Will United Get The Loan

[767jetz]

3. Recognize that business is all about survival of the fittest. Right now, other airlines like AA and DL are doing a better job of adapting to the permanently changed business model which has evolved in the US legacy airline industry.

Your, kidding me, right?

Do you have your head in the sand? Have you actually been watching the industry, or just selectively picking out bits of info that support your pre-determined opinion of United?

Right now, Delta is in the worst position of all the legacies. Just today there were several articles stating that "industry analysts' (I use that term loosely) increased DL's expected loss by 60%, and see a possibility of BK by year end and maybe even summer's end! DL has large debt payments coming due in the next 12 months, just like UA had prior to BK.

NW is having it's problems as well and must refinance large sums of debt in the next year also.

As for AA, they bought themselves some time, but expect to see their troubles resurface by year end as well, since no one expected the skyrocketing cost of fuel, and everyone thought things in Iraq would have gone much better by now. The concessions AA won were front loaded and short term. Starting this summer, their costs will once again start to rise and even excede UA's.

If you subtract the rise in fuel cost, and the BK expenses, UA would be profitable. So by many measures, UA as it has been restructured is one of the best run legacy carriers out there. What you will begin to see is other legacies on the down swing, while UA is on the upswing.

I just love those of you who claim "airlines must fix their business plan" but have very little idea what goes into running an airline, and no suggestions on how to do it. IMO many outsiders think that the only gauge of success is how cheap an airline can sell their tickets. Let me tell you, it's far more complicated than that. And comparing the products is like apples and oranges. LCC's operate a far different airline than legacies. But LCC's could NEVER provide the essential worldwide transportaion service that this country enjoys. You simply cannot operate point to point, everywhere on the planet. Not with their current business model, cost structure, lack of infrastructure, and at their prices.

Here's another point... A legacy airline can successfully provide some LCC type service in select markets. Ted is doing just that, and taking market share back from Frontier every day. You will never see Jet Blue flying 747 to Asia, or 777's to Europe.

Anyone who thinks that all airline must operate like SW or JB just don't understand how it works. What you should do is understand that there is a place for large Hub&Spoke Airlines, and compare them to each other, instead of the LCC's. As I said, UA is on the up swing, while others have much work to do.

If our gov't would wrap things up in Iraq, do something about the fuel prices, cover the post 9/11 costs of our national security, mandate reasonable insurance, and use some of the Aviation Trust Fund for what it is intended for (to help fix the ATC structure and relieve overcrowding on the airways and at airports) instead of to fund pet projects, this industry would be in a far more sustainable condition.

So please stop blaming the airlines business model and employee costs, and start holding your gov't and elected official accountable for their half of the equation!

 

[Fly]

First of all.......for Whatkindoffreshhell - Don't worry about me sweetie...my husband is one of the top brass that all the unions love to hate (and not in the airline industy), I'll be fine. <_< The only bending over I'm doing is voluntary 😉

World - Take off those rose colored glasses, Delta is in real peril! You keep chirping on this board that Delta is in fine shape....HA......not!


But back to the point of the thread. The loan was established for one purpose. There was a deadline to file for the loan but not a deadline for the ATSB decision....therefore, they can take as long as they wish but they can't say that United is no longer eligible because of a time constraint especially since it's not like United is the one dragging their feet with the decision. No airline was more affected, period. They should get the loan!

 

[mweiss]

But LCC's could NEVER provide the essential worldwide transportaion service that this country enjoys. You simply cannot operate point to point, everywhere on the planet. Not with their current business model, cost structure, lack of infrastructure, and at their prices.

Nor does it require the costs of UA/DL/US.

You will never see Jet Blue flying 747 to Asia, or 777's to Europe.

Nope, but you very well might see them flying 7E7s The transformation of the industry is in the relatively early stages. It's too early to tell what things will be like in a decade, but I can assure you that there are carriers in the sub-9c RASM category that will be providing international service before 2010.

Anyone who thinks that all airline must operate like SW or JB just don't understand how it works.

And anyone who thinks all international carriers must operate like UA doesn't understand how it works, either.

If our gov't would wrap things up in Iraq...[etc., etc., etc.]...this industry would be in a far more sustainable condition.

All of those things affect every airline in the US more or less equally. What continues to separate the two categories of carriers is the CASM chasm. Congress could mandate that fuel were free tomorrow, and offer free insurance, and the LCCs would still be eating the legacies' lunch. Don't pin this one on the feds.

 

[funguy2]

No airline was more affected [than United], period.

I take great exception to this statement, still. And I will make a point of it.

American Airlines also lost two airplanes on 9/11/01

US Airways had DCA, a major operation for them, closed for an additional several months beyond the 9/11-9/14 airspace closure.

All airlines have been affected by dramatic increases in fuel and security costs, as well as diminished demand.

Midway Airlines declared bankruptcy on 9/12/01, and eventually went out of business.

National and Vanguard also went out of business following failed attempts to secure funding via the ATSB.

Everyone within this industry lost valuable colleagues that day, in addition to NYC and DC losing 3,000 of its own, and two huge buildings.

To keep re-iterating that UAL suffered more than others (tell this to the thousands of furloughed employees from other carriers) is extremely insensitive and arrogant. And, while the ATSB was created to help airlines with the post-9/11 period, it was not created to assist on those "most affected" carriers. It was created to help all (and it did - giving out rebates and grants to over 400 companies). The ATSB was created for a very specific purposed... To guarantee loans for companies who have no access to capital markets... Not to guarantee loans for the companies "most affected."

 

[Fly]

I said MORE.....not equal. American was affected equally....no one else was.

 

[767jetz]

Nor does it require the costs of UA/DL/US...

And anyone who thinks all international carriers must operate like UA doesn't understand how it works, either...

All of those things affect every airline in the US more or less equally...

Congress could mandate that fuel were free tomorrow, and offer free insurance, and the LCCs would still be eating the legacies' lunch.

Untrue, my friend.

Show me specifically where the cost of a hub and spoke international airline (with interline baggage, frequent flyer programs, international crew scheduling issues, catering, inflight entertainment, First Class and Business Class, international landing fees, insurance for flying to international destinations, overflight fees, AIRINC fees, ETOPS certification and maintanence thereof, etc.etc.etc.) can be done for lower cost. Don't tell me the employees are still paid too much. UA has addressed every cost issue it possibly can in the last 17 months. So instead of blowing hot air, let's here some reasonable examples.

By the way, "all of those things" do NOT affect all airlines the same. Again you are demonstrating your lack of understanding. UA can not hedge fuel in BK. The more fuel an airline uses, the greater the pain of high fuel costs (ie: bigger airline, more gas). Security fees at major airports are much higher at large airports compared to small towns, and secondary airports. (ie: O'hare vs Midway) Baggage screening facilities, like the huge CT machines now used for all checked bags, are not cheap you know. Again, a bigger airline needs many more of those multi million dollar machines that keep you and your family safe from terrorist.

And what about the aviation trust fund. Billions of dollars collected in fees that was supposed to be used for aviation infrastructure, is sitting around propping up the federal buget so certain people can fund pet projects. If the $ were used for it's intent, and new runways were built in ORD for example, delays would be reduced and airlines would save millions. Do you think that would affect the LCC equally? NOT! Again, a more efficient ATC system well help everyairline, but not equally. That's what the money is suppoed to be used for.

If fuel were a more reasonable price, and the gov't footed the bill for national security instead of passing it along to the airlines, UA and other legacy carriers would be fine, and in some cases, "eating the LCC's lunch" as you so eloquently put it.

I have taken my cuts, as have other airline employees. But much of the remaining responsibility lies with our elected officials. So I will leave that were it belongs... SQUARELY ON THEIR SHOULDERS!

 

[Bizman]

WHAT A JOKE JETZ!!!!

 

[funguy2]

I said MORE.....not equal. American was affected equally....no one else was.

And the closure of National Airport for 6th months was did not affect US Airways at all?

Look, your statement is offensive. Everyone has suffered. Who has suffered the most is subjective and immaterial.

Meanwhile, the legislation was not created for the airlines which suffered most.

 

[funguy2]

767jetz:

You are really stretching here... Yeah, maybe ORD security costs more than MDW... But I am sure security at Peoria is cheaper than IND, etc, etc.

Yeah, if you own two cabs, you buy more gas than if you own one cab. However, with two cabs you have twice the revenue potential.

I don't disagree that the government needs to take on the costs of security, as it is a national security issue, but you are really stretching to say that UAL is inherently less able to pay for these things when UAL inherently has more revenue producing capabilities due to its size.

 

[mweiss]

Damn quote tags aren't working all of a sudden...

"Show me specifically where the cost of a hub and spoke international airline (with interline baggage, frequent flyer programs, international crew scheduling issues, catering, inflight entertainment, First Class and Business Class, international landing fees, insurance for flying to international destinations, overflight fees, AIRINC fees, ETOPS certification and maintanence thereof, etc.etc.etc.) can be done for lower cost."

Show me specifically where all of those things are of sufficient value to persist. Here are a few things to consider. HP has a hub and spoke network, interline baggage, frequent flyer program, catering, inflight entertainment, and international service. AS has all of that as well. So now we're left with AIRINC, ETOPS, and very-long-haul crew. You're going to try and tell me that those three things account for a 20% increase systemwide in cost?

"By the way, "all of those things" do NOT affect all airlines the same. Again you are demonstrating your lack of understanding. UA can not hedge fuel in BK."

Sorry, I guess I wasn't clear enough. Those things affect the legacies and LCCs the same. UA's bankruptcy is a red herring. AA isn't in bankruptcy, and last time I looked they were a legacy carrier. They can hedge.

"Security fees at major airports are much higher at large airports compared to small towns, and secondary airports."

Good point. So those fees at JFK would really hurt those legacy carriers such as B6. Oh, wait...they're an LCC! Hmmm...what about DEN, where it'd really hurt that legacy carrier, F9. Oh, wait! Another LCC! Hmmm... Atlanta? 🙄

"Again, a bigger airline needs many more of those multi million dollar machines that keep you and your family safe from terrorist."

For many more of those multi million dollar revenue-generating machines called airplanes. It's the amortized cost as it applies to CASM that matters here. That cost is actually higher for an airline like F9 or FL, because they have fewer passengers over which to amortize the equipment cost.

"And what about the aviation trust fund...Again, a more efficient ATC system well help everyairline, but not equally."

Given that, last time I checked, Chicago Regional ATC has to keep MDW and ORD traffic separated, it sure sounds to me like it helps them all equally.

"But much of the remaining responsibility lies with our elected officials. So I will leave that were it belongs... SQUARELY ON THEIR SHOULDERS!"

Puhleeze. You haven't proven a thing. Not one of your statements have passed the smell test.

 

[Walmartgreeter]

To keep re-iterating that UAL suffered more than others (tell this to the thousands of furloughed employees from other carriers) is extremely insensitive and arrogant.

Thank you for reminding me that DCA was shut down for 6 months. Even though I am not a UAL employee, I have always maintained AMR and UAL suffered a "special" blow during 911. It would be a shame for either of them not the get government assistance when needed....but you are right. AAA did not suffer the loss of an aircraft, but shutting down a hub and crew base for 6 months was terrible. I feel a little less guilty about AAA getting help. I really hope the survival of ANY airline in this country is not determined by the lack of support by our own government. Best to us all. Greeter.

 

[Cosmo]

And the closure of National Airport for 6th months was did not affect US Airways at all?

Just to clarify this issue for everyone ...

DCA was totally shut down for "only" about 4 weeks, and then service was phased back in over the next 6 months or so. That said, it is nonetheless clear that US Airways was indeed hurt the most by these flight restrictions at DCA.

 

[hskrUA]

Whatkindoffreshhell,

You have got to be kidding --- Tilton has been the best thing for UA. You obviously wouldn't be happy with anyone.

 

[ladevale]

As for AA, they bought themselves some time, but expect to see their troubles resurface by year end as well, since no one expected the skyrocketing cost of fuel, and everyone thought things in Iraq would have gone much better by now. The concessions AA won were front loaded and short term. Starting this summer, their costs will once again start to rise and even excede UA's.

If you subtract the rise in fuel cost, and the BK expenses, UA would be profitable. So by many measures, UA as it has been restructured is one of the best run legacy carriers out there. What you will begin to see is other legacies on the down swing, while UA is on the upswing.

Here's another point... A legacy airline can successfully provide some LCC type service in select markets. Ted is doing just that, and taking market share back from Frontier every day. You will never see Jet Blue flying 747 to Asia, or 777's to Europe.

Facts are hard to come by in this business, particularly when it comes to United.

But, before claiming that anyone else has their head in the sand, perhaps you should take into account at least some of the facts.

As of 1st QTR 2004:

UA's CASM - 10.18 (includes costs for regional affiliates except ACA)

AA's CASM - 9.49 (excludes regional costs)
Eagle/Connection CASM - .20
AA's CASM - 9.69 (with all regional costs)

That's the current situation. Going forward, here are the factors that will have a negative effect on costs.

AA

Fuel Costs. AA is forecasting a $600 to 700 million annual increase in fuel costs over last year. That is despite having hedged 21% of its 1st QTR costs, 16% of its 2nd QTR, and 6% for the rest of the year.

When it looked like the annual increase would be in the $300 to 400 million range, Arpey (AA CEO) was still forecasting an overall annual decrease in CASM to 9.34 per ASM, without regional affiliate costs.

Contrary to what you reported, labor contracts are not amendable until 2008. Neither are they front loaded. If you have evidence to the contrary, please publish it.

UA

Fuel Costs. UA is now forecasting an annual increase in fuel costs of upwards of $750 million. This was the number reported by AWST. According to UA's 2003 Annual Report, all fuel hedges were terminated by the respective counterparties as a result of the bankruptcy filing.

Regional Affiliates. UA's CASM for the 1st quarter does not include fixed-fee for departure payments to ACA. So, UA's CASM of 10.18 will likely increase as ACA's operations are phased out throughout the United Express System. It is not possible to determine at this time whether UA realized any real cost benefits from replacing ACA with a host of other regional affiliates. But, here is a sobering fact. From the beginning of 4th QTR 2003 to the end of 1st Quarter 2004, costs to United of providing United Express service have risen $53 million ($321 to $374). While this may just be due to additional capacity purchases, it is still the case that United's overall losses from its United Express operation continue to rise, quarter over quarter, by $18 million dollars to $81 million for 1st QTR 2004. When UA begins accounting for the capacity that replaces ACA, therefore, look for UA's CASM to rise. This is just inevitable.

Public Debt Group. At the most recent bankruptcy court proceeding, UA's lawyers declared that UA was very close to reaching agreements with the "public debt group." I am assuming, and correct me if I am wrong, but that must mean that UA is close to coming to terms with some of the airport authorities over leases for airport facilities, outstanding lease payments, and any outstanding unsecured debt (e.g., municipal bonds) upon which UA, with the blessing of the court, had suspended payment. These agreements will also increase UA's overall costs when fully implemented, since they will account for any pre-petition debt (e.g., outstanding lease payments), as well as any suspended payments on unsecured debt (e.g., municipal bonds at LAX, JFK, and Chicago).

As you can see, there are more variables in UA's cost forecast than there are in AA's. That is without even taking into account any of the operational areas where AA's costs are actually improving vis-a-vis United's.

Market Share at Denver, some more of those troublesome facts:

Before TED

Frontier

Jan 2003 - 11.66% (excluding regional affiliates)
Dec 2003 - 15.79%
Jan 2004 - 15.97%

Compare that to United (before TED)...

Jan 2003 - 54.01% (excluding regional affiliates)
Dec 2003 - 49.91%
Jan 2004 - 49.52%

After TED

Frontier (excluding regional affiliates)

Mar 2004, 16.26%
Feb 2004, 14.33%
Mar 2003, 12.59%

United (including TED, excluding regional affiliates)
Mar 2004, 48.05%
Feb 2004, 50.91%
Mar 2003, 52.83%

The source of this information is the Denver International Airport. Draw your own conclusions. <_<

 

[767jetz]

...you are really stretching to say that UAL is inherently less able to pay for these things when UAL inherently has more revenue producing capabilities due to its size.

Actually, what I'm saying is that in this current economic environment, with a hub and spoke system, which is necessary to provide the worldwide service that we do provide, we do not inherently have more revenue producing capabilities on shorter routes, as does a point-to-point carrier like Jet Blue.

Having twice the jets doesn't mean we have twice the revenue capability, but it does mean we have more than twice the cost.

Remember, hub and spoke is necessary to sustain loads required to fly longhaul routes. It is less efficient for short haul flying. Many short routes UA serves may not be profitable individually. But when you consider connectivity and feed to the hub, they are vital to the whole operation.

You have to look at the big picture. I still maintain that most people don't understand the industry as a whole. They see Jet Blue and think any airline can operate the same way. This simply isn't true. There are certainly advantages of scale involved with being a large legacy carrier. But there are also disadvantages, especially when times are tough, or fuel prices spike. These costs do not affect the LCC's to the same degree as the Legacies.