United Still Committed to Low-Cost Unit

[Tim Thorpe]

[blockquote]
----------------
On 2/10/2003 1010 PM Segue wrote:

I think Starfish is a great idea. To really emulate a LCC, you need match the business model 100%. Yes, keep it simple, from distribution to fare structure, utilization, revenue management, crew, fleet - everything. You can't do that by running it in conjunction with the mainline ops. This was proven out with Shuttle. No rocket science or secrets here as the Southwest model has been working for years. Just that if you do it, you gotta do it all the way.
----------------
[/blockquote]
I agree. I would love a raise. Also There would be no need for benefit and work rule changes.

 

[Tim Thorpe]

[blockquote]
----------------
On 2/11/2003 7:31:38 PM Tim Thorpe wrote:

[blockquote]
----------------
On 2/10/2003 1010 PM Segue wrote:

I think Starfish is a great idea. To really emulate a LCC, you need match the business model 100%. Yes, keep it simple, from distribution to fare structure, utilization, revenue management, crew, fleet - everything. You can't do that by running it in conjunction with the mainline ops. This was proven out with Shuttle. No rocket science or secrets here as the Southwest model has been working for years. Just that if you do it, you gotta do it all the way.
----------------
[/blockquote]
I agree. I would love a raise. Also There would be no need for benefit and work rule changes. [img src='http://www.usaviation.com/idealbb/images/smilies/1.gif']
----------------
[/blockquote]
Ok maybe some work rule changes. But thats it.

 

[Taipan]

Here what the AFA had to say about Air Canadas LCC ideas
Air Canada, one of our Star Alliance partners is unfortunately a perfect example of why a separate carrier is not the solution to United’s problems. In an effort to broaden its customer base, the airline created subsidiaries - Jazz, Zip and Tango. Air Canada is now realizing that subsidiaries are not the panacea for success. Several analysts have said that the creation of these discount brands within Air Canada just “added to the competition for the mainline carrier, effectively cannibalizing the parent’s traffic.â€￾ Air Canada is reporting over $300 million in losses for the year, and it is currently looking to sell Jazz. AFA has told United Airlines management that setting up subsidiary airlines is a strategy doomed to fail, and Air Canada is a real life example of this.

A true LCC would have
1.No first class/economy plus
2.No or very limited frequent flyer program
3.20 minute turns
4.No reserved seats
5.No freight rampside and very little mail
6.Use of secondary airports, and point to point flying
7.Way more efficent crew scheduling

A low wage carrier (Not Southwest) would be
1.Everyone except management makes 35-40% less and little to no benefits.

 

[mrman]

A true LCC would have
1.No first class/economy plus
2.No or very limited frequent flyer program
3.20 minute turns
4.No reserved seats
5.No freight rampside and very little mail
6.Use of secondary airports, and point to point flying
7.Way more efficent crew scheduling

WN model has an award winning FF program (free trip after 4rt, companion pass, free booze etc)and does a large freight business.

 

[FrugalFlyer]

[blockquote]
----------------
On 2/12/2003 1243 PM Taipan wrote:

Here what the AFA had to say about Air Canadas LCC ideas
Air Canada, one of our Star Alliance partners is unfortunately a perfect example of why a separate carrier is not the solution to United’s problems. In an effort to broaden its customer base, the airline created subsidiaries - Jazz, Zip and Tango. Air Canada is now realizing that subsidiaries are not the panacea for success. Several analysts have said that the creation of these discount brands within Air Canada just “added to the competition for the mainline carrier, effectively cannibalizing the parent’s traffic.” Air Canada is reporting over $300 million in losses for the year, and it is currently looking to sell Jazz. AFA has told United Airlines management that setting up subsidiary airlines is a strategy doomed to fail, and Air Canada is a real life example of this.
----------------
[/blockquote]

Just a minor correction in the AFA statement:
While Air Canada may have created Tango and Zip, AC did not create Jazz.
Jazz is simply a re-naming / re-branding / combining of Air Ontario, Air BC, Air Nova and Canadian Regional into Air Canada Jazz (4 regionals into 1).

IMHO the name is kind of stupid, but I guess AC paid somebody big $$$ to come up with AC Jazz. AC Regional or AC Express would make more sense to me, but what do I know.

 

[Segue]

Its really not the time to second guess the plan. There are not many options at this point. Time is seriously running out.

 

[DB Cooper]

--------------------------------------------------------------------------------

February 13, 2003
United Provides Some Specifics on New Airline
By RIVA D. ATLAS


nited Airlines plans to shift about 30 percent of its domestic capacity into the new discount airline that the carrier hopes to form as it plots its escape from bankruptcy, executives said yesterday, giving their most detailed public accounting of United's recovery plan.

Representatives of the airline's unions said they still had reservations about the proposal — particularly over the process of identifying the workers who would be assigned to jobs at the discount carrier, which has been given the code name Starfish.

In an interview, Glenn F. Tilton, the chief executive of United, a unit of UAL, said yesterday that pilots and other workers assigned to the lower-fare unit would have to take wage cuts.

"This strategy gives us the opportunity to create two things: prosperity and jobs," Mr. Tilton said. "The strategy that is the alternative to this is to dramatically shrink."

The discount airline would operate from all of United's hubs, which include Los Angeles, San Francisco, Denver, Chicago and Washington. United's intention is to deploy the new carrier on all its routes that are now dominated by low-cost rivals like Southwest Airlines, said Douglas Hacker, United's executive vice president for strategy. For example, he said, all of United's service to and from Las Vegas might be provided by the new airline.

Unlike Southwest, which operates on a point-to-point basis, the new operation would be integrated into the hub-and-spoke system of United's existing full-price airline, said Pete McDonald, executive vice president for operations. United, he added, needs to feed the discounted flights into its main system so that passengers on international flights, for example, can reach their ultimate destination on a United-brand plane.

Mr. Tilton said that United would give the new carrier "a different feel" intended to appeal to younger passengers and use it as a laboratory for experimenting with innovations in service.

Representatives of the unions said yesterday that they were still at odds with United over many aspects of the plan for the discounted carrier.

"We recognize that we need to offer management the tools to make this work, but the more we learn about United's plans for a separate carrier, the less happy we are," said Elliot Sloane, a spokesman for the Air Line Pilots Association. "What we object to is the creation of a separate airline with a separate seniority plan." Airline pilots' compensation and schedules are based on how long they have flown for a particular company.

United hopes to come to terms with its unions by March 17, the deadline in bankruptcy court for filing a motion to terminate its labor contracts, said Rich Nelson, a spokesman for the airline. Negotiations could continue with the unions for approximately 45 days after that. If there are no agreements by May 1, temporary wage concessions that the unions agreed to shortly after United's bankruptcy filing in December would expire, and the bankruptcy court could cancel the airline's labor contracts.

Frederic Brace, United's chief financial officer, said he was optimistic about reaching agreements with the unions. "There is common ground," he said. "There is an understanding that people will work more for less money."

Talks are furthest along with the International Association of Machinists, Mr. Tilton said, although he declined to assess the chances of the overall success of the negotiations before the March deadline. The gulf is widest with pilots and flight attendants, he indicated.

The discount carrier is a major point of dispute between United and the unions. Some of the pilots for the unit, Mr. Tilton said, could come from United's 1,500 furloughed pilots; their pay would be comparable to that at other low-fare carriers.

"Eventually, employees working at the low-cost carrier could get hired back" to the full-price airline, Mr. Hacker added.

Mr. Nelson, the United spokesman, later said that the executives did not mean to imply that pilots currently flying these routes would be replaced by furloughed pilots. Indeed, Mr. Brace said, the mechanisms for selecting who would be shifted to the discount carrier, with its lower wages and tougher work rules, "is all under discussion."

A spokeswoman for the Association of Flight Attendants, Sara Dela Cruz, said that the union was afraid that jobs would be lost through the creation of the discount carrier. "As a union, our first priority is to preserve jobs," she said.

A spokesman for the machinists, Joseph Tiberi, said the union had been meeting with representatives of United daily. "A discount carrier is definitely one of the topics, but there has been no resolution yet," he said.




Copyright 2003 The New York Times Company / Privacy Policy

 

[kcabpilot]

[blockquote]
----------------

In an interview, Glenn F. Tilton, the chief executive of United, a unit of UAL, said yesterday that pilots and other workers assigned to the lower-fare unit would have to take wage cuts.


Frederic Brace, United's chief financial officer, said he was optimistic about reaching agreements with the unions. "There is common ground," he said. "There is an understanding that people will work more for less money."

"Eventually, employees working at the low-cost carrier could get hired back" to the full-price airline, Mr. Hacker added.

----------------
[/blockquote]

Well I will say this: Glenn, Jake and Dougie are smoking the best stuff money can buy and with their salaries they certainly can afford it. But hey, this ain't Hollywood.

 

[wts54]

kcabpilot this is for you.
Today the company (UAL) started its presentation on the new business plan. I
attended a special meeting with Bill Norman, VP Maintenance, for an 1 1/2
hours. Right up front we were told that Indy, Oakland and our pay, pension
and benefits will not be discussed because those are negotiable items which
are still in discussion and going before the BK Judge. The presentation
covered the new airline. With the new airline, costs will be 25% lower due to
lower pay scales, benefits and work rule changes. The new airline (U2) will
be a stand alone company which will initially take over 30% of the domestic
routes with one fleet type and eventually taking over all of the domestic
routes. This will leave the mainline to fly only the international routes. As
the employees are furloughed from the mainline they will have the opportunity
to hire on with U2, through the front door as a new employee, no transfers.
You would be starting at zero company seniority, benefits, pension and a much
lower pay scale. The pilots and flight attendants are so pissed that the IAM
negotiations this week were halted so that the pilots and FAs could meet with
management to try and salvage some of their great perks. The IAM does have a
representative sitting in observing. When quality of life issues were brought
up Norman said they would be addressed but after a time you would just have
to get over it and go on because the needs of the company take precedence. U2
is still on the drawing board in WHQ but should start forming up within six
months and flying by the end of the year. This was a very slick 24 page
presentation done in PowerPoint on an overhead projection and it looked to me
as if it was originally presented to the money people and the feds. I will
try and get a copy of the presentation and email it to everyone. The
presentation did go on to describe the company's goals, passengers,
furloughs, competition, ranking of airlines, etc.
As for our pensions, benefits and medical, the negotiations are being kept
quiet until the BK judge makes his ruling during the week of March 16th.
One other thing I got was, the company wants to gut the medical plans, reduce
the coverage, besides having us make higher out of pocket payments. Whether
this will effect retirees or just current employees we won't know until the
latter part of March.

 

[kcabpilot]

Sounds like another fixation on management's part. Just like the US Air merger, Avolar, Mypoints and half a dozen other business adventures that were doomed to fail because of this management team's attitude towards it's greatest asset - the employees.

Well, there's no talking to them. They are going to do what they are set out to do, regardless of the consequences. I bet Southwest and Jetblue are just "shakin' in their boots" over this prospect.

Hilarious

 

[flythewing]

I believe [A HREF="http://www.the-mechanic.com/pdf/ual_creditors_01.pdf"]this[/A]
is the presentation WTS spoke of. Lots of uses of Best in Class and other such MBA jargon. No
info on how to get employees to 'engage' for WalMart style pay.

 

[synchronicity]

[blockquote]
----------------
On 2/17/2003 10:01:44 PM Segue wrote:

[blockquote]

----------------

On 2/17/2003 525 PM flythewing wrote:


I believe [A HREF="http://www.the-mechanic.com/pdf/ual_creditors_01.pdf"]this[/A]

is the presentation WTS spoke of. Lots of uses of Best in Class and other such MBA jargon. No

info on how to get employees to 'engage' for WalMart style pay.

----------------

[/blockquote]


Nope - no specfics here - this is a strategy presentation of the highest level. Perhaps too much for most of us here to understand.
----------------
[/blockquote]

Oh c'mon, Segue, the entire presentation is, for the most part, blatant statements of the obvious. "Our Costs are too high. Our revenue is too low. We need to change that", followed by "gee, a low cost carrier could help out. It could serve the areas where we have a lot of leisure travellers and where we compete with other LCCs. All we need to do is create it and make sure its costs are about even with Southwest."

Well duh, and if I had a million bucks I'd be rich. All I need to do is get a million bucks.

Did anyone ever see that episode of South Park with the "underpants gnomes"? They had a plan that was "Step 1- collect underpants. Step 2--???? Step 3- Profit!" All they needed to do was figure out what Step 2 should be. Anybody see the similarity here?

But don't tell me, I'm not educated enough to understand the subtle nuances of the plan, right?

-synchronicity

 

[Segue]

[blockquote]
----------------
On 2/17/2003 525 PM flythewing wrote:

I believe [A HREF="http://www.the-mechanic.com/pdf/ual_creditors_01.pdf"]this[/A]
is the presentation WTS spoke of. Lots of uses of Best in Class and other such MBA jargon. No
info on how to get employees to 'engage' for WalMart style pay.
----------------
[/blockquote]

Nope - no specfics here - this is a strategy presentation of the highest level. Perhaps too much for most of us here to understand.

 

[N230UA]

Even by bankrupt carrier standards, the forecast and estimations in this report are particularly conservative.

It's like underpromising and overdelivering.

The FRAMEWORK for "engaging" employees and becoming profitable is there. Do you really think UA would let Step 2 slip out externally?

Extreme nuances like "we are goign to hire XXX firm to do our XX task for XX days for a XX contract" are not broadcast anywhere externally unless it is for good PR.

Again, the FRAMEWORK for emergence is there. CASM reductions. Cost reductions. The LCC staffing issues as well as "efficient logistics".

HECK, United is even DECREASING capacity. For those that said United suffered from too much capacity, THERE YOU GO.

This plan, on paper, is sound.

But the thing I question is the company's ability to pull together and get it accomplished. With the "Old Guard" like Sara Fields leading all the new strategies (especially PEOPLE STRATEGY), it is hard for me to believe they can "become aligned" as emphasized in the plan.

But persevearance may prove me wrong. I hope it does.

 

[synchronicity]

[blockquote]
----------------
On 2/18/2003 8:17:16 AM N230UA wrote:

Even by bankrupt carrier standards, the forecast and estimations in this report are particularly conservative.

It's like underpromising and overdelivering.

The FRAMEWORK for "engaging" employees and becoming profitable is there. Do you really think UA would let Step 2 slip out externally?

Extreme nuances like "we are goign to hire XXX firm to do our XX task for XX days for a XX contract" are not broadcast anywhere externally unless it is for good PR.

Again, the FRAMEWORK for emergence is there. CASM reductions. Cost reductions. The LCC staffing issues as well as "efficient logistics".

HECK, United is even DECREASING capacity. For those that said United suffered from too much capacity, THERE YOU GO.

This plan, on paper, is sound.

But the thing I question is the company's ability to pull together and get it accomplished. With the "Old Guard" like Sara Fields leading all the new strategies (especially PEOPLE STRATEGY), it is hard for me to believe they can "become aligned" as emphasized in the plan.

But persevearance may prove me wrong. I hope it does.
----------------
[/blockquote]

I'm at work, so this is a quick response I'm dashing off during lunch. So:

A) "conservative forecasts and estimations"- yes on the revenue side, but not on the cost side (the opposite of the ATSB projections, costs couldn't be cut sufficiently so they were very optimistic on the revenue side). Look at the projections for CASM. Page 125 lays out UAL's goal: reduce "mainline" CASM to be the same as the current lowest CASM major (going from highest to lowest in about two years). Yes, I know UAL lays out how they plan to do this over the next several pages, but the vast majority of that is no secret: cut labor costs considerably. (the majority of the cost cuts identified are labor, and most if not all are items that have been reported in some form in public media). Again, easy to say, tough to do.

Also, note that the LCC CASM target is slightly lower than current LCC leader Southwest (p. 143). Again, easy to say, not easy to do.

I'll try and summarize parts of the report later (without revelaing anything that could be considered "non-public" info), but the idea boils down to "all we have to do is cut costs so we're the best in the industry instead of the worst, and we'll make money". Really? Wow, what an insight. So, how do you do that without completely pissing off your remaining employees, who you say later need to be "engaged" better by management. But before I get to that:

B) I just have to comment on pages 154 to 169, dealing with the financial plan and capital markets. This ticks me off because it takes 16 pages to state the patently obvious. 1) The airline industry has sucked recently, 2) which means creditors and shareholders have lost bunches of money. 3) SWA is the only exception, cause they have low costs so they've made money. 4) so their stock has done well and creditors are willing to lend to them (amazing, eh?) 5) so we should do something like that, too.

SIXTEEN powerpoint slides to say that?! C'mon, anybody with half a brain has clued that the entire industry save for SWA (and JetBlue) have been hemorraghing (sp?) cash, and this is not good. I would hope that senior management and UAL creditors have more than half a brain. (At least, the creditor representatives that I've talked to have more than half a brain). And the above is hardly "confidential" information. I think UAL's competitors know that they want to cut costs, that if they do that they can make money, and if they start making money people will consider lending them money.

C) I'll jump ahead to pp. 188-220. Lots of stuff here, and again, I wouldn't want to quote anything too specific that is non-public, but to wit:

1) our relationships with employees suck (good survey data here showing how bad it is)
2) happy employees generally perform better than disgruntled ones.
3) so we need to "engage" our employees better in order to get them happy so our whole organization will perform better.

Now, there's lots of stuff on how to do this, but as you mention above, the proof is the doing, not the saying. UAL has historically had terrible relationships with employees, and it shows in their own surveys. Here they are trying to improve relationships at the same time that they are dramatically reducing labor costs and headcount!! This is a challenge for even the best of entities with regards to employee relations. What United is trying to do is turn around an entire corporate culture, while at the same time making massive other changes in the company AND slashing wages and benefits (and headcount) across the board. It's difficult enough to "engage" employees in the best of times, this is pretty much "the worst of times" coming up. And UAL historically has been godawful at engaging employees in the best of times.

Look, I'm really hoping for the best, and it would be great if they turn it around. But for this plan to work, it requires a huge turnaround by company leadership to get "buy-in" from an employee group that will have to endure considerable cuts and is already very distrustful of management (plus, the ESOP experiment will make them skittish about any sort of "profit share" plan, unfortunately). That's long odds, and the fact it's the old guard leading it makes them odds even longer. This will require dramatic efforts by leadership, both symbolic and actual.

And I still say that most of the ~280 page document is common sense items explained in a very roundabout fashion.

-synchronicity