This article from NYTimes.com has been sent to you by psa188@xxxxxxxxx /-------------------- advertisement -----------------------\ Explore more of Starbucks at Starbucks.com. http://www.starbucks.com/default.asp?ci=1015 \----------------------------------------------------------/ United Shifts Focus on Low-Cost Airline May 30, 2003 By MICHELINE MAYNARD United Airlines is backing off from its strategy to make a separate low-fare carrier the linchpin of its plan to emerge from bankruptcy, saying now that the operation will be only one aspect of its eventual revamping proposal. Executives repeatedly stressed the need for the operation during the months immediately after United's Chapter 11 bankruptcy filing last December. But since then, competitors like Delta Air Lines and American Airlines, have stepped in with their own efforts to combat Southwest, JetBlue and other low-fare carriers. And United's unions, while granting $2.56 billion in annual wage and benefit cuts, did not agree to a different pay scale, which would have maximized the efficiency of a low-fare operation. In a telephone interview yesterday, Frederic Brace III, United's chief financial officer, said: "The low-cost carrier is not the centerpiece of our strategy. The centerpiece of our strategy is about serving business travelers and their needs profitably." Mr. Brace said United was completing a business plan to present to its creditors' committee on June 11, as well as to its board and to potential lenders. That will be followed by a formal restructuring plan, which United hopes to submit to a bankruptcy court in September or October, people who have been briefed on the company's deliberations said. Mr. Brace declined to say when the plan would be ready or what it would include. He said, however, that executives were debating whether to try to emerge from bankruptcy in the fourth quarter or in the first quarter of 2004. The airline originally planned to emerge next spring. The airline has been criticized by some in the industry for taking too long in preparing a plan and for not giving enough details of its strategy. Mr. Brace said: "We are working through the process in a way that will mean we are fully transformed, not partially transformed. We will take the time we need to do that." To emerge, United will have to line up exit financing. It also hopes to reapply for $1.8 billion in loan guarantees from the Air Transportation Stabilization Board, which rejected its application in December, leading to the bankruptcy filing. Mr. Brace said that United still planned to establish a low-cost operation with its own name, which will join the main airline and United Express, United's commuter airline. The development project is called Starfish. "Competing with low-cost carriers is still a very important thing to do and something we are going to do," Mr. Brace said. But rather than roll out the operation everywhere it flies, the airline may now focus primarily on cities ?including Denver; San Jose, Calif.; and New York - where it competes directly with Southwest, JetBlue and Frontier Airlines. "In some markets," Mr. Brace said, "we will compete with a low-cost operation. In some markets, we'll put a mainline product in competition with a low-cost carrier. In some markets, we'll have United Express competing." Glenn F. Tilton, chief executive of United's parent, UAL, has been a strong advocate of the separate airline, which he began talking about within hours of the bankruptcy filing. Over the winter, Mr. Tilton barnstormed to promote the idea, which United initially said would encompass 30 percent of its operations. In an interview in February, Mr. Tilton said: "This strategy gives us the opportunity to create two things: prosperity and jobs. The strategy that is the alternative to this is to dramatically shrink." Douglas A. Hacker, United's executive vice president for corporate strategy, maintained that everyone within the airline understood the need for the separate carrier, which would focus primarily on service to leisure travelers. Despite the attention, Mr. Brace said yesterday that United always meant the separate airline to be "one piece of the puzzle." "It was never the bulk of the operation," he said. Regardless, the plan drew criticism from industry analysts, who noted that United had failed in the 1990's with an airline-within-an-airline called the Shuttle by United. Moreover, the proposal led to heated opposition from United's unions, whose new labor agreements allow United to establish a low-fare airline but require it to pay its employees the same rates as their counterparts at the main airline. Jeffrey Zak, a spokesman for the Association of Flight Attendants, said concessions granted by United's unions were a giant step toward making the main airline competitive with its low-fare competition, without having to create a separate airline. Mr. Zak said he still hoped United would ultimately abandon the idea, "rather than trying to fit a square peg in a round hole, and get into part of the industry that they don't understand." He added: "If United does this right, they will end up a premium carrier with a low-fare structure. It can offer a premium product at low-fare rates." Other unions at United did not comment. But Joseph Schwieterman, professor of urban planning and transportation at DePaul University in Chicago, said United had to answer its competitors in some fashion. "Their labor agreements will solve only part of the problem. Its hub-and-spoke system inherently will saddle it with higher costs." He had originally supported the Starfish idea, but said opposition from labor unions and skepticism within the industry was too great a hurdle for United to proceed. "It has certainly forced United to rethink its assumptions," he said. But Professor Schwieterman said United could not waste time because its competitors were taking their own steps. Last month, Delta began flights by Song, its low-fare operation focusing primarily on the East Coast, with fares from $79 to $299 one-way. Last week, American Airlines said that it would cap coach fares at $299 and business class fares at $599 on a series of routes where it faces low-fare competition. American is also eliminating extra legroom in coach on its planes, which it had promoted in an effort to win business customers, and instead will put back seats it had removed. Kevin P. Mitchell, chairman of the Business Travel Coalition, which represents corporate travel departments and business travelers, predicted American would end up as "an across-the-board low-fare operator among the major carriers." He said he preferred that approach rather than United's idea for a separate airline. "It's more comprehensive," Mr. Mitchell said. http://www.nytimes.com/2003/05/30/business/30AIR.html?ex=1055315650&ei=1&en=de3349a7e362283d --------------------------------- Get Home Delivery of The New York Times Newspaper. Imagine reading The New York Times any time & anywhere you like! Leisurely catch up on events & expand your horizons. Enjoy now for 50% off Home Delivery! 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