UAL on Deathwatch

[OldAg84]

As an outsider, I put forward the following

First Rule of Business- Value is set in the transaction, i.e. I might think my product is worth $10, but if I can only sell it for $4, that's the value.

UAL's and other major's business models need to change. Are there too many employees, too many aircraft, overpaid employees, underutilized employees, excess taxes, fear of terrorism, a bad (abysmal!) economy, and a pending war.....yes it's a combination of all these factors.

I fear for the livelihoods of all the employees for all the majors. In UAL's case the fixes will be so drastic that I'm afraid they won't be implemeneted in time, even if accepted. The lack of trust between labor and management (well deserved it seems) can't be in place at a much worse time for the industry.

Clearly something has to change- or give.

Over millions of miles, I've had great service from UAL, Continental, and in the past- Delta, and I wish them well.

[411A]

Well put....

Those still in that state of denial, would do well to take heed of the statements of OldAg84....and wake up.

[dudly]

OldAge84

That about sums it up in a nutshell OldAge, and very well said. The current legacy carrier managements do not have an entrepreneur (sp?) in the group. Just a group of corporate dogs that only know how to bash employees, not how to be bigger than life and build something. A really sad state of affairs.

[Tandemrotor]

I have asked this question before, on another thread, but didn't receive an answer. I wonder if I'll be lucky this time.

Do you think that Chapter 11, and the Air Transport 'slush fund' are anti competitive?

In other words, they are an apparatus, to prop up airlines that would otherwise fail!!

ie. There are some great offers from US carriers to fly over 'the pond.'

European carriers would (at first sight) not have been so generously bankrolled!!

[arcniz]

Tandemrotor - nothing.....absolutely nothing is in place to prop up airlines that want to fail. This is a period of economic involution, when even governments must spend lightly to survive.

Dudley - entrepreneur is the right word. The formula for UAL to survive is for everybod on salary to become one post-haste. If they can all work for about six months with no pay, then they might have a job after that. Otherwise, think toast.

[Groaner]

arcniz

Not quite right, I suspect.

Practically anywhere outside the USA, there is no equivalent to the Chapter-11 system. An airline in US Air's state, or UAL's, would have been shut down prior to now and liquidated.

Add together all airline and steel manufacturer Chapter-11-covered assets in the last 15 years, and the total exceeds 90% of all Chapter-11-related assets. Airlines (and steel manufacturers) seem to be abusing the process. TWA is a very good example of an airline that in recent decades has spent more time in Ch-11 than out.

Ch-11 means that an airline is bankrupt. It cannot pay it's creditors. Ch-11 means that the airline does not have to pay what it owes. The intention of Ch-11 was to avoid the (sometimes very large) costs of liquidation (usually costs such as the drop in value caused by a fire-sale, the personnel costs of finding a new job etc) when the underlying business was essentially healthy but needed a reorganisation of finances. The Ch-11 code is set up to allow some very unpalatable choices to be forced on creditors.

The ATSB system is very similar

What's wrong with that? Well, nothing in principle, but in practice no US major (except SWA...) has an underlying essentially healthy business. And in recent Ch-11 cases, various airlines have fairly openly used the Ch-11 procedures arguably unfairly.

US carriers surely are using Ch-11 and the ATSB fund as anti-competitive measures. They are certainly used to prop up airlines that would otherwise fail. Imagine if an airline with a fatally-flawed business (UAL?) were allowed to fail promptly. Its competitors on various routes would immediately benefit. And most likely it will fail eventually anyway - all that is happening is that others are bearing the pain that should rightly be felt by UAL.

So what? Well, the average US investor in airlines (shareholders via their 401Ks, insurance companies etc) now has an average share-holding period of less than 6 months. No-one invests long-term in US airlines. No-one sane would invest in a large US airline except SWA now.

[Ignition Override]

Most pilot groups at the US majors will likely end up giving up at least 15-20% of their salaries, never mind the very risky retirement pension mess, but Continental CEO Gordune Bethune reportedly used words to the effect that labor really is not the main problem (or 'the' problem), but I never read the quote.

One question is just how many "unplanned" furloughs (+ or -300 pilots etc) will take place if they don't get everything they expect at negotiations. These employees can be considered hostages at the bargaining table, but if my company never asked us to go up to 90 monthly credit hours in the 'good old days', then why are they suddenly claiming that this is one of the necessary changes-in order to lay off even more employees?

Just two more questions-has JETBLUE made many/any aircraft lease or purchase payments before this winter? If not, was Wall Street aware of this last summer and fall? Many pilots have the impression that a lack of payments is how this start-up airline was able to begin service with brand-new 140 (+) seat jets. Of course somebody will say, "oh, they actually have (i.e.) 130 seats-get your facts straight".

[Notso Fantastic]

Groaner- I don't understand how Ch11 works in practice. In a state of bankruptcy, it appears airlines under Ch11 can cut ticket costs to get income, but how can they pay for fuel/wages costs/landing fees/spares etc? Suppliers are not going to let that business go deeper into hock, so presumably the airlines have to start paying upfront immediately for all new items as well as servicing current debts to a certain extent? So how can they then start discounting?

[411A]

All in the details....

Chapter 11 of the Federal bankruptcy code is used by some companies, who for a short/medium period, find that their cash flow is not presently sufficient to cover all expenses. The law allows a bankruptcy judge to re-schedule payments to creditors so that the company can re-organize and regain profitable operations. To file Ch. 11 does NOT necessarally mean that the company is bankrupt...in fact it has been used in the past with companies whose assets substantially exceed liabilities.

At least that was the intension of the law.

It HAS on occasion been used by those in the know to squeeze concessions out of labor, in order to line their own pockets...something for which the law was not intended.

In the present economic climate, some air carriers, whose management have made very fundimental mistakes will find that the going is tough indeed. In many of these companies, the outright greed of pilot/mechanics/cabin crew unions has certainly NOT helped the financial picture.

Time to pay the piper....and it ain't gonna be pretty.

[Airbubba]

Here's an overview of Chapter 11 :

http://www.hq.com/reorganization/hq_overview.htm


And here's the actual text from the U.S. Code:

http://www4.law.cornell.edu/uscode/11/ch11.html


Section 1113c is of particular interest in the coming days at UAL as management seeks to get labor costs under control with or without approval of the unions.

[ironbutt57]

no groaner you're wrong...the airline would get a huge infusion from the govt illegally and it would be called something besides state aid

[Airbubba]

Looks like with the earlier "temporary" pay cuts they've cut the losses to only about $12 million a day:

UAL loses $382 million in January

United aims to cement labor changes ahead of March 17

CHICAGO, March 4 — UAL Corp., parent of bankrupt United Airlines, said Tuesday it lost $382 million for the month of January as it pushes ahead with labor talks to cement long-term contract changes before a March 17 deadline.
THE NO. 2 U.S. airline reported in a filing with the Securities and Exchange Commission that it had $1.18 billion in operating revenue and $1.51 billion in operating expenses before additional expenses were included.
Just last week, bankrupt US Airways Group said it lost $98.6 million in January on operating revenue of $476 million, which fell short of projections for the month. US Airways plans to emerge from bankruptcy by the end of March.
Faced with such daunting losses, United is trying to cement long-term contract changes before a March 17 deadline when it may formally ask that all labor agreements be scrapped.
Trading in United shares was halted briefly on the New York Stock Exchange Tuesday. The shares have traded around $1 for some time, after peaking at more than $100 in the late 1990s.
March 17 is the date when the airline may formally ask that all labor agreements be scrapped.
United filed for bankruptcy in December after amassing gigantic losses and failing to get the federal government to back a big loan guarantee.
Since then, fighting for survival under new Chief Executive Glenn Tilton, United has embarked on yet another round of talks about concessions with its labor groups, which are currently working under temporary pay cuts. Those reductions are saving the airline around $70 million a month. UAL in January posted its largest annual net loss ever, $3.2 billion for 2002.
Sticky long-term issues revolve mostly around productivity and, especially important for the pilots’ union, what a proposed low-cost carrier will look like...


http://www.msnbc.com/news/880620.asp?sym=UAL

[ATPMBA]

Tectonic plates of the airline industry are shifting.

Airlines in the US are in a crisis situation, we are looking at two possible liquidations by the end of the year. If this happens it will make the Internet meltdown look like a Sunday picnic. Thousands of people with families, homes, mortgages will be out of jobs which then can turn into personal financial crisis sending a ripple effect through the economy.

Structural changes going on in the business world that adversely affects airline traffic. The hub-and-spoke system is probably obsolete and point-to-point maybe the future of air travel. Market segments may include the low-cost budget operations like Southwest and high end like the old Pan Am that served dinner on real China or nowadays fractional jets.

I have noticed at the local airport a lot of the 22-23 year old flight instructors who were on the airline track have disappeared. They probably realized that they we not going to be hired by a major airline anytime soon and did not want to be CFI’s forever and moved on. Becoming a CFI takes years of hard work and $30-40K of earned after tax money. Moving into a major airline slot for the $100k plus income is a strong motivator/sustainer, without those slots I can’t blame the kids for looking for other careers. A major US GA flying magazine recently stated that major airlines will not recall pilots for 5-7 years and may not have new hires for 7-10 years, and that may not include any liquidations factored in.

All of this cost costing is basically window dressing. I have worked a major company that went through Chapter 11 (non-airline) and the new ceo stated in a meeting that “we cannot cost cut our way to profitability.” With losses of 382 million a month 70 million in savings helps but it will not solve the problem.

A looming Gulf war will suppress airline traffic like it did in 1991 and will cause further losses. Many corporations have cut back on travel and rely on conference calls and Internet email rather than flying out for face-to-face meeting at full business fares.

Changing into a low cost carrier like Southwest is a possible solution, however, there is little time to do this and the major obstacle is changing the employees. The aircraft and facilities can be changed overnight. Changing people and corporate culture is one of the hardest things to do as people resist change. At major corporations there is an “institution think”, “we never done it that way before”, etc. is an example of what change agents are up against.

UAL needs a strategy, the ceo must articulate the strategy to the employees, and the employees must believe in the strategy and feel they are part of it.

[OldAg84]

With regard to income, 70% of something is better than 100% of nothing. Obviously, a major cost challenge is that the majors are being forced to meet the cost structure of Southwest, AirTran, JetBlue and others. In light of the fact that there is no significant service difference in product delivered, why should the passenger pay more? I for one am flying Southwest more and more. Why? The people are friendly, the planes are clean, I'm not going to get a meal on anyone I fly, and they have plenty of flights.

I used to fly Delta almost exclusively, to the point where I purchased Christmas gifts for the gate agents. No more. Why?
The have shelled the frequent flyer program for people like me and I can never cash in my miles for flights- "no seats on that flight, not on that one either." I won't fly Northwest unless they are the last airline running, as the last reservations agent I dealt with was so rude to me it just about ruined my day. United and Continental are much better.

In short, by gutting their inflight and airport service, as well as the frequent flyer plans, the airlines in general have beaten the customer loyalty out of the business traveler. I fly whatever is the quickest and easiest and least expensive and don't care anymore what color the plane is or if I get miles. This truly can't help the airlines bring up their revenues and margins.

[Curious Pax]

This is moving off topic a little, but ATPMBA makes an interesting point about increasing the use of conference calls. The company I work for has increasingly rationalised its national operations into a more global set up, and the initial result was managers on planes most of the time. However a combination of a tougher business climate, an increasingly stressful air travel environment (ie extra security/time taken to get through airports now) and the rapidly improving video/audio conferencing facilities available mean that travel is avoided much more nowadays. For the company this saves a lot of money on airfares/travel time; for the airlines it could be a culture change for many of their erstwhile customers that is irreversible. Not good news for United I suspect.

[Wino]

ATPMBA,

The only difference between 2003 and 1991 is that this time around the government slowed the progress of airlines towards liquidation with the ATSB, thereby harming the rest of the industry.

There is NO ability to shrink an airline to profitability during a recession. The structural costs are too high and remain regardless of whether you keep all the people and fly the aircraft or park the aircraft and layoff all the people. When an airline shrinks during a recession its breakeven loadfactor GOES UP!

The only thing that cures the airline industry during a recession is that 1 or 2 airlines is allowed to liquidate, always to the cries of teutonic shifts and 10s of thousands displaced from work. PAN AM, Eastern, Braniff, Midway, Name the recession since the end of deregulation and I will name the dead airline.

Once USair and or United liquidate the industry can go back to its disfunctional ways untill the next recessions, when another airline will be thrown upon the alter of free enterprise and sacrificed.

The claims of conference calls has also been made in every recession, and while some customers will do that, the economy America grows every year, so as some leave others come, and at the end of the day no one signs a billion dollar contract over the phone. Before you write the check you will still want to look the person in the eye and shake his hands. If business travel shrinks somewhat an airline will be liquidated untill the balance is struck.

When the extreme life or death pressure is let up on the rest of the airline's Oldage 84 I suspect that service will improve at those that are left. But while they are fighting every day for survival that takes a toll in too many ways to count.

Cheers
Wino

[OldAg84]

Wino,

I agree with your post, but I feel it's somewhat incomplete. The industry is over capacity, no doubt. The near certain war, this week, next week, next month....will possibly (but hopefully not)make all this discussion moot.

Now is the time to focus on customer loyalty and service (within the obvious constraints of today). It doesn't cost any more for someone to smile or be pleasant. On a recent CO flight (and bear in mind I truly like CO) I was upgraded to First Class- on the entire flight 1.25 hours, I was offered one (ONE!) drink, and pretty much ignored. On another, a Northwest Flight Attendant actually sat down and read a magazine in a empty row for about 10-15 minutes. Don't worry, I'll skip a refill on the coffee! Conversely, on a recent roundtrip on Southwest, on both legs, one fairly crowded, the other fairly empty- the cabin crew couldn't have been nicer or more responsive. Air travel is stressful enough without pleasant faces and adequate service.

Why are Southwest and others making money (or losing very little) in today's market? Possibly because they are setting the new standard in a lot of markets.

[Wino]

Southwest also didn't lay off or slash wages or benefits, so its easier to smile. (Infact they have just given out more raises even though they are likely to lose money this quarter)

At many of the majors the cuts have been draconian already (over 20 percent) leaving less people to do more, for less money, leaving them frustrated and harried. When the majors can recall everyone and everyone feels like the light at the end of a tunnel isn't an oncoming train, look for attitudes to improve.

Right now many employees are severely demoralized for good reason, and the airlines are simply trying to preserve cash untill times turn, even though it may hurt them in the short term.

Cheers
Wino

[OldAg84]

Wino,

My point exactly- I won't be looking for attitudes to improve- I'll be flying elsewhere. I understand why people are demoralized, but it's still a competetive marketplace out there.

Personally, I do more with less than many of my counterparts do. I have my own "issues" at work, but because I'm in sales, I smile and do my best. Reservations, ticket counter, gate agents, and inflight crew better recognize they are, in large fashion, sales people as well. They craft my travel experience, and in light of the fact that frequent flyer plans are becoming less attractive, this is becoming more important-not less.

Because my loyalty (or any potential loyalty) has been squandered by select carriers management and customer contact employees, I'll bring my business elsewhere. Likely, I'll stay there as well, even if things get better.

I'll agree that it is a very tough time for alot of people in the industry but as I said; a smile costs nothing for the airline.

Lest one think I'm trite or insincere- I've flown over 2 million aggregate miles (based on frequent flyer standards). I've flown all the majors domestically in the U.S.. As an aviation buff (that's why I PPrune)- I have the utmost respect for the professionals who make my trip a safe and timely one. I for one wish the market conditions that drive this thread never existed. In the end one can roll over and die- or you can play to win all the way to the end.

OldAg

[411A]

One and only one simple fact...

Unless and until major US air carriers improve their cabin/reservation service, passengers will flow to the best service/lowest fares....and for a VERY long time (overseas routes),
non US carriers will be used by the knowledgeable traveller.
Simple as that.
In short, the malcontents on US carriers should be put OUT to pasture, pronto.
Will it happen...probably not.