline success, the skies today would be black with airplanes operated by Vanguard, Pacific Express, Northeastern, American International, Western Pacific, Eastwind, Air South, and a whole gaggle of other Southwest wannabes. They're gone, not because of cost issues, but revenue issues. Like, they didn't have any. (And don't buy into the canard that the big guys killed them off - that's mostly trendy lore.) The reason they went glub-glub was because they had zero - or less - brand loyalty.

Brand loyalty, truth be known, is one of United's most potent strengths.

Here's an airline with outstanding operational stats. On-time performance. Schedule reliability. Employees that when dealing with passengers display an attitude that some other airlines can't even get close to. Customer service that is arguably among the best and most professional in the industry. A route system that makes some sense, including a fifth-freedom hub at Tokyo that's in the right place at the right time to take advantage of what will be huge traffic growth into China.

Conclusion: Yes, United needs to get their costs down. But they also need to focus on their core strengths, which are excellence in product delivery, and a strong brand identity. These are things absent from United's loopy cartoon-style ads. It's also counter to the Ted concept as well. (We could also mention the daily Martian Fire Drill, a.k.a the UAX operation on Concourse F at O'Hare, which has raised the concept of total confusion to an art form. But that can be easily fixed if somebody in the head office would bother.)

 

[iflyjetz]

What's wrong with Boyd lately? He's actually had some nice things to say about UAL! What's up with that?

 

[767jetz]

Thanks for posting that, Fly. Much of it is exactly what I've been trying to get across to some skeptics who keep chanting the mantra, "United must shrink!"

I'm actually shocked to hear Boyd say something positive about UA for a change.