lowecur
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In an election year where jobs are scarce, the Bush administration will lean on the ATSB to approve the loan backing. United's fate will not be determined for at least another 3 or 4 years.
United's numbers don't fly
Cost cuts not enough to lift airline into the black
The most basic rule of business is that revenues must exceed costs.
After 14 months in bankruptcy, United Airlines hasn't shown it can live by that rule.
Despite squeezing concessions out of its unions, suppliers and aircraft lessors, United still spends more money than it takes in. For all its cost-cutting, the airline is on track to lose $425 million this year, if revenues are flat at the $13.7 billion recorded in 2003.
CEO Glenn Tilton hopes to narrow the gap further by wringing more givebacks out of the lessors and adding more seats to some flights. With a few breaks, United might even edge slightly into the black this year.
That's the financial picture United will present to the bankruptcy judge it hopes will clear the airline to exit Chapter 11 by summer, and to federal officials deciding whether to guarantee a loan to finance United's post-bankruptcy operations.
But even if the judge and the Air Transportation Stabilization Board (ATSB) give their blessings, United's future is far from secure.
"Whether they survive or not is still subject to question," says Morton Beyer, chairman and CEO of Morton Beyer & Agnew Inc., a Virginia-based aircraft appraisal and consulting firm.
Officials of UAL Corp., United's Elk Grove Township-based parent, declined to comment. But in announcing last year's results, Mr. Tilton noted that "our work is not done yet. We have made significant progress on restructuring this company, and we will continue to make the tough decisions to successfully exit from Chapter 11 in the first half of this year."
Under its current cost structure, United's long- term survival depends on significant revenue growth. That will be difficult in an industry dominated by discount carriers, plagued by price wars and hobbled by slumping demand.
"The industry is not going to return to profitability until fuel costs come down and they get an increase in yield revenues, which so far hasn't happened," says Ray Neidl, an airline analyst with Blaylock & Partners L.P., a New York-based brokerage firm. Yield revenues are a function of both overall fare levels and the mix of high-fare and low-fare passengers.
United hasn't used its time in bankruptcy to get in shape to compete with the discounters. In the last quarter, United reduced its operating expenses 16% to 9.85 cents for every seat flown one mile. That's far above the 7.69-cent cost per available seat mile of the leading discount carrier, Southwest Airlines.
Cut-rate competition
Put another way, United needs to fill 83.1% of its seats to break even. That's a big improvement over the last quarter of 2002, when it filed for bankruptcy protection: It then needed to fill an impossible 99.8% of its seats to cover costs. But as of December, it was filling less than 77% of its seats.
"Their break-even load factor has to come down below 75%, and I don't see that happening," says Henry Harteveldt, vice-president of travel research at Forrester Research Inc., a Massachusetts-based market research firm.
But getting costs down further risks renewed labor turmoil, as seen in the fierce pushback by some unions over proposed cuts in retiree health benefits. And United's ability to raise ticket prices or attract more passengers is flying into more competition from low-cost carriers as well as United's peers.
"Every time there's an uptick in fares, someone will throw capacity at it," says Richard Bittenbender, a vice-president and senior credit officer at New York credit-rating firm Moody's Investors Service Inc.
United itself plans to add 5% more capacity this year, including the additional seats it's installing on the planes assigned to Ted, the new low-fare subsidiary that's scheduled to start flying this week out of Denver. Last week, United announced plans for another Ted hub, in Washington, D.C.
A partner turns rival
But that new hub is offset by a bigger threat to United's revenues. Atlantic Coast Airlines Holdings Inc., the United Express affiliate based at United's Dulles International Airport hub, is severing its relationship with United. That will cut off a pipeline of passengers to United at Dulles.
Ted is United's answer to discount airlines. But the low-fare airline-within-an-airline concept has been tried and has failed before. Last week, Atlanta-based Delta Air Lines Inc. halted expansion of its new discount unit, called Song.
As United seeks a 60% government guarantee for a $2-billion exit-financing loan, its prospects are clouded by the experience of Virginia-based U.S. Airways Group Inc. Less than a year after exiting Chapter 11, U.S. Airways is shedding assets and seeking more labor concessions as it struggles to stay aloft.
"U.S. Air's experience has to affect how the ATSB looks at United," says Moody's Mr. Bittenbender.
United's numbers don't fly
Cost cuts not enough to lift airline into the black
The most basic rule of business is that revenues must exceed costs.
After 14 months in bankruptcy, United Airlines hasn't shown it can live by that rule.
Despite squeezing concessions out of its unions, suppliers and aircraft lessors, United still spends more money than it takes in. For all its cost-cutting, the airline is on track to lose $425 million this year, if revenues are flat at the $13.7 billion recorded in 2003.
CEO Glenn Tilton hopes to narrow the gap further by wringing more givebacks out of the lessors and adding more seats to some flights. With a few breaks, United might even edge slightly into the black this year.
That's the financial picture United will present to the bankruptcy judge it hopes will clear the airline to exit Chapter 11 by summer, and to federal officials deciding whether to guarantee a loan to finance United's post-bankruptcy operations.
But even if the judge and the Air Transportation Stabilization Board (ATSB) give their blessings, United's future is far from secure.
"Whether they survive or not is still subject to question," says Morton Beyer, chairman and CEO of Morton Beyer & Agnew Inc., a Virginia-based aircraft appraisal and consulting firm.
Officials of UAL Corp., United's Elk Grove Township-based parent, declined to comment. But in announcing last year's results, Mr. Tilton noted that "our work is not done yet. We have made significant progress on restructuring this company, and we will continue to make the tough decisions to successfully exit from Chapter 11 in the first half of this year."
Under its current cost structure, United's long- term survival depends on significant revenue growth. That will be difficult in an industry dominated by discount carriers, plagued by price wars and hobbled by slumping demand.
"The industry is not going to return to profitability until fuel costs come down and they get an increase in yield revenues, which so far hasn't happened," says Ray Neidl, an airline analyst with Blaylock & Partners L.P., a New York-based brokerage firm. Yield revenues are a function of both overall fare levels and the mix of high-fare and low-fare passengers.
United hasn't used its time in bankruptcy to get in shape to compete with the discounters. In the last quarter, United reduced its operating expenses 16% to 9.85 cents for every seat flown one mile. That's far above the 7.69-cent cost per available seat mile of the leading discount carrier, Southwest Airlines.
Cut-rate competition
Put another way, United needs to fill 83.1% of its seats to break even. That's a big improvement over the last quarter of 2002, when it filed for bankruptcy protection: It then needed to fill an impossible 99.8% of its seats to cover costs. But as of December, it was filling less than 77% of its seats.
"Their break-even load factor has to come down below 75%, and I don't see that happening," says Henry Harteveldt, vice-president of travel research at Forrester Research Inc., a Massachusetts-based market research firm.
But getting costs down further risks renewed labor turmoil, as seen in the fierce pushback by some unions over proposed cuts in retiree health benefits. And United's ability to raise ticket prices or attract more passengers is flying into more competition from low-cost carriers as well as United's peers.
"Every time there's an uptick in fares, someone will throw capacity at it," says Richard Bittenbender, a vice-president and senior credit officer at New York credit-rating firm Moody's Investors Service Inc.
United itself plans to add 5% more capacity this year, including the additional seats it's installing on the planes assigned to Ted, the new low-fare subsidiary that's scheduled to start flying this week out of Denver. Last week, United announced plans for another Ted hub, in Washington, D.C.
A partner turns rival
But that new hub is offset by a bigger threat to United's revenues. Atlantic Coast Airlines Holdings Inc., the United Express affiliate based at United's Dulles International Airport hub, is severing its relationship with United. That will cut off a pipeline of passengers to United at Dulles.
Ted is United's answer to discount airlines. But the low-fare airline-within-an-airline concept has been tried and has failed before. Last week, Atlanta-based Delta Air Lines Inc. halted expansion of its new discount unit, called Song.
As United seeks a 60% government guarantee for a $2-billion exit-financing loan, its prospects are clouded by the experience of Virginia-based U.S. Airways Group Inc. Less than a year after exiting Chapter 11, U.S. Airways is shedding assets and seeking more labor concessions as it struggles to stay aloft.
"U.S. Air's experience has to affect how the ATSB looks at United," says Moody's Mr. Bittenbender.
