=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/c/a/2005/04/06/BUGPVC3HGE= 34.DTL --------------------------------------------------------------------- Wednesday, April 6, 2005 (SF Chronicle) Main line to Asia/United hopes to cash in on new flock of Pacific Rim fligh= ts David Armstrong, Chronicle Staff Writer Like most carriers, bankrupt United Airlines is plagued by sky-high fuel prices, low fares that don't allow the carrier to make money on most tickets, plus heavy pension obligations. But the airline has a long-term plan to fly out of Chapter 11, centered = on aggressively expanding its Asia Pacific routes, United's chairman, president and chief executive officer, Glenn Tilton, said Tuesday in an interview with The Chronicle after addressing the Asia Society of Northern California. In the short term, the airline is trying to get its fuel costs under control. United recently hedged 18 percent of its jet fuel supplies at $43 per barrel, said Tilton, who was a senior executive in the oil industry before joining United in 2002 from ChevronTexaco in San Ramon. "Where it will go is anybody's guess," Tilton said of the price of fuel. "All we can do is optimize the revenue-generating opportunities where we can and rationalize the fare structure. The yields need to come up." United employs 11,000 people in Northern California. It is the dominant carrier at San Francisco International Airport, with about half of all flights and passengers, and operates one of its five hubs at SFO. The world's airlines are forecast to lose a collective $5.5 billion in 2005, according to the International Air Transport Association, in large part due to stubbornly high fuel costs. The association's forecast was predicated on oil averaging $46 per barrel. On Tuesday, it closed at $58 per barrel. Tilton did not acknowledge canceling any flights directly due to fuel costs but did say United will continue to look for expansion on long-haul Asia Pacific flights, which utilize newer, more efficient aircraft and are generally more fuel efficient than smaller, older domestic aircraft. In February, United began shifting its aircraft from domestic service -- in which it, like other legacy carriers, has lost market share to low-cost airlines -- to international routes, where its global network provides an edge, Tilton said. When that process, which involves 14 percent of United's fleet of 455 aircraft, is complete in autumn, "We will draw 55 percent of our revenue from international routes, compared to 40 percent before the shift," Tilton said. Autumn exit expected United has been in Chapter 11 bankruptcy protection since December 2002. It has missed several self-imposed exit dates but now expects to come out of Chapter 11 in autumn, according to Tilton. United is banking heavily on its Asia Pacific routes to lift it out of bankruptcy. It uses SFO as a prime gateway to the Pacific, along with Los Angeles International Airport. "Asia Pacific is really the story for SFO, and so much of your (Bay Area) business is with Asia Pacific," Tilton said. "According to the U.S. Department of Commerce, between 2002 and 2007, Japan's economy is forecast to grow by 8 percent, Australia/New Zealand by 19 percent, China by 33 percent and India by 49 percent," Tilton said in his speech to the Asia Society. Analysts said the emphasis on international business -- especially the burgeoning Asia Pacific, for which passenger traffic grew by 15.6 percent last year, ahead of the worldwide average of 13.5 percent -- could help the airline. "It's part of the solution," said Michael Boyd, principal of the Boyd Aviation Group, of Evergreen, Colo. "We call it the Shanghai-Shreveport solution. You funnel people from, say, Shanghai to hubs like San Francisco and then feed them on your domestic routes to little places like Shreveport or Bangor, Maine." That helps a legacy carrier like United leverage its extensive route system -- something a domestic low-fare carrier such as Southwest can't do, because it has no transpacific or transatlantic routes, Boyd said. Nonstop to Nagoya In line with this, United started daily nonstop service to Nagoya, the Detroit of Japan, from SFO last month. United started daily service via Hong Kong from SFO to Ho Chi Minh City, the largest city in Vietnam, last December. In June, it started daily nonstop service between SFO and Beijing. United also flies to Tokyo and Osaka, Japan, offering connecting flights to other Japanese cities through a code-sharing and ticketing arrangement with All Nippon Airways, a fellow member of the Star Alliance. United flies nonstop between SFO and the boomtown of Shanghai. It hopes = to add flights to the Chinese industrial center of Guangzhou, Tilton said, although earlier requests to U.S. aviation authorities to begin service have been rebuffed. "We're definitely going after that," he said. "It's important to the Asi= an community in San Francisco, and the business community in Guangzhou seems to want it as much or even more." Tilton said that the sprawling United Services maintenance plant at SFO, which employs 5,000 people and does maintenance work for Air China, Singapore Airlines and Qantas Airways, is also part of UAL's plans to boost United's revenue. On domestic routes, United will continue to expand Ted, its low-fare uni= t, growing to 56 aircraft from the current 45 in the coming months, Tilton said. Tilton gave a generally upbeat assessment of the prospects for United, which recorded a net loss of $617 million in the first two months of this year, even though it filled more than 80 percent of the seats on United and Ted. UAL has extracted about $2.5 billion a year in wage and benefit concessions from its 60,000 employees and has told the federal government it cannot afford to fund its pension plans. The airline's Asia Pacific expansion plan, while logical, is no panacea for the troubles at United, which lost $1.6 billion last year and $9.7 billion since the nation's economy started to go south in 2000, analyst Boyd said. "You've probably hit labor as hard as you can," he said, but costs can still be cut other ways. "There are a lot of systems they can cut back on. Do they really need four staffers at the gate at SFO to board the plane?" E-mail David Armstrong at davidarmstrong@xxxxxxxxxxxxxxxx --------------= -------------------------------------------------------- Copyright 2005 SF Chronicle