UAL needs more cost cuts!

[Borescope]

If the six legacies combined into two or three, each might just have enough higher-yielding pax to survive awhile.

The key word here being "awhile". What happens when the cycle starts all over again? What these managers need to do is figure out how to operate in the current enviorment and look to the future. $50 / barrel oil is gone. We need to figure out how to operate with oil at $100. If it stays below that, then they look like gold.

 

[JungleClone]

Herein lies the big problem for UA going forward. They spent all that time in bankruptcy court, but, with the exception of giving their employees a big haircut and re-doing aircraft/terminal leases and re-doing UAX agreements, they have done little to altar their efficiency and change the status quo. They are still a largely inefficient carrier on an operating basis. They ought to finally take the cutting knife to the bloated layers of middle and upper mgmt that exists at WHQ. They keep saying they're going to iron out those inefficiencies, yet it's funny how it never seems to happen. So now what do they do to adjust to the ever-increasing price of fuel? Maybe they'll get around to addressing that issue after Glenn and the boys find themselves nice, new digs funded on the taxpayers dime! Nice to see that as usual, they have their priorities in order! 😀

 

[coolflyingfool]

At least with the cutting of MDW, TED is expanding in the MSY markets of DEN and LAX. INCREASE REVENUE!!!!!!! just my thoughts.......

 

[Dave]

Unfortunately, since that appears unlikely to happen, the options are (1) cutting more costs or (2) BK#2.

I think oil is way overbought. Let's see what happens.

 

[JungleClone]

CoolFlyingFool,

Unfortunately, increasing revenue is not as easy as it sounds.

 

[PhxMama]

CoolFlyingFool,

Unfortunately, increasing revenue is not as easy as it sounds.

Maybe not, but isnt that what they get paid to do? Figure out how to do it? JMHO

 

[SmoothRide]

Herein lies the big problem for UA going forward. They spent all that time in bankruptcy court, but, with the exception of giving their employees a big haircut and re-doing aircraft/terminal leases and re-doing UAX agreements, they have done little to altar their efficiency and change the status quo. They are still a largely inefficient carrier on an operating basis. They ought to finally take the cutting knife to the bloated layers of middle and upper mgmt that exists at WHQ. They keep saying they're going to iron out those inefficiencies, yet it's funny how it never seems to happen. So now what do they do to adjust to the ever-increasing price of fuel? Maybe they'll get around to addressing that issue after Glenn and the boys find themselves nice, new digs funded on the taxpayers dime! Nice to see that as usual, they have their priorities in order! 😀

As much as I hate saying it, it's probably better (in the long run) if somebody like CO came in, bought UA, and then gave the UA management a "haircut" while handing most of them their pink slips with a polite kick in the arse out the door. The present management has had its chance and they probably have blown it (again). Only after a management dustup will a new corporate culture even have an opportunity to take root and improve the morale and efficiencies within.

 

[casual rat]

They're not going to fire themselves, that's for sure!

 

[etops1]

Herein lies the big problem for UA going forward. They spent all that time in bankruptcy court, but, with the exception of giving their employees a big haircut and re-doing aircraft/terminal leases and re-doing UAX agreements, they have done little to altar their efficiency and change the status quo. They are still a largely inefficient carrier on an operating basis. They ought to finally take the cutting knife to the bloated layers of middle and upper mgmt that exists at WHQ. They keep saying they're going to iron out those inefficiencies, yet it's funny how it never seems to happen. So now what do they do to adjust to the ever-increasing price of fuel? Maybe they'll get around to addressing that issue after Glenn and the boys find themselves nice, new digs funded on the taxpayers dime! Nice to see that as usual, they have their priorities in order! 😀

totally agree.

 

[jimntx]

You left out my favorite option:

(3) Increase revenue by consolidating with another legacy airline (or two), thereby allowing UA to fire its least profitable customers and concentrate instead on the highest-yielding customers.

The pool of passengers willing to pay more is smaller than it used to be, but it hasn't dried up completely. UA (along with the other legacies) simply doesn't have quite enough of them. If the six legacies combined into two or three, each might just have enough higher-yielding pax to survive a while.

For this solution to work, you have to assume that

1. The combining airlines would eliminate every duplication of effort, equipment, and routes. Massive layoffs would have to occur.
2. The low-cost carriers, such as SWA and JetBlue, would not move into those suddenly rationalized markets. And, don't think for a second that major corporations are not making their traveling employees fly on the cheapest available ticket whenever possible. When I was at Texaco in the 80's and 90's we flew full-fare coach domestically so that we would be the first to be upgraded; and, at least business class, internationally. From what I hear from friends still there, that is not the case today.
3. No one will add new capacity. This is the real problem for the future. Boeing and Airbus have not stopped building airplanes. So, for every a/c parked in the desert; a new one (or two) seems to come on line.

 

[FWAAA]

For this solution to work, you have to assume that

1. The combining airlines would eliminate every duplication of effort, equipment, and routes. Massive layoffs would have to occur.
2. The low-cost carriers, such as SWA and JetBlue, would not move into those suddenly rationalized markets. And, don't think for a second that major corporations are not making their traveling employees fly on the cheapest available ticket whenever possible. When I was at Texaco in the 80's and 90's we flew full-fare coach domestically so that we would be the first to be upgraded; and, at least business class, internationally. From what I hear from friends still there, that is not the case today.
3. No one will add new capacity. This is the real problem for the future. Boeing and Airbus have not stopped building airplanes. So, for every a/c parked in the desert; a new one (or two) seems to come on line.

You make good points, but IMO, the legacies need to consolidate whether or not your predictions occur (and I believe they will occur).

1. Of course the combined airlines would have to furlough tens of thousands of individuals.

The legacies currently employ far too many people. Too many managers, too many pilots, too many mechanics, too many agents, too many fleet service/rampers and, sadly, too many FAs.

2. B6 and Wn are moving in whether or not the six legacies wisely shrink to three or four. B6 has almost 200 airplanes on firm order. WN keeps ordering more airplanes and will likely have a couple hundred on the way over the next several years.

If you live near IND (a catchement area of over 1.5 million people), for example, there are six different airlines offering First Class service to LAX or SFO or SEA or SAN or, well, you get the picture. You could connect in ORD, CVG, ATL, DFW, STL, DTW, MSP, IAH, DEN, etc. There are simply too many different and duplicative choices. And none of those six are making enough money to pay down their debt and to be able to afford new airplanes.

Sure, more and more companies are requiring purchase of the lowest fare. But that's a gradual shift - AA, UA, CO, DL, NW and US still sell some expensive fares, even some F fares. But none of them sells enough of them.

3. Sure, airlines will add capactiy. Like B6 and WN have been doing since AA last showed an annual profit in the year 2000.

Problem is, the demand for some airlines' products is growing (primarily the products at B6 and WN) and the demand for some other airline products is contracting: Primarily, the demand for F and full Y seats at legacy airlines.

Given that it is almost impossible to shrink to profitability, perhaps those legacies need to grow to profitability by combining and firing the low-paying customers. Imagine a combination of UAL and DAL. They close the SLC and CVG hubs (DEN and ORD substitute quite nicely for them) and UniteDelta fires a substantial percentage of its cheapest fare-paying pax. The resulting airline is only a little bigger than the current UAL yet its revenues would easily be 50% larger.

Sae thing at AA/NW.

So either the legacies combine or they continue to do what they've been doing for over five years: Lose Money and try to beat the losses out of their employees and creditors.

 

[JungleClone]

Smoothride,

Careful what you wish for... 😀

 

[jbguppy]

Herein lies the big problem for UA going forward. They spent all that time in bankruptcy court, but, with the exception of giving their employees a big haircut and re-doing aircraft/terminal leases and re-doing UAX agreements, they have done little to altar their efficiency and change the status quo. They are still a largely inefficient carrier on an operating basis. They ought to finally take the cutting knife to the bloated layers of middle and upper mgmt that exists at WHQ. They keep saying they're going to iron out those inefficiencies, yet it's funny how it never seems to happen. So now what do they do to adjust to the ever-increasing price of fuel? Maybe they'll get around to addressing that issue after Glenn and the boys find themselves nice, new digs funded on the taxpayers dime! Nice to see that as usual, they have their priorities in order! 😀

Listen to Tilton's comments at the Bear Stearns investor conference. Cost is about 7.5 CASM ex-fuel, revenue continues to increase, operating cash flow is very strong and balance (unrestricted?) going north of 4 billion dollars. Cost will continue to go down (no competitor can say that right now except maybe DAL). Oh BTW UAL stock upgraded this morning. Tilton is very clear that 1st quarter results very difficult to understand (and dilluted our progress) due to effects of fresh start accounting and exit charges taken.

Bottom line, we were all dissappointed in 1st quarter, but just like the market, you have all oversold UAL here on this board. UAL is probably the most aggressive and undervalued legacy out there and I believe the 2nd quarter numbers will show this.

Time will tell but UAL is a long way from BK again and generating strong cash flow. Your above post is correct that the company did a much better job of contractual change and pension dumping in BK compared to internal change, but I can tell you that the internal change has gone on all along, and is picking up speed in a rapid manner right now. These changes take some time after implementation to show on results, but they are showing in the cost numbers. UAL is demonstrating it's disipline by holding to it's business plan and not ordering aircraft until financial performance exceeds expectations.

Another 400 million off cost with all employees understanding that our operational efficiency, resource optimization, fuel efficiency, and cost control are corporate priorities make for a future I am bullish about.

I hope you remain engaged here as others who have sounded UAL's demise, I look forward to discussing further when 2nd quarter numbers come out vs our competitors.

Cheers,

JBG