UAL news.........

[Boeingman]

Mugs:

Yes, you guys survived another month and for that I am glad. Despite all the absolute dirty things UAL employees did to CAL during our bk in the 90's I do not wish to see your company fail.

However, I may be blunt, but I think the chances for UAL's survival are very bleak.

A couple of points. When you talk cash position be sure to remember that UAL got quite a bit of money from the government grant, the IRS tax refund, as well as cash on the sale of 5 744's to PIA. Of course your cash position today is healthier but you're burning money at an exponential rate over there. I believe that UAL would of been in default of their DIP covenants had it not of been for these extraordinairey revenue gains.

The General is correct. UAL has not made a dime in lease payments on aircraft or facilities. What do you think your losses would be without the protection of bankruptcy? My point is that fundamentaly, aside from hacking at labor costs....what is the plan to fix these massive losses?

It is really simple mathamatics. You have saved $2.5 b from the backs of the employees, yet you're on a path of losing over $4b
per year. All the fancy press releases and marketing plans (heard starfish is going to be canned now) will not make up that revenue shortfall. Sooner or later the creditors and the banks will pull the plug unless their is a radical change in the financial dynamics.

Good luck. The last thing this industry needs right now is more pilots on the street. Not to mention a glut of airframes for some new low cost carrier to further erode pay and working conditions.

 

[Booker]

#2 do they have a plan for their LCC etc?

To address the LCC specifically, as Boeingman mentioned, it has been shelved.

Best,
B

 

[Mugs]

I'm am certainly not an expert or really "in the know" on what UAL's picture looks like exactly. However, to say that UAL has not made a dime in aircraft or other payments isn't true. Here is a clip from a March report:
----------------------------
March cash flow results reflect the resumption of certain scheduled aircraft payments and a draw-down of $92 million from additional DIP financing. The company reported that it made payments of $85 million during the month in connection with various aircraft financings, which included some payments for the period from December 2002 through March 2003. United began March with a cash balance of approximately $1.5 billion, which included $579 million in restricted cash (filing entities only). It ended the month with a cash balance of approximately $1.6 billion, which included $633 million in restricted cash (filing entities only). Excluding the draw-down of $92 million in DIP financing, the company's cash balance decreased approximately $18 million for the month, which is less than $1 million per day.
------------------------------

But what do I know? If it doesn't work out then I think Boeingman is correct that there will be plenty of modern airframes available for ultra low cost new entrants in the marketplace.

 

[skykid]

UAL has not made a dime in lease payments on aircraft or facilities.

Mugs, you are correct of course. The statement posted above is only off by several hundred million dollars. By facilities, I assume he meant airport and gate fees as well as mx buildings, etc. Take any big UAL domicile, and do a search to see what is owed or disputed. Take DIA - paid up except for an arguement over the Dec bill that involves Dec 1-9 - - before Ch11 filing. Do a search of Chicago Sun times articles to see what UAL paid out in aircraft leases in Feb - 128 million. A dime, a few 100 mil, whats the difference?

 

[Live4flyng]

WOW

Sounds like UAL needs a new business model. I would venture a guess and say that if they continue to lose $350mil a quarter, they will need to form a SWA business model to survive.

 

[KingAirKiddo]

Not to mention that the point to point service offered by SWA and other low cost carriers is not the catch all, be all for the industry.

The hub and spoke system employed by the network mainline carriers is not fundamentally flawed. This type of system allows a number of communities to have airline service when they would otherwise not be able to due to cost and load concerns. For example, it is not practical to run a 737 between Peoria, IL and Tri-Cities, TN. It is practical, however, to run a CRJ or Brasilia from Peoria to Chicago where passengers can connect to a mainline flight and get to any destination.

Don't get me wrong--SWA, jetBlue, and others are great companies that I would fly for in a heartbeat. They offer a great product and serve their niche markets well. All I'm saying is there is still a need for a hub and spoke mainline operation, although cost structures and inefficiencies will need to continue being reduced in order for all the carriers to remain viable.

 

[MLBWINGBORN]

A few thoughts to ponder..

First..never, ever discount any city pair right off the bat..It all comes down to operating cost and amount of traffic between those two cities..
SWA does ORF to BWI and we are making a killing off of a 20 minute flight using 737s..

Second..The hub and spoke system may not be dead in alot of peoples minds..But..Its in for a very big series of changes if not out right death due to starvation..IMHO the hub and spoke system is deader than a cheese sandwich on the menue at Mortons..It aint gonna sell!!

How many RJs at say 65% does it take to fill up a 767 going from ORD to DEN?How many will it take when supplying a 767 that needs load factors in the high 90s to make money?

Or..Would it make more sense to operate the longer range RJs direct to DEN and make a profit in their own right..

Anytime your are put in a position of relieing on another airline to supply you with business sooner or later you are going to be left holding the bag..History proves this one about every 5 to 7 years during economic downturns..

Third..Old ways die very hard and this is true for all old business models..Evolve or die is going to be the hue and cry for many months to come if not years and the hub and spoke system will be one of the bigest to fall prey to the needed changes..

And my favorite..
When are people going to stop looking at SWA like its a small,regonial, or low cost carrier..?
2950 flights a day...348 aircraft..and a market place that extends to the entire width and breadth of the lower 48 states..We launch more flights a day than any two "majors" combined when you look at domestic service and dont count RJs or feeders..

And lastly..The hardest thing to change in this world is a persons mind..
Allowing any labor force to wring every last drop of financial blood out of a carrier just because it can is a sure plan for a failure..While at the same time having a managment group in place that thinks its employess are the reason they are losing money isnt gonna be the way to run a airline either..

So..Until there is basic change as to how an airline manages both its people and its business they are all doomed..

Doomed to repeat their long history of horrible labor disputes and poor managment practices that in the end only serve to put into place the causes for the next round of furloughs and bankruptsies..

All the while pissing away BILLIONS and then in the end coming back to the Congress for more money..So much so that the total amount "handed" out so far could have.. at current prices.. bought up ALL stock of the 4 majors combined..

Mike

 

[shagadelic]

Nice post MLB, but I disagree that hub & spoke is completely dead. Next time you fly the ORF-BWI, ask how many people are actually going to BWI... You will probably find a majority going to our "Hub" at BWI to connect somewhere else.

 

[spinup]

ORF is a MAJOR ship building community, requiring a lot of traffic. I agree the example of ORF to BWI is a poor one.

The point that Kingairkiddo made is a valid one. SWA can only get their costs so low, beyond that they cannot service smaller communities profitably. Not many 737's running EAS.

At some point the growth in point-to-point service will be capped, at what point remains to be seen. SWA is sticking to what they do well, putting planes in profitable markets only. This doesn't include a vast amount of markets better served by regional carriers, feeding hubs.


.

 

[KingAirKiddo]

MLB,

Nice post.

The "low cost carrier" label seems to be the phrase of the week; in no way do I mean it in a derogatory sense. I realize that Southwest is a major airline, albeit a non-traditional major airline.

Southwest serves its niche well. It runs point to point non-frills service using a single airplane type. It is a company that chooses its route structure carefully, after close scrutiny. Its executives recognize the employee as an asset and communicates this point effectively. Compensation is based on a combination of hourly wages, profit sharing, and stock options, if I understand correctly.

What Southwest cannot do is put somebody on a 737 in Myrtle Beach and fly them to London, England. Southwest cannot pick somebody up in Lansing, MI and take them to Tokyo or Honolulu, etc. There is still a need for mainline flagship carriers and the hub and spoke model is the only way to accomplish these types of missions effectively. Do the mainline carriers have some lessons to learn from Southwest? Yes, of course. Management needs to recognize the value of a loyal employee group, and employees need to recognize that it is not feasible to demand $250,000 annually to work 6 days a month. It is my opinion that the events of the past couple years have led to a realignment in many of these types of areas. There are lessons to be learned and practices to be copied, but there is nothing wrong with the fundamental hub and spoke concept.

Again, I believe that Southwest is an excellent company that I would love to be a part of someday. All I'm saying is that its type of operations is not necessarily THE ONLY wave of the future. Conventional majors are here to stay.