NYTimes.com Article: United Looks to Overseas Service for Profit

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United Looks to Overseas Service for Profit

October 7, 2004
 By MICHELINE MAYNARD





United Airlines, which is struggling to emerge from
bankruptcy protection, said yesterday that it would cut 68
airplanes from its fleet, shift more responsibility for
domestic routes to its regional carrier and expand its
international flights.

While the actions are likely to lead to job cuts, United
did not specify any when announcing the plan. "We're
expecting some, but we haven't determined that number," a
spokeswoman, Jean Medina, said.

The move by United, the primary business of UAL and the
nation's second-biggest airline after American, is the
clearest indication yet of the future shape of its
operations.

United, which failed on June 28 to win approval for
federally backed loans that it was seeking to pave its way
out of bankruptcy, has been on a drive since then to
reorganize itself.

The company has told a bankruptcy court that it is likely
to terminate its employee pension plans, and it has said it
needs $1 billion a year in cost cuts on top of $5 billion
in reductions it has already identified.

The de-emphasis of flying within the United States and the
increased emphasis on international routes falls in line
with the predictions of some analysts, who said United
needs such a strategy to battle stiff domestic competition
from low-fare airlines and to get more out of its prized
international routes.

In a message to employees yesterday, United's chief
executive, Glenn F. Tilton, said the changes would allow
the airline to make the most of its assets. Nonetheless,
the move is a major change for United, based outside of
Chicago, which once prided itself on flying to all 50
states.

United said it would cut 68 aircraft from its fleet by
March, leaving it with 455 planes. United had 567 planes in
2002, before it sought Chapter 11 bankruptcy protection in
December of that year.

United said it would shift its biggest planes from domestic
service to international routes, increasing the number of
seats on international flights by 14 percent. When the
shifts are finished, the airline projects that 40 percent
of its flights and half its revenue will come from flights
outside the United States. United had already announced
plans to retire some Boeing 767-200 jets.

Throughout its bankruptcy, United has left its route system
virtually untouched. It has valuable rights to serve Tokyo
and other Asian cities, and it also flies to Europe and
Latin America. In recent months, the airline has added
flights between Chicago and Shanghai, Chicago and Buenos
Aires, and San Francisco and Nagoya, Japan.

John Tague, an executive vice president at United, said
that the airline's international revenue had rebounded to
levels achieved before the September 2001 attacks, and said
that the airline commands a premium on some routes. "The
numbers tell you where you should allocate assets," Mr.
Tague said.

As a result of the move, available seats on domestic
flights would drop 12 percent. United said that it would
shift some routes to United Express, its regional carrier,
although it did not specify which cities would be affected.
The airline said United Express would expand its use of
70-seat regional jets, some of which offer first-class
service.

The strategy is similar to that taken by Delta Air Lines in
shifting flights to its regional carriers, said Robert W.
Mann Jr., an industry consultant based in Port Washington,
N.Y.

"I don't think they have any alternative, frankly," Mr.
Mann said. "All the domestic carriers have to downsize the
cost of their domestic networks, or they have to reduce
their networks."

http://www.nytimes.com/2004/10/07/business/07air.html?ex=1098156417&ei=1&en=578e5e1a746a4c2b


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