Despite cutbacks, United preserves route network

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Despite cutbacks, United preserves route network
By Donna Rosato and Barbara Hansen, USA TODAY

After two horrible years, United Airlines is a much smaller company that=20
makes almost a quarter fewer daily flights. But a more favorable comparison=
=20
has drawn little notice: United still flies daily to 115 airports worldwide=
=20
=97 almost as many places as it did at the end of 2000. That's an important=
=20
clue to what a post-Chapter 11 United might look like as management=20
prepares to present a business plan to the board of United's parent=20
company, UAL. The good news for fliers: Preserving a sprawling route=20
network linking the USA with cities in every hemisphere is a top priority.=
=20
United's schedule cuts so far show how the carrier has managed to preserve=
=20
some presence even in cities it no longer serves. Thirteen domestic=20
airports fell off United's route map in 2001 and 2002 =97 and five more this=
=20
month =97 but all are now served by United Express carriers. Travelers in=20
those places still have direct service to United hubs, they still can call=
=20
United to make reservations, and they still get United frequent-flier=20
miles. Instead of flying big jets, they ride small jets and turboprops=20
flown by independent carriers with lower operating costs than United.

"We believe that one of our greatest strengths is our route network. All of=
=20
our hubs are strong cities with good local markets. We will continue to=20
build off of those and protect what we think will be our strongest asset=20
going forward," says Greg Taylor, United's senior vice president of=20
planning. "We think having a network that's deep and wide is very important=
=20
to our customer base."
United says if it can cut costs sufficiently, it will reorganize as a=20
stronger, leaner airline, and fliers should see little change in the=20
markets United serves. United's ability to provide flights to dozens of=20
destinations =97 not to mention frequent-flier awards to vacation spots=20
around the world =97 is regarded as a prime asset. It's what distinguishes=
=20
United from the low-cost, low-fare carriers pulling away United's domestic=
=20
customers in city after city. Southwest, the largest discount carrier, for=
=20
instance, doesn't fly to Hawaii or any international points. United served=
=20
more than 13,000 city pairs in 2001, 10 times what Southwest had.
Reducing costs by winning concessions from labor unions and suppliers is=20
only part of the proposed fix for United. Another part is changing where=20
and how it flies people from one place to another.

If United survives, fliers can expect:
=B7       More flights on regional jets. Last month, the three United=
 Express=20
airlines =97 Atlantic Coast, SkyWest and Air Wisconsin =97 operated 128=20
regional jets. United wants the regional jet fleet to be 236 by early 2004,=
=20
but it needs approval from its labor unions. United's unions long ago won=20
limits on how much flying United's regional-airline partners could do,=20
because they feared flights and jobs would migrate to the regionals, which=
=20
tend to pay lower wages.

=B7       More flights operated by United code-share partners instead of=20
United. Code-share agreements allow United to place its marketing code on=20
flights operated by a partner airline so United can sell seats to more=20
cities than it can afford to fly to with its fleet. United has powerfully=20
exploited code-sharing through its Star Alliance partnership with such=20
international carriers as Air Canada, Lufthansa and Singapore. It's=20
considered the strongest international alliance among the major=20
carriers.  This month, United launched a code-sharing agreement with US=20
Airways on selected routes that United estimates will add $200 million a=20
year in revenue. The agreement gives United fliers increased service to 14=
=20
cities in the East, along with United frequent-flier miles on US Airways=20
flights.

=B7       A new United low-cost airline that will serve vacation=20
destinations. This concept is still a work in progress. United officials=20
say they want to develop a national low-cost carrier that could replace the=
=20
traditional United Airlines service on certain routes dominated by discount=
=20
carriers. The service might also fly to destinations not on United's route=
=20
map today, such as Mexican resort destinations.  Some industry experts are=
=20
skeptical that creating a low-fare carrier makes sense for United.  "Their=
=20
pronouncement that they will meet the low-cost carriers head-on is one of=20
the more moronic ideas I have ever heard," says Adam Pilarski, senior vice=
=20
president at Avitas, an aviation consulting firm. United created Shuttle by=
=20
United, a mostly West Coast operation, in the 1990s to fight the=20
discounters but scrapped it after the Sept. 11 attacks. United also needs=20
to preserve a large route network to compete against carriers such as=20
American and Delta, says United adviser Daniel Kasper, managing director at=
=20
economic consulting firm LECG. Like United, they also have large domestic=20
and international operations. Unlike United, they're trying to fashion=20
themselves into leaner competitors by cutting billions of dollars in=20
expenses outside the bankruptcy process. Northwest Airlines, Continental=20
Airlines and Delta Air Lines are awaiting approval on a domestic marketing=
=20
alliance that would create a formidable domestic network, Kasper says.=20
Despite some high hurdles, Kasper says there's reason for optimism. "I=20
think they've got a very good chance to succeed here. They've got a=20
valuable route network, particularly internationally, a strong brand name=20
and a good fleet. They just have a completely unsustainable cost=20
structure," he says. United's schedule changes have drawn little attention,=
=20
but trends emerge from a USA TODAY analysis, using data from Back Aviation=
=20
Solutions and OAG:

=B7       Domestic flights have taken the biggest hit. United's domestic=20
flights, the bulk of its operations, were down 22% in December compared=20
with December 2000. U.S.-international flights fell only 14%. "We try to=20
match capacity to demand, and after 9/11, we saw more fallout in domestic=20
travel than international," Taylor says.

=B7       West Coast hubs suffered the biggest cuts among United's five U.S.=
=20
hubs. The number of flights out of Los Angeles and San Francisco=20
international airports fell 40% and 26%, respectively, from December 2000.=
=20
Washington Dulles was down 24%; Denver, 19%; and Chicago O'Hare, 9%.

=B7       United is retreating from competitors' hubs. United has cut back=
 on=20
flights between its hubs and airports where rivals have a big advantage.=20
For example, United used to fly non-stop seven times a day from Los Angeles=
=20
to Phoenix, where America West and Southwest have 68% of passengers. Today,=
=20
it has no non-stop flights between Los Angeles and Phoenix; United Express=
=20
flies the route. United has also eliminated non-stops between Los Angeles=20
and Delta's hub in Atlanta and Continental's hub in Houston.

=B7       United has dropped some smaller international destinations that it=
=20
says are unprofitable. Earlier this month, United closed operations in=20
Caracas, Venezuela; Santiago, Chile; and Dusseldorf, Germany. On Jan. 22,=20
it will end service to Milan, Italy, and in March, it will stop flying=20
between the USA and New Zealand. But it plans to resume non-stop flights=20
between the USA and Seoul, South Korea, in February.  United says there=20
will be few other international cutbacks, which airline analysts applaud.=20
"While there may be some opportunities to replace flights to Europe through=
=20
international partners, I would be very disappointed to see United do=20
significant route sales internationally," says Jamie Baker, airline analyst=
=20
at J.P. Morgan.
United's determination to keep its route system intact shows it's trying=20
not to repeat the failed survival strategy of past troubled carriers such=20
as Pan Am. That storied airline kept itself alive through the 1980s by=20
raising hundreds of millions of dollars from piecemeal sales of valuable=20
chunks of its route network. But the sales provided only temporary relief,=
=20
while making its competitors stronger and leaving Pan Am weaker. Pan Am's=20
difficulties forced it to sell its trans-Pacific, its U.S.-London Heathrow=
=20
and Latin American routes to raise cash. The buyer each time? United=
 Airlines.



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