canyonblue
Everyone loves Southwest
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- Nov 26, 2001
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Scott McCartney
Wall Street Journal
Published Dec. 16, 2002
In a business where the size of your network is supposed to be a big advantage, few airlines have as many advantages as United Airlines.
United has more hubs than any other carrier, located in large, well-traveled cities such as Chicago, San Francisco, Denver, Los Angeles and Washington, D.C. United has highly desirable landing rights at London's Heathrow Airport, and even more-coveted rights in Tokyo. It is an anchor of the biggest international alliance, and it has Pan American's legendary South American network.
Why then, has the airline filed for bankruptcy? The answer is simple: Because size isn't everything. Service is.
One often-overlooked reason for the carrier's downfall may be that, for years, United hasn't been a particularly good airline.
Since the U.S. Department of Transportation began publishing on-time statistics in 1987, United has cumulatively ranked ninth among the nine major airlines. For the past five years, United has been either last or next-to-last in baggage handling. For 2000 and 2001, United led the industry in customer complaints.
Travelers vote with their feet when they have a choice, and United has lost ground sharply in competitive markets. On the West Coast, for example, Southwest Airlines has eaten United's lunch in short-haul flying. In Latin America, United has fallen to No. 3 behind AMR Corporation's American Airlines, which took over Eastern Air Lines' Latin American routes and has become the dominant carrier to the region, and Continental Airlines.
In Denver, discount carrier Frontier Airlines has slowly but steadily gained ground and United has shrunk. In August, United had 56 percent of passengers at Denver International, according to the airport, down from 65 percent in the same month of 1999. Frontier grew to nearly 11 percent from 6 percent over the same period.
In Chicago, American has narrowed United's advantage. In March 1999, shortly after American's pilot sickout, United had an 18-percentage-point edge over American in share of domestic revenue in Chicago, according to J.P. Morgan. By the summer of 2000, when United had a pilot slowdown, the gap was just nine points -- and has remained at about nine points since.
One can build a case that the summer of 2000 was the turning point for United. Managers of United parent UAL Corp. were desperately trying to win approval from labor and government to acquire US Airways Group Inc., and were willing to buy pilot approval. Rick Dubinsky, the former head of United's pilot's union, famously said pilots didn't want to kill the golden goose, "We just want to choke it by the neck until it gives us every last egg."
Instead, it was passengers who were choked. To force management's hand, pilots ground United's operation to a snail's pace. They won big raises -- but then the deal fell apart. Regulators blocked the merger, the economy soon turned south, passengers switched loyalty, terrorists struck and suddenly the golden goose was headed to the intensive-care unit. The summertime nightmare cost United some $500 million, management later said, and the effects have lingered.
High labor costs are by no means unique to United. United's pilots at the time were trying to leapfrog over their counterparts at Delta Air Lines; United's mechanics earlier this year wanted a deal better than the rich new contract signed by mechanics at Eagan-based Northwest Airlines. What is unique is that employees own more than half of United's stock and pilots and mechanics have great clout on the board of directors.
United has other particular problems, too. While other carriers, such as American and Continental, were aggressively mortgaging airplanes in order to raise cash and ride out this recession, United missed opportunities to access the capital markets earlier this year.
"But for a few timing decisions, we could be substituting AMR Corp. for UAL Corp.," UBS Warburg analyst Sam Buttrick said. "There were windows of opportunity for UAL to raise capital that they took a pass on."
Some think management didn't want too much cash on hand because executives were trying to convince mechanics to agree to a less-expensive contract. Furthermore, United CEO Jim Goodwin, who had accurately predicted trouble only to anger employee-owners, stepped down in October 2001, under fire from employees. The ship was rudderless at a crucial time.
"Various management changes and labor problems have undermined confidence" in United in the capital markets, said Phillip Baggaley, an airline analyst at Standard & Poor's Corp. "They lost access to the public debt capital markets prior to others."
Wall Street Journal
Published Dec. 16, 2002
In a business where the size of your network is supposed to be a big advantage, few airlines have as many advantages as United Airlines.
United has more hubs than any other carrier, located in large, well-traveled cities such as Chicago, San Francisco, Denver, Los Angeles and Washington, D.C. United has highly desirable landing rights at London's Heathrow Airport, and even more-coveted rights in Tokyo. It is an anchor of the biggest international alliance, and it has Pan American's legendary South American network.
Why then, has the airline filed for bankruptcy? The answer is simple: Because size isn't everything. Service is.
One often-overlooked reason for the carrier's downfall may be that, for years, United hasn't been a particularly good airline.
Since the U.S. Department of Transportation began publishing on-time statistics in 1987, United has cumulatively ranked ninth among the nine major airlines. For the past five years, United has been either last or next-to-last in baggage handling. For 2000 and 2001, United led the industry in customer complaints.
Travelers vote with their feet when they have a choice, and United has lost ground sharply in competitive markets. On the West Coast, for example, Southwest Airlines has eaten United's lunch in short-haul flying. In Latin America, United has fallen to No. 3 behind AMR Corporation's American Airlines, which took over Eastern Air Lines' Latin American routes and has become the dominant carrier to the region, and Continental Airlines.
In Denver, discount carrier Frontier Airlines has slowly but steadily gained ground and United has shrunk. In August, United had 56 percent of passengers at Denver International, according to the airport, down from 65 percent in the same month of 1999. Frontier grew to nearly 11 percent from 6 percent over the same period.
In Chicago, American has narrowed United's advantage. In March 1999, shortly after American's pilot sickout, United had an 18-percentage-point edge over American in share of domestic revenue in Chicago, according to J.P. Morgan. By the summer of 2000, when United had a pilot slowdown, the gap was just nine points -- and has remained at about nine points since.
One can build a case that the summer of 2000 was the turning point for United. Managers of United parent UAL Corp. were desperately trying to win approval from labor and government to acquire US Airways Group Inc., and were willing to buy pilot approval. Rick Dubinsky, the former head of United's pilot's union, famously said pilots didn't want to kill the golden goose, "We just want to choke it by the neck until it gives us every last egg."
Instead, it was passengers who were choked. To force management's hand, pilots ground United's operation to a snail's pace. They won big raises -- but then the deal fell apart. Regulators blocked the merger, the economy soon turned south, passengers switched loyalty, terrorists struck and suddenly the golden goose was headed to the intensive-care unit. The summertime nightmare cost United some $500 million, management later said, and the effects have lingered.
High labor costs are by no means unique to United. United's pilots at the time were trying to leapfrog over their counterparts at Delta Air Lines; United's mechanics earlier this year wanted a deal better than the rich new contract signed by mechanics at Eagan-based Northwest Airlines. What is unique is that employees own more than half of United's stock and pilots and mechanics have great clout on the board of directors.
United has other particular problems, too. While other carriers, such as American and Continental, were aggressively mortgaging airplanes in order to raise cash and ride out this recession, United missed opportunities to access the capital markets earlier this year.
"But for a few timing decisions, we could be substituting AMR Corp. for UAL Corp.," UBS Warburg analyst Sam Buttrick said. "There were windows of opportunity for UAL to raise capital that they took a pass on."
Some think management didn't want too much cash on hand because executives were trying to convince mechanics to agree to a less-expensive contract. Furthermore, United CEO Jim Goodwin, who had accurately predicted trouble only to anger employee-owners, stepped down in October 2001, under fire from employees. The ship was rudderless at a crucial time.
"Various management changes and labor problems have undermined confidence" in United in the capital markets, said Phillip Baggaley, an airline analyst at Standard & Poor's Corp. "They lost access to the public debt capital markets prior to others."
