Scale-down strategy for UAL - Fly CRJs

[Lumber Yak]

Found this report on CBS Marketwatch. Note the hardball tactics at the end related to the regional partners - UAL demanding $60 million in cuts upfront while negotiating (for leverage) with three other regionals... Looks like some big changes ahead at UAL... Like USAirways - maybe hundreds of RJs flying in the system in the next few years...

Read below:


United could shift to smaller jets
Paper reports deals for Bombardier 50-seat airliners
By CBS.MarketWatch.com
Last Update: 5:46 PM ET Jan. 4, 2003

SAN FRANCISCO (CBS.MW) -- United Airlines might shift to smaller jetliners as a scale-down strategy, the Rocky Mountain News reported Saturday.

Based on interviews and court filings, the Denver paper said bankrupt United, run by UAL Corp. (UAL: news, chart, profile), has lined up the purchase or lease of several hundred CRJ-200 model planes built by Canada-based Bombardier (CA:BBDA: news, chart, profile).

Via agreements with regional airlines in its United Express network, the paper said, United could be using up to 425 of the slim, 50-seat jets within a few years.

The article said SkyWest (SKYWE: news, chart, profile) has orders for 55 jets and options for 84; privately held Air Wisconsin has orders for 29 and options on 85; and Atlantic Coast (ACAI: news, chart, profile) has orders for 47 and an unknown number of options to buy. All those planes plus an existing 125 would add up to a fleet of 425.

United, the nation's second-biggest airline, presently has a fleet of 540 full-size jets, according to Hoover's. Quoting Merrill Lynch analyst Michael Linenberg, the Denver paper said United has 557 full-size jets, with an agreement with pilots to lop that to 496.

As part of its recovery from bankruptcy, United has said it will be cutting operations and just Friday added to its reduction with at least 1,500 new job cuts. See full story.

The Rocky Mountain News article said that United's pilots have long opposed allowing smaller, regional jets to cut into operations but now may be willing to accept the change as a price for keeping the airline going, as well as feeding passengers into regular routes.

Besides the regional carriers, United has an agreement with bankrupt US Airways (UAWGQ: news, chart, profile) for sharing passengers and flight numbers.

The Denver article said Atlantic Coast has asked the bankruptcy judge overseeing United's case to order it to honor its contract, otherwise the smaller carrier could be on the hook for $940 million.

SkyWest spokesman Phil Gee told the paper that his airline might shift the smaller jets to routes it flies for Delta Air Lines (DAL: news, chart, profile) if its United accord collapses.

Irregardless of using smaller jets, United apparently is playing hardball with the regional airlines. The article says the carriers have been asked to cut their fees by $60 million and that United has sought bids from three other carriers to provide regional service.

 

[rjcap]

Irregardless of using smaller jets, United apparently is playing hardball with the regional airlines. The article says the carriers have been asked to cut their fees by $60 million and that United has sought bids from three other carriers to provide regional service

Interesting.

What if skywest, ACA etc. decide to not lower their fee for departure rates ?

I can see Mesa stepping in here to pick up a fraction of the load but not enough to keep United from rolling into insolvency.

Any Comments ?

 

[embdrvr]

Interesting.

What if skywest, ACA etc. decide to not lower their fee for departure rates ?

I can see Mesa stepping in here to pick up a fraction of the load but not enough to keep United from rolling into insolvency.

Any Comments ?

Do you really think that the savings in fee for departure flying are going to make that big a difference in whether or not UAL remains solvent? They need to fix what caused the problem in the first place and that is poor management decision making. UAL mgmt has never kept their eye on the ball. Back in the 80's they did the Allegis deal where they bought hotel chains and rental car companies only to sell them at a huge loss after running them into the ground. More recently there was the US Air fiasco. Oh and how much did the Avolar experiment cost them? The losses incurred by scrapping Avolar are probably far greater than any incremental savings in fee for departure flying.
Right now UAL is mgmt is acting like the arrogant ba$tards that they are. Their attitude is that everyone should operate at a loss to help prop up their dinosaur. The real answer is cleaning house from top to bottom and bringing in people that know how to run an airline successfully.
Replacing SkyWest and ACA flying with Freedom is like pissing in the ocean and expecting the water level to rise.

 

[Beechnut]

Yeah, I would say it's inevitable that we'll see a fourth United Express sometime in not too distant future. I hope it isn't Mesa. I read ACA took UAL to court to enforce the 2003 rate at which UAL pays for ACA's departures. AirWis still uses the 2001 rate. Anyone still have warm fuzzies about all the regional growth that a UAL bankruptcy would bring around?

S.

 

[Russ]

I hope UAL is smart enough to see that they have three reputable companies providing the feed. My belief is that while they may not be the cheapest providers out there, they will find an agreeable middle ground as far as a cost structure. You get what you pay for. While I have no doubt the pilots at the other mentioned airlines are up to the task, I doubt their management and infrastructure are.

 

[General Lee]

Yes, but the big question is whether or not United will make it at all. The banks put large restrictions on them to produce revenue or get liquidated. We are all currently in a slow revenue period and might have a war with Iraq on the horizon. And, to top it off, gas prices are way up. Let's hope things get better soon. Good luck to all.

Bye bye--General Lee

 

[Saabslime]

Word is from a good source that Mesaba Holdings is currently talking with United to have their newly purchased Big Sky subsidiary fly under the United logo. The Big Sky pilots just signed a contract with industry low wages for the canadair. They also agreed to separate pay scales for the 50 and 44 seaters. This is going to be real hard for United to pass up folks........watch your backs everyone!!

 

[P3-Adub]

Industry Low Wages ?

Funny that this is news, I thought that everyone wanted the big boys to take a MAJOR hit because they were paid too much ? The %$#* begins to roll down hill ! Only the begining I think.

embdrvr,

What log did you hide under ? Has UAL not made many changes already ?I suppose that you will be talking about UAL's poor business decisions years from now ? In case you have not noticed there is a new management team, wages are falling at a rapid rate, works rules will be changing, older fleets parked, unprofitable side businesses have been scrapped, and of course UAL is in chapter 11. Would have been nice to avoid all of this and keep our cozy jobs however this is not the case. I truely believe that the biggest challenge will be to change attitudes, case in point the IAM.

No light at the end of the tunnel yet, I believe that it will take quite a while. As far as the contracts with the feeders, why not re-negotiate ? After all, pay per segment is the way of the old business plan is it not ? Too fat of an idea if you ask me. Can't sit back and watch big profits being made while you pay through the nose and are losing money yourself.

Will be an interesting year indeed !

 

[SkywayFO]

I will start by saying this is opinion only. I belive that United is only using the idea of Masa, or CHQ, or Masaba as a way to beat ACA, AirWilly and Skywest down on coast. There are a few reasons why they won't or shouldn't add any more Express carriers. # 1 they have 3 of the best in the indusrty. #2 they cannot afford to go through the growing pains that ACA went through at ORD, right now they can't afford to lose one passenger. #3 I'm not sure any one else can get aircraft fast enough. Nothing pesonal against any one else but this is just the way I see it. I think you will see ACA,Willy and Skywest exsercise the options they have and grow. God I hope so. Maybe I won't have to sit on the bottom for ever.

 

[SkywayFO]

I guess I sould check my spelling first they hit submit! That is cost not coast. Thank God most things in aviation are easy to spell!!

Fly safe everyone!!!!