United Low Cost Ambition With 40 Aircraft

BestWestern · Wed Jul 16, 2003 12:03 am

Http://biz.yahoo.com/rf/030715/airlines_united_carrier_1.html

Looks like United are following DL down the song concept line... This has to be sucessful for UA to ve. Unlike DL Express, United have never succeeded with a leisure airline within airline product. Infact, only BA and DL ever made money from low cost offshoots.

CHICAGO, July 15 (Reuters) - Bankrupt United Airlines said on Tuesday it plans to use 40 planes from its regular fleet for the start-up of a low-cost carrier designed to compete with discount airlines that are eating up its market share.

United and parent UAL Corp. (OTC BB:UALAQ.OB - News) filed the largest bankruptcy in U.S. airline history in December and said that a low-fare airline-within-an-airline would be part of the mix needed to restore profits and emerge from court protection.

"Our initial first-year plan calls for a fleet of approximately 40 aircraft from our mainline fleet operating in key leisure markets," said Sean Donohue, vice president for the low cost operation, in a statement recorded on an employee hotline.

Donohue provided an update on the low-cost carrier, which has been called Starfish internally, to United's executive council during a regular weekly meeting on Monday. A proposed route structure and some financial estimates for the operation were reviewed at the meeting, United said.

luv2fly · Wed Jul 16, 2003 1:39 am

Mistake if you ask me! Why try to be all things to all people.... Just because DL is doing it does not make it a good idea, how soon we forget, MetroJet, Continental lite, shuttle by United.

UN_B732 · Wed Jul 16, 2003 1:41 am

How do you get to these employee hotlines???
-UN

flyingbronco05 · Wed Jul 16, 2003 1:50 am

How much dumber can Untied get?

This is not the time to do it, if at all.

They need to worry about filling their current fleet on flights and maximize profit.

luv2fly · Wed Jul 16, 2003 1:59 am

Like my parents always said, "Just because your friends were jumping off a bridge would you do the same?" Also they really need to be focused on there core business, United Airlines and getting that in order before trying out this idea.

LH423 · Wed Jul 16, 2003 2:08 am

This is truly a bad idea. As much as I can see United's reasoning, they have to realize that if this fails (which, I bet it will) they'll be using the last of their money. The United saga may not be over yet!

LH423

AirT85 · Wed Jul 16, 2003 2:19 am

When do they plan on launching this LCC? The summer is almost over and with it goes the majority of whatever profits they hoped to (or may have) make (made) this year. If the winter doesn't drain them dry, this LCC probably will. I'm not understanding the logic. The reasoning is there, but I can't find the logic to go with it. Song isn't 100% proven yet (as far as I know there have been no releases as to the financial stability of Song), so why should UA jump on so soon, especially when its still in stormy water itself?
-Tony

BeltwayBandit · Wed Jul 16, 2003 2:48 am

It's not an LCC unless it has low costs. If it is just a division of United, then it will have very high costs. This is all folly in my view. United needs to look at reducing costs in its ENTIRE operation, not just a select division.

Someone explain to me why or when a high-cost operation is necessary or beneficial in ANY context? The idea that you can create a low-cost part of your operation, to compete with LCCs, and maintain a high-cost part to compete with other mainlines, is senseless. Either reduce costs to competitive levels for your whole operation, or throw in the towel and liquidate.

DL WIDGET HEAD · Wed Jul 16, 2003 2:56 am

The new jargon is LFC -- Low Fare Carrier. Good luck UA!

HlywdCatft · Wed Jul 16, 2003 3:02 am

LFC- should stand for Loser F***ing Crap!

4everRC · Wed Jul 16, 2003 3:02 am

If I'm not mistaken, United Shuttle was shut down because it was UNprofitable -- it sure wasn't making money when I worked for UA in 2000. Can someone explain to me how they plan to make a profit now when they couldn't when the airline business was healthier?

deltairlines · Wed Jul 16, 2003 3:05 am

I too am seeing problems in this plan. The major reason that DL could/can make money on Express/Song was that everything was already in place. DL had an extensive Florida market prior to Express, all DL did was transfer it to smaller planes but added frequencies to make up for it. Florida is a major low-fare market, hence DL pulled it off successfully. MetroJet was hubbed up north and was to a business destination (BWI and IAD, both of which were high-yield pax before MetroJet), and CO Lite was too inconsistent (a CO lite a/c on mainline services wasn't that uncommon). I am very sceptical, this plan seems like it will be United Shuttle Mk II, which was doomed from the already intense LCC competition out west.

Jeff

ducky8855 · Wed Jul 16, 2003 3:12 am

BAD MOVE FOR UNITED!!! It looks like the exec. Are looking for reason to shut down United for good. They need to focus on trimming down their fleet and transfer their routes to regional carrier, thus allowing them to focus their finance on the high density routes domestic, and international routes in terms of customer service. That is where I see the major carrier need concentrate on and forget about trying to compete with the low fare airlines.

milemaster · Wed Jul 16, 2003 3:18 am

Geez..

I've never seen so many pessimists in one thread before. Insane

scottysair · Wed Jul 16, 2003 5:01 am

Who will getting with 40th aircraft as for low-fares by United? Which one is Boeing or Airbus? Can you please comfirmed with their planes on the those routes soon. Thanks! Smile

spinkid · Wed Jul 16, 2003 5:28 am

So far they are calling it "Starfish"....................any thoughts on the name, better or worse than Song. Personally I hate Song, it's hard to be worse than that.

BestWestern · Wed Jul 16, 2003 5:15 pm

I would be surprised if UA were to purchase extra fleet for this project... Like DL, I can see UA moving 40% of its 757 fleet (40 aircraft) over to the low cost operation, and downsizing the mainline operation. Expect an operation similar to Song focused on non hub to florida and las vegas flying.

UAL would be loco if they were to re-start shuttle by united using this low cost model.

FlyPNS1 · Wed Jul 16, 2003 11:27 pm

Why would UA all of the sudden focus on Florida flying? UA hasn't been a major player in most Florida markets for ages. DL's Song was built on the fact that DL already had a hefty presence in Florida, not plunging into markets that DL never had a presence in.

luv2fly · Wed Jul 16, 2003 11:32 pm

Ducky8855

You said it right on! The problem I see it is that all the majors are more focused on what everyone else is doing than what they should be doing to turn around there airline. Stop trying to keep up with the Jones.

Flaps · Wed Jul 16, 2003 11:38 pm

Maybe it would be more aptly named tuna fish, or dead fish.

jsnww81 · Thu Jul 17, 2003 12:42 am

As for the name of this LCC: I attended a lecture by JetBlue's David Neeleman back in April.

He said he was hoping United called their airline "Dance", so that he could refer to the competition as the "same old Song and Dance."

andersjt · Wed Jul 23, 2003 8:13 am

Shuttle by United, later the United Shuttle, was not as unsuccessful as many believe. When started up, it was originally intended to answer Southwest's expansion in California. While it did not surpass Southwest in that type of passenger, United found an unintended benefit - the Shuttle became a low cost feeder to international flights out of LAX and SFO.

When business travel was booming, United could set high fares for city pairs such as LAS-HKG, or SAC-LHR. Pax from LAS and SAC would be fed into LAX and SFO via the low cost shuttle, thus increasing profitability across the line.

The Shuttle was discontinued in response to the drastic downturn in business travel. At some point load factors are going to drop enough where it doesn't make sense to market a separate airline within an airline. Additionally, if you market certain flights as "Shuttle" with dedicated aircraft types, you lose flexibility in positioning. For example, now as a mainline, UA is positioning 767's between LAX and SFO to where they are needed.

Don't get me wrong, I absolutely hated the Shuttle when it started up, but while United doesn't market these flights as shuttle flights, many of the short-hauls are still operated as shuttles (e.g. plastic cups in first class). Before Shuttle by United you could actually get snack service in First on the LAX-SFO flights - it was quick, but it was a nice treat on a Friday night after a long work week.

United has the planes, and they have the flexibility to set new union contracts. Setting up a low cost carrier is a must to capture that market until business travel picks up again. I will however, try to avoid it as much as I can.

elwood64151 · Wed Jul 23, 2003 9:18 am

A better idea would be to use the bankruptcy position to renegotiate contracts with labor, vendors, suppliers, airport authorities, etc, to create a leaner, more efficient machine. So far, all I've seen is labor concessions...

United in general has one huge problem: Overcapacity. I don't see this helping.

My $.02.

trickijedi · Wed Jul 23, 2003 10:42 am

"Our initial first-year plan calls for a fleet of approximately 40 aircraft from our mainline fleet operating in key leisure markets," said Sean Donohue, vice president for the low cost operation,

I'd like to know what these "key leisure markets" are.

UA744Flagship · Wed Jul 23, 2003 10:44 am

A better idea would be to use the bankruptcy position to renegotiate contracts with labor, vendors, suppliers, airport authorities, etc, to create a leaner, more efficient machine.

What do you think United has been doing?

United does not disclose the terms of the deals in these "b2b" transactions... when b2b contracts are renegotiated, even with companies not in BK, press releases are never made.

If you'll look at estimates of United's savings since it entered BK, you'll notice that there are several different number estimates on the cost reductions from said initiatives.

Indeed, the reason why 747-400s are being brought back in service is because of renegotiated leases. And have you not seen the flurry of articles lately (Denver Post especially) on United's negotiations with airport authorities to reduce costs?

United doesn't haver overcapacity.

Its load factor was nearly 83% in June.

The problem is costs, which they are working on, and attracting the right type of passenger/fare mix.

SAAB340 · Wed Jul 23, 2003 11:12 am

The point Andersjt made was excellent. Saw your profile.... a CFO???? Explain if you will...

Thanks alot
Paul

ConcordeBoy · Wed Jul 23, 2003 11:13 am

United doesn't haver overcapacity.

actually, all 6 of the majors do... the primary reason they're in the predicament that they're currently in Big grin

OzarkD9S · Wed Jul 23, 2003 11:30 am

UA should focus on their strengths: good hubs in the US and a great international network. Fly mainline to the top 100 markets domestically and leave the rest for United Express. What the hell do they need Florida for? A crappy MIA "hub" that pales in comparison to the AA ops there? Florida has a glut of LFC's and a UA LFC offshoot isn't gonna make their comeback. Let Mexicana handle the Mexican resorts, Star partners to markets other than ORD, IAD, DEN and SFO, maybe LAX. Dump those 744's and do 777's. So they lose Australia, big deal, again those flights aren't gonna save this company. UA is what it is, an intercontinental world-class carrier, why try to be Spirit or ATA? And of course...get their costs in line...BK will help them there, but what happens when and if they exit? They better have a lean mean machine or they'll be right back in BK, maybe even Chapter 7.

ual777contrail · Wed Jul 23, 2003 12:35 pm

1) First off United chose the name STARFISH because when a starfish loses an arm it will grow back. So while United will lose 40 planes in it's fleet(a320's) they will ajust to the loss because most of the routes that mainline will lose will be a part of starfish.

2) Also the starfish feeds on mollusk(other low fare carriers), and they are small invertebrate animals.

3) Invertebrate: lacking a spinal column, lacking in strength against the starfish.

numbers 2 and 3 are only jokes, so nobody take it to seriously, i know how serious you low fare fans are out there.

But the model for the starfish will use A320/19's
my source is a lady who works in SFOMM for UAL and is a part of this little thing they call starfish. She always has wonderful info for us UAL CSR'S.

ual 777 contrail

StevenUhl777 · Wed Jul 23, 2003 1:00 pm

Andersjt is probably the most accurate of all the messages.

Everything worked well for Shuttle By United for about the 1st three years...it was popular, it fed the international routes, and employees believed in it. IMHO, the reason it failed was because the poor management team who didn't believe in teamwork and employee ownership deliberately caused problems and before long, it was going downhill fast, and 9/11 was simply the nail in its coffin. Shuttle was making the other LCC's nervous..and had things been different, the LCC market would look a lot different today...Shuttle would be nationwide.

But...United CAN make this work...and they will. Why Florida? Because everyone wants a cheap ticket, that's why. It will be interesting to see the leisure markets, definitely. But they're not going to announce all that now, otherwise the other LCC's will simply find a way to beat them in advance.

Another comment was made that United should use the courts to amend the labor contracts. Well folks, that's been done. They're all set in stone through 2009. What hurt so much was the contracts included language allowing United to set up the LCC, outsource work, etc. that had been resisted for so long. Employees can only give back so much, before they lose interest and move on, as a lot of people in the airline industry have already. If United can't make this work, or some other plan, than it's merger time.

starrion · Wed Jul 23, 2003 1:41 pm

"Indeed, the reason why 747-400s are being brought back in service is because of renegotiated leases. "

Does this mean that United is going to start pulling some of the 15 or so 744's out of the desert?

Will they pull their parked 777's in first?

UA744Flagship · Wed Jul 23, 2003 1:49 pm

United has already started to pull 744s out of the desert for the peak summer schedule.

Word is that there are more 777s parked than 744s now -- until their respective leases are renegotiated.

The 744 has returned to domestic trunk routes and can be seen daily on the IAD-LAX routing, and twice daily (!!!) on the ORD-SFO, ORD-DEN, and ORD-LAX routings.

The 744 is taking back its place on transpacific routes from 777s, including LAX-NRT, NRT-TPE, NRT-ICN, SFO-NRT, ORD-NRT.

AA717driver · Wed Jul 23, 2003 4:21 pm

I thought UA was already a low cost carrier... Maybe it's just the employees that are 'low cost'... Sad

TC

andersjt · Thu Jul 24, 2003 1:08 am

First my thanks to Saab340 and StevenUhl for their kind comments.

Sources here in LAX is that UA is getting heat and pressure from studios and production companies to restore a lot of international service that was cut and left to Star Alliance partners, especially Australia and New Zealand. UA worked hard to woo the studios and travel managers at the studios loved using United because of service and schedules. I would bet that we will see some of that service restored. If I am right, UA will need the 744's for Australia and New Zealand.

As far as the low-cost concept, it is just a natural response to compete and stay alive. Business travel will pick up, maybe not to the levels we saw 3 years ago; however, I would like to see UA, where it makes financial sense, offer us UA loyalists a choice between mainline or "Shuttle." We were turned off by the "Shuttle" as the only choice, but they were short flights. I just hope on my next trip to ORD, IAD or MIA that I have other choices than "Starfish" flights.

Finally, as UA emerges from bankruptcty, maybe it is time to bring back the "Friendly Skies." I miss them.

MSYtristar · Thu Jul 24, 2003 1:15 am

I remember seeing in United's business plan power point that Starfish and UAL mainline would fly some routes jointly. If it's still floating around out there, it even showed a route map of proposed Starfish routes.

ual777contrail · Thu Jul 24, 2003 1:33 pm

United is leaseing 7 747's to SQ right now, they arent even using all our 747's. some of the 777's will be returned and those are the ones sitting in the desert.

ctbarnes · Thu Jul 24, 2003 1:58 pm

Glenn Tilton just doesn't get it.

Instead of sinking money they don't have into daft schemes such as Starfish, they need to concentrate on their strengths, namely their route system, their alliance structure, and their global reach. They need to concentrate firmly and squarely on winning back the ever dwindling business travelers who have been alienated time and again by both management and the unions. Their reputation was the businesspersons' airline, one that has been steadily squandered through inept customer service, unions treating customers as pawns, and lack of consistent management and coherent vision. The only thing Starfish is going to accomplish is to drive yet more of its customers to American and Continental; something they cannot afford to do. Cutting costs to the bone only pisses off customers who are fed up with being treated as sheep by a company that claims to listen to its customers.

When will the major airlines realize you can't out-southwest Southwest?!

Charles, SJ

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