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Dow Jones Business News
UAL's Ted Unit Could Be Profitable As Early As 2005
Wednesday February 11, 3:42 pm ET
By Elizabeth Souder, Of DOW JONES NEWSWIRES
WASHINGTON (Dow Jones)--UAL Corp. on Thursday will launch Ted, UAL's new plan to cut costs and defend market share on leisure routes.
Ted is a low-cost airline and will operate as part of United, flying about 10% of United's domestic capacity. As Ted Vice President Sean Donohue said, Ted is literally part of "Uni-Ted."
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By simplifying operations, flying planes longer each day and adding 18 seats to each plane, Ted can cut unit costs by 15% to 20%, compared with UAL's main United airline, Donohue said in a telephone interview with Dow Jones Newswires. Ted's labor costs are equal to those of United, which has cut some labor costs as UAL restructures under bankruptcy protection.
The idea for UAL is to cut costs on the most popular, most competitive leisure routes, such as Denver-to-Las Vegas, by shifting those routes to Ted. So Ted can offer fares that compete with the Frontier Airlines of the world while defending United's market share and minimizing damage to profits.
By March, Ted will have 19 planes, and by the end of the year, it will be full-sized with 45 midsize planes.
"With that type of growth, the revenue on Ted will grow correspondingly," Donohue said.
In fact, once Ted is full-sized, the airline can turn a profit. That could happen as early as 2005, Donohue said, though he's not making an official prediction.
"From a cost standpoint, you really maximize your efficiency and minimize unit costs when you get up to maximum size," he said.
Ted will use Denver and Washington as hubs and fly to vacation destinations such as Florida and Las Vegas. The airline will have just six different fares: three economy class and three business class, with the highest fare at $299 one way. That puts Ted's fares on par with other low-cost carriers, which have set $ 299 as the magic maximum fare for one-way travel.
The in-flight experience on Ted will be slightly different from that on the main airline. Donohue said the audio and video selections will be more relaxed than United's, with "more comedy," he said.
But UAL doesn't want to create a low-cost carrier as distinct from the main airline as Song is from parent Delta Air Lines Inc. (NYSE
AL - News) . Delta markets Song as a completely different brand.
Donohue said he found that customers want a low-cost product that's a bit different from United, but also draws on United's brand, network and mileage reward programs. He calls it "hitting the sweet spot" between the new and the familiar.
Donohue said Ted's bookings are better than expected, and the airline will have stronger load factors than United during the peak flying season.
Donohue wouldn't predict whether Ted will continue to add capacity in 2005.
"Our opinion is this: This industry does not have a great track record for predicting the future," he said.
Some critics have said that Ted would do well to look at the past instead. Several major carriers, including UAL, have started their own low-cost airlines, only to shut them down for lack of profit or for high costs.
Donohue said the company is focusing on preventing the major error of United's Shuttle, which saw costs rise until they were out of hand.
-By Elizabeth Souder, Dow Jones Newswires; 201-938-4148
UAL's Ted Unit Could Be Profitable As Early As 2005
Wednesday February 11, 3:42 pm ET
By Elizabeth Souder, Of DOW JONES NEWSWIRES
WASHINGTON (Dow Jones)--UAL Corp. on Thursday will launch Ted, UAL's new plan to cut costs and defend market share on leisure routes.
Ted is a low-cost airline and will operate as part of United, flying about 10% of United's domestic capacity. As Ted Vice President Sean Donohue said, Ted is literally part of "Uni-Ted."
ADVERTISEMENT
By simplifying operations, flying planes longer each day and adding 18 seats to each plane, Ted can cut unit costs by 15% to 20%, compared with UAL's main United airline, Donohue said in a telephone interview with Dow Jones Newswires. Ted's labor costs are equal to those of United, which has cut some labor costs as UAL restructures under bankruptcy protection.
The idea for UAL is to cut costs on the most popular, most competitive leisure routes, such as Denver-to-Las Vegas, by shifting those routes to Ted. So Ted can offer fares that compete with the Frontier Airlines of the world while defending United's market share and minimizing damage to profits.
By March, Ted will have 19 planes, and by the end of the year, it will be full-sized with 45 midsize planes.
"With that type of growth, the revenue on Ted will grow correspondingly," Donohue said.
In fact, once Ted is full-sized, the airline can turn a profit. That could happen as early as 2005, Donohue said, though he's not making an official prediction.
"From a cost standpoint, you really maximize your efficiency and minimize unit costs when you get up to maximum size," he said.
Ted will use Denver and Washington as hubs and fly to vacation destinations such as Florida and Las Vegas. The airline will have just six different fares: three economy class and three business class, with the highest fare at $299 one way. That puts Ted's fares on par with other low-cost carriers, which have set $ 299 as the magic maximum fare for one-way travel.
The in-flight experience on Ted will be slightly different from that on the main airline. Donohue said the audio and video selections will be more relaxed than United's, with "more comedy," he said.
But UAL doesn't want to create a low-cost carrier as distinct from the main airline as Song is from parent Delta Air Lines Inc. (NYSE
AL - News) . Delta markets Song as a completely different brand.Donohue said he found that customers want a low-cost product that's a bit different from United, but also draws on United's brand, network and mileage reward programs. He calls it "hitting the sweet spot" between the new and the familiar.
Donohue said Ted's bookings are better than expected, and the airline will have stronger load factors than United during the peak flying season.
Donohue wouldn't predict whether Ted will continue to add capacity in 2005.
"Our opinion is this: This industry does not have a great track record for predicting the future," he said.
Some critics have said that Ted would do well to look at the past instead. Several major carriers, including UAL, have started their own low-cost airlines, only to shut them down for lack of profit or for high costs.
Donohue said the company is focusing on preventing the major error of United's Shuttle, which saw costs rise until they were out of hand.
-By Elizabeth Souder, Dow Jones Newswires; 201-938-4148
