=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/2004/04= /28/BUG0R6BRP730.DTL --------------------------------------------------------------------- Wednesday, April 28, 2004 (SF Chronicle) United gains momentum/Passengers flocking to Ted, the new no-frills carrier David Armstrong, Chronicle Staff Writer LOS ANGELES -- United Airlines, the world's second-largest carrier, is on track to exit Chapter 11 bankruptcy reorganization by the end of summer, thanks in part to the initial success of Ted, its 10-week-old low-cost carrier within a carrier. United Chief Executive Officer Glenn Tilton said in a Chronicle interview at the Travel Industry Association of America's annual trade show in Los Angeles that Ted is racking up load factors "in the high 80s percentile," which means, in industry terms, that its flights are essentially full. Also, Ted "contributed positively to profitability in the month of March, " he added, without specifying net income figures, revenues or costs for the newly created unit. Ted, which opened for business Feb. 12, is United's much-ballyhooed attempt to wrest market share from a gaggle of increasingly scrappy low-cost carriers by offering lower fares and a more informal atmosphere than its mainline carrier. Ted flies to 12 U.S. cities, serving Las Vegas and Phoenix from San Francisco International Airport, where United is the dominant carrier, accounting for about half of all passengers and flights. Tilton said that United also plans to increase its international traffic from SFO, which the airline uses as a U.S. hub and prime gateway for transpacific routes. Pending U.S. government approval, which could come by year's end, the mainline United carrier will begin service from SFO to Ho Chi Minh City, the metropolis in Vietnam also known as Saigon, via Hong Kong. Vietnamese authorities just gave their approval to the service, which Tilton hailed as potentially lucrative and even poetic. "I think the entire Southeast Asia region offers tremendous opportunity,= " he said. "It's a hugely entrepreneurial region with pent-up demand. "For us, with a Pacific network through our two West Coast hubs (in Los Angeles and San Francisco), and with Northern California's significant Vietnamese community, it's an ideal route. And it has some poetry for us. With United, a quintessential American airline, you'll have the first U.S. carrier flying to Vietnam in 30 years." SFO has courted Vietnam Airlines for such service, in hopes that that carrier will begin direct service from Ho Chi Minh City or Hanoi to San Francisco. SFO officials still hope the Vietnamese flag carrier will come here, airport spokeswoman Kandace Bender said. "We welcome both airlines," Bender said, adding that Vietnam Airlines, if it receives U.S. government permission, could start its service at SFO by January, in time for the Tet lunar New Year celebrations. In a wide-ranging, generally optimistic look at United's prospects, Tilt= on said that congressional relief on pension obligations, United's cost reductions and increasing business for United Services, which runs United's huge maintenance facility at SFO, are all helping to strengthen the parent company, UAL Corp., which entered Chapter 11 in December 2002. UAL, which will report its first-quarter results Thursday, lost $8.1 billion from 2001 to 2003 and cut its workforce from 100,000 to slightly more than 60,000. Last month, however, United recalled 100 furloughed aircraft mechanics to its maintenance center at SFO, reflecting, Tilton said, an increase in contracting work from other airlines, especially Asia Pacific carriers that have some planes serviced at SFO. Tilton didn't predict when United might turn a profit, but he did express confidence that things are turning around at the troubled carrier. In particular, he said, "Ted is innovating and creating for the parent company to study. Ted has had a employer/management council from the very beginning." This fluidity, as well as the carrier's whimsical, informal style, is helping to lighten up UAL's rather reserved corporate culture, he said. "Ted can do whatever Ted bloody well wants to do," Tilton said, referring to Ted's hang-loose, go-for-it aura, which features branded merchandise and add-ons such as Ted tunes (on-board music channel) and Tedevision (customized television viewed on overhead monitors), designed to charm travelers. Even so, some analysts wonder if such friendly flourishes, coupled with lower fares, will be enough to make Ted a long-term 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 this 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. Now you have Song, and Delta is planning to restrict Song's growth." Tilton acknowledged that UAL faces stiff challenges. For one thing, United has had to absorb high fuel costs this year, as ha= ve other airlines. Tilton, a former top executive at San Ramon's ChevronTexaco Corp., said it was hard to lock in or "hedge" low-cost fuel supplies because Chapter 11 places restrictions on lines of credit and hedging oil at current high prices "doesn't provide much relief." Oil is currently selling at $36 per barrel, a high mark. "It will be some time before we see oil in the $25 to $28 day barrel range, certainly not before the end of the peak driving season," around Labor Day, he said. Tilton also allowed that UAL must still reach an agreement with former workers on restructuring some retiree medical benefits and restructure aircraft leasing arrangements with one remaining creditor group, which he did not identify. "We are making good progress on those things," he said. Additionally, United continues to await a decision from the federal Air Transportation Stabilization Board on whether to grant the company $1.8 billion in loan guarantees. The board has had UAL's revised business plan in hand for four months, he said. Ray Neidl, an airline industry analyst with Blaylock & Partners, praised United for its successful efforts to reduce costs but said a failure to land the federal loan guarantees would force UAL to scramble for a Plan B. "They'd have to find an equity investor ... which could mean even further changes," Neidl told the Associated Press. Most Wall Street analysts are predicting hard times will continue for the airline industry. UBS Warburg analyst Sam Buttrick said U.S. airlines will roll up losses in the billions this year, due chiefly to stubbornly high fuel costs. Tilton gave a keynote address at the TIA trade show, the travel industry= 's largest event of the year, which brings together U.S. domestic hotels, tour operators, city and state tourism board with foreign travel businesses and travel journalists who cover the United States. The event, staged in a different U.S. city every year, will be held in San Francisco in 2011. E-mail David Armstrong at davidarmstrong@sfchronicle .com. -------------= --------------------------------------------------------- Copyright 2004 SF Chronicle