United could divert from merger plans
Spurned airline also investigating alliances
By Julie Johnsson
Tribune reporter
April 29, 2008
United Airlines executives may have been stunned by Continental Airlines' abrupt decision to pursue alliances rather than a merger just days before the two carriers were expected to announce a deal.
But they've wasted little time in adopting a similar approach.
While United parent UAL Corp. is deep into merger talks with US Airways Group Inc., a deal that would come with considerable baggage, the Chicago-based carrier is also exploring new alliances that would broaden its reach without a merger's messy melding of operations, a person briefed on its strategy said Monday.
Analysts say United's options include pursuing a code-share arrangement with Houston-based Continental, which would allow the carriers to sell tickets on each other's flights, potentially linking United's Pacific network with Continental's Atlantic stronghold.
United also could seek closer ties and perhaps an investment from Germany's Lufthansa, its longtime partner in the Star Alliance global marketing alliance, suggested Henry Harteveldt, industry analyst with Forrester Research Inc.
What's clear is that United needs to do something quickly to shore up the confidence of its investors and employees after trying and failing to merge with Continental and Delta Air Lines Inc.
Investors who had counted on United Chief Executive Glenn Tilton to deliver a megamerger are chafing at the 58 percent decline in United's stock since January and heavier-than-expected $537 million first-quarter loss, sources said.
UAL shares dropped another 2.6 percent Monday; US Airways' jumped 20 percent.
United's unions are restive, disheartened at the prospect of being drawn into US Airways' labor strife. The carrier's pilots Monday called on Tilton to return the $10.3 million compensation he received last year.
Meanwhile, its largest union Monday questioned whether Tilton had any strategic vision, aside from merging.
"Since United came out of bankruptcy, they've been focusing on looking for a merger partner instead of running an airline," said Joe Tiberi, spokesman for the International Association of Machinists, which represents 17,000 United workers. "They could take a lesson from Continental and focus on their core business."
Continental executives ultimately rejected United's merger overtures over concerns that creating the world's largest airline would harm its business by destroying an employee-friendly corporate culture, sources said.
But Tilton has said repeatedly consolidation is just one of several steps airlines need to take to shore up businesses battered by rising fuel prices, a slowing economy and relentless price competition.
He reiterated to United workers Monday his team is focused on improving its performance in critical areas, while conserving cash.
"We also continue to believe that new business models are required to respond to the challenging market environment; for a shift of magnitude, management teams must fully embrace the inevitability of change and have a meeting of the minds for any prospective partnership to be successful," Tilton said in a companywide message.
Merging with US Airways would give United a greater array of domestic flights, filling in gaps in United's network in the Northeast and South, analysts and observers said. It would also give United something that the merging Delta and Northwest airlines lack: overlapping operations that could be trimmed to create greater savings for the merged company, particularly in Washington, D.C.
"They have an opportunity to take a fair amount [of capacity] out of the system," said Bill Swelbar, a researcher and longtime industry observer.
While that might spark investors' interest in the deal, it could also spark greater scrutiny by antitrust authorities, who killed an attempt by the two airlines to merge in 2001, analysts noted.
United already has a code-share arrangement with US Airways that allows the airlines to sell tickets on each other's flights. They share some common computer systems, which might make it easier to integrate operations.
But the deal would likely draw a hostile response from United's unions, particularly its pilots. "Expect torches and pitchforks," predicted one United pilot. That's because a merged carrier could soon devolve into a three-way battle over pilot seniority, with US Airways pilots already divided into rival factions after its merger with America West.
Another concern is customer service, already a weak point at both carriers.
"Two lousy airlines combined does not make a good airline. It makes perhaps an even lousier airline," said Chicago restructuring specialist Bill Brandt.
Representatives of United, Continental and US Airways declined to comment.
[email protected]
Spurned airline also investigating alliances
By Julie Johnsson
Tribune reporter
April 29, 2008
United Airlines executives may have been stunned by Continental Airlines' abrupt decision to pursue alliances rather than a merger just days before the two carriers were expected to announce a deal.
But they've wasted little time in adopting a similar approach.
While United parent UAL Corp. is deep into merger talks with US Airways Group Inc., a deal that would come with considerable baggage, the Chicago-based carrier is also exploring new alliances that would broaden its reach without a merger's messy melding of operations, a person briefed on its strategy said Monday.
Analysts say United's options include pursuing a code-share arrangement with Houston-based Continental, which would allow the carriers to sell tickets on each other's flights, potentially linking United's Pacific network with Continental's Atlantic stronghold.
United also could seek closer ties and perhaps an investment from Germany's Lufthansa, its longtime partner in the Star Alliance global marketing alliance, suggested Henry Harteveldt, industry analyst with Forrester Research Inc.
What's clear is that United needs to do something quickly to shore up the confidence of its investors and employees after trying and failing to merge with Continental and Delta Air Lines Inc.
Investors who had counted on United Chief Executive Glenn Tilton to deliver a megamerger are chafing at the 58 percent decline in United's stock since January and heavier-than-expected $537 million first-quarter loss, sources said.
UAL shares dropped another 2.6 percent Monday; US Airways' jumped 20 percent.
United's unions are restive, disheartened at the prospect of being drawn into US Airways' labor strife. The carrier's pilots Monday called on Tilton to return the $10.3 million compensation he received last year.
Meanwhile, its largest union Monday questioned whether Tilton had any strategic vision, aside from merging.
"Since United came out of bankruptcy, they've been focusing on looking for a merger partner instead of running an airline," said Joe Tiberi, spokesman for the International Association of Machinists, which represents 17,000 United workers. "They could take a lesson from Continental and focus on their core business."
Continental executives ultimately rejected United's merger overtures over concerns that creating the world's largest airline would harm its business by destroying an employee-friendly corporate culture, sources said.
But Tilton has said repeatedly consolidation is just one of several steps airlines need to take to shore up businesses battered by rising fuel prices, a slowing economy and relentless price competition.
He reiterated to United workers Monday his team is focused on improving its performance in critical areas, while conserving cash.
"We also continue to believe that new business models are required to respond to the challenging market environment; for a shift of magnitude, management teams must fully embrace the inevitability of change and have a meeting of the minds for any prospective partnership to be successful," Tilton said in a companywide message.
Merging with US Airways would give United a greater array of domestic flights, filling in gaps in United's network in the Northeast and South, analysts and observers said. It would also give United something that the merging Delta and Northwest airlines lack: overlapping operations that could be trimmed to create greater savings for the merged company, particularly in Washington, D.C.
"They have an opportunity to take a fair amount [of capacity] out of the system," said Bill Swelbar, a researcher and longtime industry observer.
While that might spark investors' interest in the deal, it could also spark greater scrutiny by antitrust authorities, who killed an attempt by the two airlines to merge in 2001, analysts noted.
United already has a code-share arrangement with US Airways that allows the airlines to sell tickets on each other's flights. They share some common computer systems, which might make it easier to integrate operations.
But the deal would likely draw a hostile response from United's unions, particularly its pilots. "Expect torches and pitchforks," predicted one United pilot. That's because a merged carrier could soon devolve into a three-way battle over pilot seniority, with US Airways pilots already divided into rival factions after its merger with America West.
Another concern is customer service, already a weak point at both carriers.
"Two lousy airlines combined does not make a good airline. It makes perhaps an even lousier airline," said Chicago restructuring specialist Bill Brandt.
Representatives of United, Continental and US Airways declined to comment.
[email protected]
