Should your taxes pay for Ted?

[Newjetjockey]

AirTran mulls protest against United
By Caroline Daniel in Chicago
Published: April 28 2004 0:31 | Last Updated: April 28 2004 0:31


AirTran Holdings, the parent company of low-cost carrier AirTran Airways, is considering whether to lobby against the application by United Airlines for a federal loan guarantee, adding to pressure in Washington as the federal board reviews United's new business plan.


Bob Fornaro, president and chief operating officer, in an interview with the Financial Times, said the Air Transportation Stabilisation Board, which oversees the guarantee process, and the Federeral Reserve, were soliciting opinions from airlines about a United guarantee.

"We are thinking about it right now. They have been spending a lot of money doing Ted, [United's low-cost carrier] that has no competitive value to it, and why should they be using taxpayers' money to fund it? These guys are also getting a lot of help with pensions, and need to stop blaming their problems on 9/11."

United's initial application for a federal loan guarantee was turned down amid concerns about its forecasts and intense lobbying from mainline and low cost airlines. "We argued against it last time, and the legacy carriers lobbied as well, but this time around fewer legacy carriers are with us. Now it is just a handful of low-cost carriers. We are trying to figure out if the loan is inevitable or not," said Mr Fornaro.

AirTran competes directly with Delta and US Airways, and on Tuesday reported a doubling of net income to $4.1m, on revenues up 16 per cent at $241m.

Mr Fornaro said that transcontinental routes in the US, were the "biggest problem for the legacy carriers. It is the most competitive market place in 20 years. There was a thought that from a brand perspective customers wanted to choose traditional carriers [for these longer routes], but now the quality of LCCs is equal to or better than them."

Last year AirTran, which currently operates Boeing 717s, underscored its ambitious growth plans of expanding by about 20 per cent a year with an order for 100 more Boeing aircraft. It will take the first new 737 in June.

"Low-cost carriers tend to buy at the bottom of the market, while traditional carriers buy at the top of the cycle, so we had a competitive advantage in buying aircraft,? he said. Although AirTran is a significant Boeing customer, and Boeing this week said a number of low cost carriers were looking at its 7E7, its new mid-sized aircraft, Mr Fornaro did not expect to be an early customer.

"Our prospects are best in mid-haul routes and our competitive advantage on longer haul routes is less. We are a couple of years away from looking at a new aircraft, but I'm glad that Boeing is getting the aircraft launched."

Mr Fornaro said AirTran did not intend to add more new cities this year, but conceded there were growing competitive pressures as other airlines add more capacity. Southwest, for example, has rapidly expanded its plans for Philadelphia, an airport that AirTran has also been targeting

 

[flyguppy]

[Bob Fornaro, president and chief operating officer, in an interview with the Financial Times, said the Air Transportation Stabilisation Board, which oversees the guarantee process, and the Federeral Reserve, were soliciting opinions from airlines about a United guarantee.

"We are thinking about it right now. They have been spending a lot of money doing Ted, [United's low-cost carrier] that has no competitive value to it, and why should they be using taxpayers' money to fund it? These guys are also getting a lot of help with pensions, and need to stop blaming their problems on 9/11."
[/B]

Boy, these guys have real genius! IT'S A LOAN GUARANTEE, IDIOT! The money still comes from a private lender. NOT from the taxpayers. The only way the taxpayer is on the hook is if UAL goes out of business before the loan is paid back. Unlikely now, IMO.

I can't believe this came from the pres. and COO of an airline.

 

[skykid]

Flyguppy, actually the only way the taxpayers are left on the hook is if UAL goes out of business before the loan is paid back (CH 7) AND lacked the collateral backing required for the loan. UAL has already shown the board it has the collateral X 2.5. Fornaro knows that already, he's not an idiot.

Spending a lot of money on Ted? I guess that is a matter of perception. It has been documented from several different media sources in Denver that the TED budget, esp advertising, has been on a shoe-string. As far as all that expensive paint, guess what, when you've been around 80 years, you have to keep painting the planes anyway.

No competitive value? The jury isn't in yet, but in the first full month of TED - March - the marketshare went up in Denver and Cali on TED routes from March 2003 by a healthy margin, which reverses a downward trend that has been taking place for years. The load factors on TED have blown away even United's projections, which is great news.

Using taxpayers money to fund TED? I like this one. He wants you to believe the loan GUARANTEE is a government LOAN, which will fund TED. Not true. In fact, if I said the same ATSB mandate that provides the loan guarantees is helping fund AirTran's expansion now, that would be more correct. Correct me if I'm wrong, but didn't all airlines from American to Vanguard get CASH from the ATSB after 9-11, and then get even more a bit later? Was there any airline that didn't except this money? Unless you didn't participate in this part of the ATSB mandate, I'd shut you hole about the loan guarantee.

Stop blaming your problems on 9-11? Did this guy lose 2 airplanes, 18 crewmembers, and 89 passengers on 9-11? Did he watch his international flight's load factors go to 30-40% for months? Easy for him to say.

 

[TrimixDeepDiver]

The thing that has really given UAL a little bit longer to live is the Pension Stability Act passed by congress. If it wasn't for that they would be tripled screwed, now they are only double screwed. Tomorrow's report of Losses (can't say earnings like some airlines!) will be reported with the first quarter results. I'm betting the losses will be big as usual. Why would anybody want to give United money, all they do is lose it. They keep pushing back their coming out of bankruptcy date, but not as much as they'd like (because of the courts). Ted is still just the joke that it has always been, no numbers to prove anything, and just because the "loads" have been good doesn't mean jack shict. Everyone's loads were good over the spring break but everyone's revenue sucked because of cheap tickets. Just read airtran's quarter results talking about bad revenue's but even with 8.3 casm they still made some mula, way to go! Until the management changes at united (tague what a joke!) among many other things , I still see the same doom and gloom, especially with the ever increasing gas prices and cheap tickect prices and now united has to reduce flights in ORD thanks to the FAA...I just don't know boys...not looking good...

 

[furloughed dude]

I know this isn't a politically correct thing to say, but it is now 2004 and the ATSB loan program should end. Airlines took a huge hit after 9/11, no doubt about it. Me and about 9000 others lost our jobs. The initial government assistance was definitely warranted, but it has been almost three years since 9/11.

United and US Airways suffered from poor management and business strategies. Both companies just aren't competitive in today's marketplace. They both either need to find a way to make it on their own or close up shop. Government assistance has to end.

Both companies have gone Chap 11 and robbed their previous shareholders. If they can't make their business work, they both need to liquidate.

 

[TrimixDeepDiver]

I'm no ATSB loan expert but is it for airlines affected by 9-11 or not? Becuase United's problems started long before 9-11....

 

[skykid]

TrimixDeep Diver, thanks for the support. I pointed out MARKETSHARE is improving along with loads above what the company projected. Of course loads are better during Spring Break! My point was that the load factor projections were optimistic as he!! and the actual numbers were better.

You're betting the losses will be big as usual? Me too!! I better hope so. Guess what, if they're not, United ain't getting no loan guarantee. I couldn't care less what the losses are, it is not that relevant to a company in Ch11. Do you think United wants to show a profit so they get to explain why stockholders get ZERO per share at the end of Ch11 while the company made money? I'm not saying they could show a profit, I'm just telling you it wouldn't make sense. What is important is how much CASH is available. If USAirways goes CH 7, do you think it will be because of what losses they showed, or because they ran out of cash?

Please don't interpret my last post as being anti-AirTran. Those guys are doing something right - I fly them from ATL to PNS and back all the time and NOBODY matches their service. I hope they make more money than Forest Gump - looks like they are.

 

[skykid]

Furloughed dude, I agree 100%, it is time for the ATSB loan program to end. In fact it did a long time ago. The new UAL mgt, which everyone wants to believe is the same old inept mgt, got an application in before the deadline knowing full well it would be DEFERRED. Nobody in their right mind thought United would get the DEC 2002 guarantee, but UAL got the decision DEFERRED, and got the specifics on what needed to be fixed to get it approved. Mainly, pension and compensation issues. When you lump UAL and U together, it shows you are not watching what is going on. Compare the route structures of the two, and see how different the two arilines are.

I lost a buttload of money on United stock Furlough dude, I'm a stockholder. I didn't get robbed, I made a poor investment.

 

[Ty Webb]

First of all, that article was not very well-written, and a lot of the quotes would seem to be lifted out of context.

Secondly, UAL's debt is very likely to become the taxpayers, because they still haven't figured out how to make money. No bank or investment group will give them a dime without the government "guanrantee", so let's not kid ourselves that there isn't a substantial risk involved.

Third- why should the government give guarantees to the airlines that have failed business models, so that they can keep capacity artificially high and prices artificially low, by flying routes and selling tickets at prices they can;t make money at.

I learned to fly in college in Illinois. I have a lot of friends at UAL. I wish them the best, but if I were in their shoes, I would be out on a LOA developing another skill or getting another job.

 

[Extra300S]

YES....

United gains momentum
Passengers flocking to Ted, the new no-frills carrier
David Armstrong, SFO Chronicle Staff Writer
Wednesday, April 28, 2004

LOS ANGELES -- United Airlines, the world's second-largest carrier, is on track to exit Chapter 11 bankruptcy reorganization by the end of summer, thanks in part to the initial success of Ted, its 10-week-old low-cost carrier within a carrier.

United Chief Executive Officer Glenn Tilton said in a Chronicle interview at the Travel Industry Association of America's annual trade show in Los Angeles that Ted is racking up load factors "in the high 80s percentile,'' which means, in industry terms, that its flights are essentially full.

Also, Ted "contributed positively to profitability in the month of March, '' he added, without specifying net income figures, revenues or costs for the newly created unit.

Ted, which opened for business Feb. 12, is United's much-ballyhooed attempt to wrest market share from a gaggle of increasingly scrappy low-cost carriers by offering lower fares and a more informal atmosphere than its mainline carrier.

Ted flies to 12 U.S. cities, serving Las Vegas and Phoenix from San Francisco International Airport, where United is the dominant carrier, accounting for about half of all passengers and flights.

Tilton said that United also plans to increase its international traffic from SFO, which the airline uses as a U.S. hub and prime gateway for transpacific routes.

Pending U.S. government approval, which could come by year's end, the mainline United carrier will begin service from SFO to Ho Chi Minh City, the metropolis in Vietnam also known as Saigon, via Hong Kong.

Vietnamese authorities just gave their approval to the service, which Tilton hailed as potentially lucrative and even poetic.

"I think the entire Southeast Asia region offers tremendous opportunity, '' he said. "It's a hugely entrepreneurial region with pent-up demand.

"For us, with a Pacific network through our two West Coast hubs (in Los Angeles and San Francisco), and with Northern California's significant Vietnamese community, it's an ideal route. And it has some poetry for us. With United, a quintessential American airline, you'll have the first U.S. carrier flying to Vietnam in 30 years.''

SFO has courted Vietnam Airlines for such service, in hopes that that carrier will begin direct service from Ho Chi Minh City or Hanoi to San Francisco. SFO officials still hope the Vietnamese flag carrier will come here, airport spokeswoman Kandace Bender said.

"We welcome both airlines,'' Bender said, adding that Vietnam Airlines, if it receives U.S. government permission, could start its service at SFO by January, in time for the Tet lunar New Year celebrations.

In a wide-ranging, generally optimistic look at United's prospects, Tilton said that congressional relief on pension obligations, United's cost reductions and increasing business for United Services, which runs United's huge maintenance facility at SFO, are all helping to strengthen the parent company, UAL Corp., which entered Chapter 11 in December 2002.

UAL, which will report its first-quarter results Thursday, lost $8.1 billion from 2001 to 2003 and cut its workforce from 100,000 to slightly more than 60,000.

Last month, however, United recalled 100 furloughed aircraft mechanics to its maintenance center at SFO, reflecting, Tilton said, an increase in contracting work from other airlines, especially Asia Pacific carriers that have some planes serviced at SFO.

Tilton didn't predict when United might turn a profit, but he did express confidence that things are turning around at the troubled carrier.

In particular, he said, "Ted is innovating and creating for the parent company to study. Ted has had a employer/management council from the very beginning.'' This fluidity, as well as the carrier's whimsical, informal style, is helping to lighten up UAL's rather reserved corporate culture, he said.

"Ted can do whatever Ted bloody well wants to do,'' Tilton said, referring to Ted's hang-loose, go-for-it aura, which features branded merchandise and add-ons such as Ted tunes (on-board music channel) and Tedevision (customized television viewed on overhead monitors), designed to charm travelers.

Even so, some analysts wonder if such friendly flourishes, coupled with lower fares, will be enough to make Ted a long-term success.

"Ted is a small part of United,'' said Standard & Poor's airline analyst Betsy Snyder, who observed that the 45 planes that United plans to use for Ted by the end of this year constitute only about 10 percent of its fleet.

Moreover, said Snyder, "low-cost carriers within mainline network airlines have never been successful. You had Continental Lite. You had Delta Express. You had Shuttle by United. Now you have Song, and Delta is planning to restrict Song's growth.''

Tilton acknowledged that UAL faces stiff challenges.

For one thing, United has had to absorb high fuel costs this year, as have other airlines. Tilton, a former top executive at San Ramon's ChevronTexaco Corp., said it was hard to lock in or "hedge" low-cost fuel supplies because Chapter 11 places restrictions on lines of credit and hedging oil at current high prices "doesn't provide much relief.''

Oil is currently selling at $36 per barrel, a high mark. "It will be some time before we see oil in the $25 to $28 day barrel range, certainly not before the end of the peak driving season,'' around Labor Day, he said.

Tilton also allowed that UAL must still reach an agreement with former workers on restructuring some retiree medical benefits and restructure aircraft leasing arrangements with one remaining creditor group, which he did not identify.

"We are making good progress on those things,'' he said.

Additionally, United continues to await a decision from the federal Air Transportation Stabilization Board on whether to grant the company $1.8 billion in loan guarantees. The board has had UAL's revised business plan in hand for four months, he said.

Ray Neidl, an airline industry analyst with Blaylock & Partners, praised United for its successful efforts to reduce costs but said a failure to land the federal loan guarantees would force UAL to scramble for a Plan B.

"They'd have to find an equity investor ... which could mean even further changes,'' Neidl told the Associated Press.

Most Wall Street analysts are predicting hard times will continue for the airline industry. UBS Warburg analyst Sam Buttrick said U.S. airlines will roll up losses in the billions this year, due chiefly to stubbornly high fuel costs.

Tilton gave a keynote address at the TIA trade show, the travel industry's largest event of the year, which brings together U.S. domestic hotels, tour operators, city and state tourism board with foreign travel businesses and travel journalists who cover the United States. The event, staged in a different U.S. city every year, will be held in San Francisco in 2011.

 

[Ty Webb]

Sounds like Tilton is the conductor of the band playing on the deck of the Titanic . . . .

An equity investor? Without the federal guarantee? Doesn;t seem likely.

 

[furloughed dude]

Sounds like United and Ted have done so well that they won't need to apply for government assistance. Go out and borrow money like most everyone else has to.

Skykid, you are showing your ignorance once again by investing in airline stocks.

 

[Midnight Mike]

Furloughed dude, I agree 100%, about time for the ATSB loan
program to be cancelled, it served its purpose with helping out such airlines as American West & Aloha, just to name a couple. About time for United stand on its own two feet, 9/11 is no longer an excuse for an airline having trouble.

This is nothing personal against United Airlines, just don't want to see the ATSB loan program being abused.

 

[Xfr8dog]

Hi!

Our taxes already pay for TED, UAL, Comair, and every other airline. They also pay for all trucking companies, all automobile travel, and all shipping travel in the US.

We the US taxpayers, even subsidize the gasoline purchases of virtually ALL people on earth. I was reading an article by a high-level British official who said that US taxpayers subsidize British gasoline to the tune of $1 a gallon, $.70 of that dollar being military expenditures.

Our taxes pay for a lot of stuff, and often it's not easy to figure out where it comes from and where it goes. We pay about $2 now for gasoline, but the real cost is between $5-$15/gallon. Other taxes we pay (and the deficit) go to cover the difference in the cost of a gallon of gas between what we pay at the pump and the actual cost.

Cliff
DTW

 

[TrimixDeepDiver]

You're betting the losses will be big as usual? Me too!! I better hope so.

Well you got what you hoped for!

UAL reported a net loss of $459 million, or a loss per basic share of $4.17, which includes $143 million in special and reorganization items described in the notes to the financial tables. The majority of reorganization charges resulted from non- cash items caused by the rejection of aircraft. Excluding the special and reorganization items, UAL's net loss for the first quarter totaled $316 million, or a loss per basic share of $2.89.

 

[skykid]

Right, cash up to 2.6 billion! 600 million and change is restricted.

 

[spinup]

Ty,

Third- why should the government give guarantees to the airlines that have failed business models, so that they can keep capacity artificially high and prices artificially low, by flying routes and selling tickets at prices they can;t make money at.

I don't think you fully understand what is going on in today’s market. We don't have a capacity problem, we have a revenue problem. Pulling back UAL flying will solve nothing as someone will surely fill the gap. Example, AA pulls flights from STL, SWA adds. All you are doing is substituting carriers. Sure, for a short time supply will go down and prices will rise, but we will eventually be back where we are today. All legacy carriers have removed capacity from the market place, while most All LCC's have consistently added capacity further depressing revenue. So lets all stop with the "too much capacity" rhetoric, its tired and ironic that a LCC guy throws this around.

You bash Ted, and then you say UAL needs a new model. Which is it? By most estimates LCC capacity will continue to grow an additional 20% in the years to come. UAL wants some of this capacity and is willing to pursue it aggressively, to do otherwise would be negligent on their part.

Clearly the LCC's are concerned about the competition Ted brings to their door step, as is blatantly evident in the WSJ article titled Air Amtrak. LCC's have leveraged additional capacity thru this down turn, yet throw a tantrum when the tables are turned. To put that kind of fear into the LCC's, Ted must be doing something right.

The ATSB loan is black and white, either you meet its requirements or you don't. UAL is working to meet the requirements set forth by the ATSB and exceeds the matched dollars required by 10%, something no other applicant has done. Furthermore, the ATSB is not about codelling competition, it’s narrowly difined to specific in-house need.

 

[Ty Webb]

Spin-up:

Your analysis is way too subjective to really be taken seriously.

No one is concerned that Ted might be a long-term problem for anyone but UAL. What LCC's are concerned about is the fact that if the Government subsidizes UAL's continued losses, it allows them to offer flghts at prices that are below their cost.

You don;t just have a "revenue problem", you have a "failed business model problem". Your LCC competitors are making money at these prices, but UAL is losing an astounding $5 million a day in the same environment.

That's not a business, that's a charity, and the loan guarantee is just more good money after bad.

 

[spinup]

Ty,

No one is concerned that Ted might be a long-term problem for anyone but UAL. What LCC's are concerned about is the fact that if the Government subsidizes UAL's continued losses, it allows them to offer flghts at prices that are below their cost.

And this has been determined by LCC managers on the outside looking in, please. How magnanimous of the competition to have such concerns for UAL's long term validity. When the ATSB subsidized other applicants, they too had continued losses. As to offering prices that are below the LCC's costs, this seems to be a one way street. It's ok when the LCC's squeeze legacy carriers (SWA in PHL), but not the other way around. The LCC's are keeping ticket prices low making it difficult for legacy carriers to maintain market presence without loosing money. Yet, cry foul when they perceive the same tactic on the other side of the fence.

You don;t just have a "revenue problem", you have a "failed business model problem".

All legacy carriers have changed or are changing their business model to more closely match the present pricing environment. So I agree a business model problem exists for all of the legacy carriers, not just UAL. However, it's careless to compare the business model of the late 90's to the one that will be in place upon leaving CH11; this is the one that concerns the ATSB. Neither you nor I know its complete form, as it hasn't been fully revealed publicly. Those who have seen it, elected to loan UAL 400 million dollars of unsecured cash upon exit, that speaks far louder than the uninformed.

 

[Ty Webb]

Seems to me that the LCC "managers", as you put it (I think you mean "leadership"), are a hell of a lot more in touch with what is going on in the marketplace than the "legacy" leadership. Look the facts- the "brand within a brand" doesn't work. It didn;t work for CAL, UsAir, Delta, Delta again, or United in the past, and it won;t work in the future, yet UAL is devoting scarce resources to it, based on a stupid idea that they paid $10 million to McKinsey to come up with. Incidentally, the other two airlines McKinsey and Company had been peddling their high-priced nonsense to both went under (both of them European carriers, do a search if you want the details).

As to offering prices that are below the LCC's costs, this seems to be a one way street. It's ok when the LCC's squeeze legacy carriers (SWA in PHL), but not the other way around. The LCC's are keeping ticket prices low making it difficult for legacy carriers to maintain market presence without loosing money. Yet, cry foul when they perceive the same tactic on the other side of the fence.


You, like UAL fail to recognize one simple fact- the LCC's are selling tickets at prices they can make money at! What we are "crying foul" about is that you want a government subsidy to enable you keep dumping seats at prices that are below your costs to hold "market share"! What "market share"? If you can't make money at it, it's not your market.


Neither you nor I know its complete form, as it hasn't been fully revealed publicly. Those who have seen it, elected to loan UAL 400 million dollars of unsecured cash upon exit, that speaks far louder than the uninformed.


Look, the ARS upped their stake in UsAirways, too, but in order to obtain more of an "equity stake" in that carrier, so that they would be first in line in the event of a liquidation. I suspect that is the same thing at UAL. Unfortunately, those last in line will be the shareholders and the employees.

Very sad . . . and I repeat what I said about going out on a LOA and finding a secure position while leaving one foot in the door, in the unlikely event that they manage to make it.

Good luck.