United advertises new promotion

[USA320Pilot]

United advertises new promotion


It seems as if not a day goes by that there is not an interesting piece of news surrounding United Airlines and its attempt to survive. In addition to this week’s Chicago Tribune four-part story on the Elk Grove Township-based airline, today the USA Today had an interesting United advertisement.

In the first section of the newspaper, United had an expensive full-page ad that said, A free ticket to the world, just for doing your job. Buy one international first or business class ticket between July 9 and September 14, 2003 on United, and get one free economy class ticket on United or any of our Star Alliance members to one of 650 destinations around the world.

Clearly this ad is designed to support the first part of United’s four-part plan to transform the airline into a viable business entity, but the question begs to be asked is this a desperate attempt to increase revenue? Moreover, is this a sign of a failing airline and is the company feverishly trying to generate revenue to meet its DIP requirements by leveraging its future?

However, later today Delta Air Lines, Northwest Airlines, and Continental Airlines all matched United’s offer so what was accomplished, except each airline will neutralize the benefit to each other and the airline’s will give away more seats, which could cause the promotion to create further negative earnings.

Separately, I believe it’s important to note that yesterday Bloomberg News confirmed my comments first reported on this website that United has the industry’s worst revenue performance and that its gamble to restructure fares has been largely unsuccessful. UBS Warburg analyst Sam Buttrick told the News Agency that, United''s domestic revenue performance has been badly lagging the industry in 2003.''''

Speaking about the domestic fare gamble Bloomberg reported lowering business fares is a white-knuckle gamble for the big airlines, which are weathering their third straight year of losses. In good years, business travelers have provided as much as 70 percent of the carriers'' revenue and a higher profit margin, the airlines say. ``It''s like trying to perform open-heart surgery on yourself,'''' said Dan Kasper, an economist in Boston for the LECG Inc. financial consulting firm of Emeryville, California. ``In the short term there''s a good chance it will be revenue negative.''''

Meanwhile, it appears that United’s revenue crisis may be picking up steam and today in an article titled Airlines’ upcoming earnings could show signs of recovery the USA Today noted industry analysts like Buttrick said revenue has to improve a lot more, or an airline making big costs cuts will just be saving itself out of business.

This seems to be big question for those parties interested in the success of United. Does United’s generic four-part business plan, which from this observer’s perch does not dramatically change the current failed business model, actually put the company in a position of saving itself out of business?

Most analysts believe that any revenue recovery experienced so far will only get the mature airline’s back to where they were before the Iraqi War and the SARS virus deeply cut into revenues, especially for those airline’s who have an international focus and large Pacific operations.

Interestingly, today the Chicago Tribune reported although the carrier won huge concessions from its labor unions and boasts an industry-leading on-time record, its business strategy so far reflects little new thinking. Instead, United is returning to its strategy of attracting elite business travelers, even though executives are flying less and paying lower fares.

But back to the focus of this report, the real question is will the second United revenue gamble of giving tickets away for free boost earnings simply increase load factor? Is this campaign a desperate attempt to boost cash flow as the stringent DIP financing requirements continue to tighten a noose around the company’s neck? Finally, is this strategy similar to efforts made by Braniff International and Eastern Airlines in their last days prior
to their failure?

Meanwhile, it has come to my attention that RSA holds a significant number of United’s EETC’s for different fleet types. Furthermore, there are reports circulating that US Airways’ chairman of the board David Bronner, who is also RSA’s chief executive officer, is considering different ways to hedge his exposure to United’s restructuring since his organization reportedly holds United aircraft debt instruments, although its unclear how this report could unfold. This issue has observers wondering where Bronner could elect to place United aircraft if the EETC restructuring negotiations become unsuccessful between RSA and United or if the company is forced into a distressed asset divestiture by either its creditor’s committee, its DIP financiers, or the bankruptcy court.

Also noteworthy, reports indicate United’s code share partner US Airways now has its Buenos Aires sales office open, but the company does not currently offer its own service to Argentina. From this observer’s perspective, this seems strange unless Buenos Aires and South America figure’s into the company’s plans.

Nonetheless, with the busy summer leisure travel season ending in a few short weeks and the post Labor Day travel lull quickly approaching, we should know more about the bankrupt airline’s future on August 1 when United announces its Q2 financial results. By that time, we may know if the company can meet its DIP financing requirements when it must be cash flow positive by the end of October.

Best regards,

Chip

 

[737nCH11]

I recently acquired a letter written by UAL Senior VP Flight Operations Steve Fort thanking UAL employees for a job well done. VP Fort included in this letter a list of questions submitted by employees with responses by senior management. Interestingly enough they seem to answer the above post.

1. Isn't United giving away the store with their fly 3 fly free campaign, and now with the International ticket giveaway? UAL senior management answer: Absolutely not. The primary plank of UAL's business plan revolves around catering to the business traveler. This promotion targets that market and has been wildly successful. UAL has signed up numerous customers to its popular Mileage Plus(tm) program. Corporate clients have also responded enthusiastically. Author's note: Remember, UAL recently recruited John Tague from ATA. His specialty is marketing the airline and getting business in the door. From where I sit he is carrying out his mission swimmingly. Also keep in mind that there are restrictions on the free tickets that mirror frequent flier awards. UAL is not giving away the store on this folks, they are simply filling seats that would have gone empty and satisfying their core constituents at the same time.

2. Interestingly enough, there is another question in VP Fort's letter dealing with South America. From a UAL employee: What are United's plans concerning South America? Senior Management response: United has no plans to discontinue service to any of our South American destinations. Chip, do you really think that USAirways is going to shell out the money to start up service to South America? From where? PIT, PHL, CLT? Give me a break. Not only is making a profit from South American flying tricky, opening a station ain't cheap. UAL already has the feed for their operations via IAD, ORD, and wherever else they consider a South American gateway. Why would USAirways open a South American station when they can feed passengers to UAL and get the revenue via the codeshare?

From this author's perspective, I give UAL major credit for having the stones to get down in the trenches and drum up business. They aren't caving to LUV and JBLU like a certain east coast carrier. CEO Glen Tilton is assembling a hard-core team of executives, and I believe the fly three fly free promotion proves that they aren't afraid to get their hands dirty.