United chief chases change
Everything is in play as Glenn Tilton tries to stay competitive
By Julie Johnsson | Tribune staff reporter
October 19, 2007
Believing that his airline needs deep, wrenching changes to remain competitive, United Airlines Chief Executive Glenn Tilton wants to pursue everything, from a merger to charging passengers who want their luggage to come first off the plane, as part of a major overhaul of the nation's second-largest airline.
In one of his first interviews since laying out a provocative five-year strategy approved by United's board last month, Tilton maintained that change is difficult, but necessary, if the airline is to remain competitive on the global stage and survive the next downturn in an industry famous for its ups and downs.
His willingness to examine new ways to wring money out of the carrier may be winning him kudos on Wall Street. But he's getting nothing but brickbats from United's unions and some longtime industry observers.
"All those difficult decisions, it's why we're here," Tilton said during the interview Wednesday in his Wacker Drive office.
United plans to invest 4 billion in complex new information systems and to upgrade its planes, check-in areas and other aspects of the business that affect passengers, Tilton said.
To improve operations, it has launched 250 initiatives, including investigating whether to divest United's $750 million cargo business as well as its frequent-flier program and San Francisco maintenance base; introducing a la carte fees for economy passengers who want to purchase new services, like ensuring their luggage is first off the plane; and exploring mergers, a favorite Tilton pursuit.
If major U.S. carriers don't seek large-scale partnerships to compete with global competitors, they are "not even going to be in the top 10 in a little while," he warned.
United appears to be following a strategy set by Air Canada, which gained billions of dollars after it emerged from bankruptcy in 2004 by spinning off its maintenance division and frequent-flier program into separate businesses, analysts say.
"Every management team needs to address it," said Kevin Crissey, senior analyst for U.S. airlines with UBS Investment Research.
The Chicago-based carrier is also the first in the U.S. to navigate the disquiet, even anger, that these strategies engender in employees. Many United workers are dismayed that the company didn't explore the spinoffs during its bankruptcy, when the proceeds could have been used to fund pension plans that were terminated.
Union raises questions
In an Oct. 15 letter to United's board, the president of United's flight attendants union questioned why the company is mulling selling assets that it insisted were vital during its three-year stay in bankruptcy.
"It has only now become clear that the sale of these assets is not only a viable option, but that a timely sale would have avoided the need for severe concessions and, perhaps, avoided the bankruptcy altogether," wrote Greg Davidowitch, president of the United master executive council of the Association of Flight Attendants, which represents 17,000 United workers.
Davidowitch called on United's board to direct management to engage in "meaningful negotiations" to restore wages and benefits that workers gave up during bankruptcy and to allocate a proportionate share of the proceeds of any asset sale to the flight attendants. "We're giving notice that we're laying claim to a portion of that money," he told the Tribune.
United says it couldn't have sold Mileage Plus, the world's second-largest airline loyalty program, while the carrier's future was in jeopardy.
"Who is going to buy the loyalty program of a company in bankruptcy when the whole value of the program is tied to creating a connection to the company," said spokeswoman Jean Medina. "The increase in value of Mileage Plus is directly related to our exit from bankruptcy and subsequent successful execution of our performance agenda."
Although it hasn't decided whether to spin off Mileage Plus, United plans to treat the $800 million program as a stand-alone business by year's end. United also is developing new products for its members.
The airline has other initiatives under way to boost revenue, offsetting the brutally competitive environment that makes it difficult for airlines to push through sizable increases in ticket prices. It is examining services it could provide passengers for a nominal fee. Among those under consideration: curbside-to-curbside baggage service, fees to check a second bag and allowing mainstream passengers to "rent" for a day the perks available to elite customers.
Fees could backfire
While a la carte pricing is successful for some budget carriers, it could backfire for United if passengers feel like they're being forced to pay for something that was once free, said Michael Boyd, president of the Boyd Group, an Evergreen, Colo.-based consulting firm.
Then there's the large-scale merger that Tilton believes United needs to remain a global player. He said he would like to pull off a merger of equals, preferably with an airline with a strong presence in New York and a Latin American route network that United could exploit from its hub at Washington-Dulles International Airport. Analysts say that Delta Air Lines and Continental Airlines would best fit this scenario.
While such deals make sense on paper because they eliminate overhead, they are notoriously difficult to pull off successfully. Workers shudder because of the specter of lost jobs and bitter fights over seniority, which determines job assignments and pay levels.
"Would you rather merge or wind up in bankruptcy, again?" Tilton said he bluntly told United employees when the topic was broached in an open forum this week. "Can we agree on one thing: We all want to grow."
Everything is in play as Glenn Tilton tries to stay competitive
By Julie Johnsson | Tribune staff reporter
October 19, 2007
Believing that his airline needs deep, wrenching changes to remain competitive, United Airlines Chief Executive Glenn Tilton wants to pursue everything, from a merger to charging passengers who want their luggage to come first off the plane, as part of a major overhaul of the nation's second-largest airline.
In one of his first interviews since laying out a provocative five-year strategy approved by United's board last month, Tilton maintained that change is difficult, but necessary, if the airline is to remain competitive on the global stage and survive the next downturn in an industry famous for its ups and downs.
His willingness to examine new ways to wring money out of the carrier may be winning him kudos on Wall Street. But he's getting nothing but brickbats from United's unions and some longtime industry observers.
"All those difficult decisions, it's why we're here," Tilton said during the interview Wednesday in his Wacker Drive office.
United plans to invest 4 billion in complex new information systems and to upgrade its planes, check-in areas and other aspects of the business that affect passengers, Tilton said.
To improve operations, it has launched 250 initiatives, including investigating whether to divest United's $750 million cargo business as well as its frequent-flier program and San Francisco maintenance base; introducing a la carte fees for economy passengers who want to purchase new services, like ensuring their luggage is first off the plane; and exploring mergers, a favorite Tilton pursuit.
If major U.S. carriers don't seek large-scale partnerships to compete with global competitors, they are "not even going to be in the top 10 in a little while," he warned.
United appears to be following a strategy set by Air Canada, which gained billions of dollars after it emerged from bankruptcy in 2004 by spinning off its maintenance division and frequent-flier program into separate businesses, analysts say.
"Every management team needs to address it," said Kevin Crissey, senior analyst for U.S. airlines with UBS Investment Research.
The Chicago-based carrier is also the first in the U.S. to navigate the disquiet, even anger, that these strategies engender in employees. Many United workers are dismayed that the company didn't explore the spinoffs during its bankruptcy, when the proceeds could have been used to fund pension plans that were terminated.
Union raises questions
In an Oct. 15 letter to United's board, the president of United's flight attendants union questioned why the company is mulling selling assets that it insisted were vital during its three-year stay in bankruptcy.
"It has only now become clear that the sale of these assets is not only a viable option, but that a timely sale would have avoided the need for severe concessions and, perhaps, avoided the bankruptcy altogether," wrote Greg Davidowitch, president of the United master executive council of the Association of Flight Attendants, which represents 17,000 United workers.
Davidowitch called on United's board to direct management to engage in "meaningful negotiations" to restore wages and benefits that workers gave up during bankruptcy and to allocate a proportionate share of the proceeds of any asset sale to the flight attendants. "We're giving notice that we're laying claim to a portion of that money," he told the Tribune.
United says it couldn't have sold Mileage Plus, the world's second-largest airline loyalty program, while the carrier's future was in jeopardy.
"Who is going to buy the loyalty program of a company in bankruptcy when the whole value of the program is tied to creating a connection to the company," said spokeswoman Jean Medina. "The increase in value of Mileage Plus is directly related to our exit from bankruptcy and subsequent successful execution of our performance agenda."
Although it hasn't decided whether to spin off Mileage Plus, United plans to treat the $800 million program as a stand-alone business by year's end. United also is developing new products for its members.
The airline has other initiatives under way to boost revenue, offsetting the brutally competitive environment that makes it difficult for airlines to push through sizable increases in ticket prices. It is examining services it could provide passengers for a nominal fee. Among those under consideration: curbside-to-curbside baggage service, fees to check a second bag and allowing mainstream passengers to "rent" for a day the perks available to elite customers.
Fees could backfire
While a la carte pricing is successful for some budget carriers, it could backfire for United if passengers feel like they're being forced to pay for something that was once free, said Michael Boyd, president of the Boyd Group, an Evergreen, Colo.-based consulting firm.
Then there's the large-scale merger that Tilton believes United needs to remain a global player. He said he would like to pull off a merger of equals, preferably with an airline with a strong presence in New York and a Latin American route network that United could exploit from its hub at Washington-Dulles International Airport. Analysts say that Delta Air Lines and Continental Airlines would best fit this scenario.
While such deals make sense on paper because they eliminate overhead, they are notoriously difficult to pull off successfully. Workers shudder because of the specter of lost jobs and bitter fights over seniority, which determines job assignments and pay levels.
"Would you rather merge or wind up in bankruptcy, again?" Tilton said he bluntly told United employees when the topic was broached in an open forum this week. "Can we agree on one thing: We all want to grow."
