=20 ---------------------------------------------------------------------- This article was sent to you by someone who found it on SFGate. The original article can be found on SFGate.com here: http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2004/02= /13/BUGLV4UFN532.DTL ---------------------------------------------------------------------- Friday, February 13, 2004 (SF Chronicle) United takes a flier on low-cost airline Ted/Flights from SFO will go to Ph= oenix and Las Vegas David Armstrong, Chronicle Staff Writer Las Vegas -- United Airlines' low-cost carrier Ted deposited a hundred or so bleary-eyed passengers from San Francisco in this gambling capital just after sunup Thursday on the first flight of a new service that industry analysts say is a roll of the dice for United. United, the dominant carrier at San Francisco International Airport, is hoping that Ted, its latest try at running a carrier-within-a-carrier, will help pump up revenues for its struggling parent company, UAL Corp., which is in Chapter 11 bankruptcy. United officials hope to lure passengers with the low-cost carrier's quirky, friendly identity and ticket prices that they say will match or undercut other low-fare competitors. "We are aiming Ted at high-value leisure markets," said Sean Donohue, United's vice president in charge of Ted. "Our focus groups told us they wanted something a little bit more relaxed, a little bit less formal, than the mainline carrier. That's the mind-set our customers already have when they're traveling to those leisure markets." Like Vegas. Ted's inaugural San Francisco-to-Las Vegas flight, officially United flight 1501, actually took off slightly earlier than Ted's official first flight, a four-hour journey to Fort Lauderdale, Fla., from Denver International Airport, where United maintains a hub and is battling low-fare Frontier Airlines for customers. Before take-off, a trio played acoustic tunes at the gate. After landing in Las Vegas, a four-man rock band in the terminal woke everyone up with songs from the Allman Brothers and Traffic. But such marketing touches weren't the deciding factor for Gail and Paul Smith of Half Moon Bay, traveling to Las Vegas for a convention. "We liked the price," Paul Smith said. Dennis Bauks, a salesman from Daly City, was en route to Las Vegas for business. A Mileage Plus flier, he said he got a ticket on Ted for $50 less than he would have paid on the mainline carrier and was pleased the ticket didn't require a Saturday night stay. He also found the flight easy to book. "The Web site (www.flyted.com) gets you right to it," he said. The plane, an Airbus A320 -- like all the aircraft United is using for T= ed -- was pulled from United's fleet. It was painted outside with TED in big letters and reconfigured inside, with 96 economy-class seats and 60 slightly pricier economy-plus seats in place of a first-class section. The top one-way fare in economy class, $309, is the same as Ted's economy-plus class, which offers 4 more inches of legroom. Economy-plus seats, which take up almost half the aircraft, will be offered primarily as frequent-flier upgrades. Travelers on the SFO-to-Las Vegas flight didn't get to sample all the customized bells and whistles that United officials have promised for most Ted flights, but many of Ted's marketing and branding touches were in evidence. Ted employees wore orange caps and blue shirts with orange buttons that said TED. A treat bag with a Teddy bear and CD of upbeat tunes was given to every passenger, along with baggage tags that read "Love at First Flight." Despite all the marketing, flight attendant Kimberly Blair, a United employee for 13 years, said she was not aware that flight 1501 was a Ted flight. "I was surprised by all the hoopla," said Blair. She also said United crew members from throughout the system will work on Ted flights from time to time, but none will work exclusively for the new carrier. Ted also offers overhead Tedevision, TV monitors showing short videos, a= nd Tedtunes, a selection of dance and club music, Latin sounds, children's music and other music played over multicolored headsets that the carrier provides at no extra charge. Ted has free beverage service on all flights, but sells meals of deli sandwiches, cookies, brownies and other snacks only on flights that last longer than 2 1/2 hours. Yuki Miyamoto, vice president of business development for Novato high-te= ch firm Sonic Solutions, skipped some of the free goodies to grab some shut-eye, but did praise the Ted staff. "People are really friendly," said Miyamoto, who was traveling to Las Vegas on business. "I take a lot of international flights on United, and the flight attendants are not that friendly." Some industry analysts question whether such flourishes, coupled with United's promise of competitive low fares, will be enough to make Ted a success. "Ted is a small part of United," said Standard & Poor's airline analyst Betsy Snyder, who observed that the 45 planes that United plans to use for Ted by the end of the year constitute only about 10 percent of its fleet. Moreover, said Snyder, "low-cost carriers within mainline network airlin= es have never been successful. You had Continental Lite. You had Delta Express. You had Shuttle by United, which wasn't successful. Now you have Song, and Delta is planning to restrict Song's growth. "It's very difficult for an airline to carve out a separate niche product," Snyder said. "It comes at the expense of the parent airline's identity, and it usually cannibalizes the mainline network carrier's route structure." In other words, such carriers can draw on an airline's customers, who th= en pay it less money, in effect putting the airline in a losing competition with itself. But United feels Ted will help feed the mainline carrier, not take passengers away, United's Sean Donohue said. "Forty to 50 percent of our passengers on Ted will be connecting to flights on the mainline carrier," he said. "We can offer them connectivity to United's global route network." And customers can earn or spend United Mileage Plus points by flying Ted, Donohue said, moving up to economy plus, for example, for more comfort. Perhaps the biggest challenge for United is keeping Ted's operating costs low, said Ray Neidl, an airline analyst with Blaylock & Partners, in New York. United, Neidl noted, is using employees from its mainline carrier for Ted and paying most of them the same wages they would earn at United, making it hard to see how United can keep its costs low enough to make money with Ted. United executives insist Ted will save the parent company money by making more extensive use of each aircraft and using A320 pilots already on the United payroll who are paid less than United pilots who fly larger aircraft. United employees have accepted wage and benefit concessions since entering Chapter 11. "We have squeezed a lot of costs out of this company during restructuring," Donohue said. "We have the durability and sustainability of the six-year contract (with United workers) to help contain costs." United also says that Ted flights will often replace flights on larger aircraft that were not full, especially in first class and business class where fares were sky-high and passengers few in a time of austerity. Like the rest of the U.S. airline industry, United was battered by the poor economy, post-Sept. 11 fear of flying and jitters over the Iraq war. United, which operates its largest international hub at SFO, was also hurt last year on its important transpacific routes by the outbreak of severe acute respiratory syndrome. UAL Corp. lost $2.8 billion in 2003, after losing $3.2 billion in 2002. But United has shown signs of revival, narrowing its net loss for the fourth quarter of 2003 to $476 million from $1.5 billion in the same period the previous year, and seeing a 10 percent increase in passenger revenue per seat. A group of travelers from San Francisco, strolling past slot machines th= at were blinking and beeping in the early morning light at McCarran International Airport, gave Ted's first flight mixed reviews. "We can safely say we didn't take it for the name," said Allan Margulius of San Francisco. But he did like the lively mix of Latin-tinged dance music that filled the cabin before takeoff and after landing. Drew Carpender of San Francisco was unimpressed. "Overall, I think JetBl= ue is a better customer experience," he said. "You have leather seats and seatback TVs, not overheads. I was surprised at how standard Ted was." Neil Murphy, a San Rafael resident in Las Vegas for a hunting show, said he, like his friends, booked the flight without knowing it would be a Ted flight. For him, it was all about price, which he liked; convenience, which he also liked; and the time of departure. "This was the time I needed to make the trip," he said. United's new low-fare carrier Service started: Thursday Hub: Denver Cities served: San Francisco, Denver, Las Vegas and Fort Lauderdale initially; Reno (Tuesday), New Orleans (Feb. 22), Ontario (Feb. 27), Phoenix and Orlando (March 11) and Washington, D.C. (April 7) Service from SFO: One daily flight to Las Vegas, increasing to seven per day by late March. One daily flight to Phoenix starting March 16, increasing to four per day by late March Aircraft: Airbus A320 with 156 seats Comparing fares: For a round trip between SFO and Las Vegas, booked a we= ek in advance, leaving Thursday morning and returning Friday morning, America West: $196; TED: $215; American: $239; Alaska: $356 Source: Chronicle research E-mail David Armstrong at davidarmstrong@xxxxxxxxxxxxxxxx --------------= -------------------------------------------------------- Copyright 2004 SF Chronicle