- The Washington Times - Friday, December 13, 2002

United Airlines plans to start a subsidiary to compete with low-cost airlines on short routes and trips between midsize cities, the airline's chief executive officer said yesterday at Washington Dulles International Airport.
UAL Corp., the parent company of the nation's second-biggest airline, filed for bankruptcy protection Monday.
Chief Executive Officer Glenn Tilton said the subsidiary would operate initially on the West Coast and expand nationwide if successful.
"We're talking to the unions about it right now," Mr. Tilton said before a meeting with labor leaders.
He spoke to reporters at Dulles Airport yesterday to describe strategies the airline is pursuing to emerge from bankruptcy. He also said the airline planned to continue its strong international route network that operates out of the airport, where United carries 38 percent of the passengers.
"Dulles is a very important East Coast core for us," Mr. Tilton said. "It really is a window on the Atlantic market and the Latin American market."
United officials acknowledged they are likely to shed some of their assets and flights during bankruptcy. Mr. Tilton said its Dulles operation, which includes 76 daily departures, is not likely to be part of the downsizing.
"We have been growing it," Mr. Tilton said.
Less certain are the airline's operations out of Ronald Reagan Washington National Airport, where United offers 14 daily departures, Mr. Tilton said. Many of United's flights are to Midwestern destinations that bring in fewer passengers and less revenue than the longer flights.
United is one of a handful of "main line" U.S. airlines, which means they operate primarily large jets between major cities, often on coast-to-coast or international flights.
In recent years, the mainline carriers have been losing part of their market to low-cost carriers that adjust their routes and schedules frequently and operate mostly on shorter routes.
The subsidiary envisioned by United would be modeled on its low-cost competitors, such as Southwest Airlines and JetBlue Airways. The low-cost airlines are "drawing customers away from mainline airlines," Mr. Tilton said.
One of them, America West, announced yesterday it was expanding its operations to begin flights at Dulles to Las Vegas Dec. 26. The low-cost carrier also operates out of Reagan Airport and Baltimore-Washington International Airport.
The United subsidiary, which is not named, would begin next year as a revived version of the West Coast Shuttle by United, which the airline shut down after the September 11 terrorist attacks. The new flights would use midsize Boeing 737s and Airbus 320s.
"I think we would revive the business first where it makes sense," Mr. Tilton said.
The route between Denver and Las Vegas was one of the most profitable for the shuttle. Other routes connected largely with coastal cities.
The new subsidiary is part of the business plan United will submit to the Air Transportation Stabilization Board for another attempt at winning a $1.8 billion federal loan guarantee.
A loan guarantee means the federal government would repay banks if United defaults on repaying the loan.
Last week, the board denied the loan guarantee for United, saying its business plan was not sound.
Days later, United made the biggest bankruptcy filing in airline history.
"We'll be talking to [the board] about the prospect of their partnership in our exit from bankruptcy," said Mr. Tilton, who predicted United needs 18 months to emerge from bankruptcy.
Some analysts said the subsidiary would have difficulty competing with low-cost airlines because of the same labor problems that led to United's bankruptcy.
"For a United division to approach Southwest's cost structure requires throwing the existing pilots' contract out the window," said Sam Buttrick, an airline industry analyst for the Wall Street investment firm UBS Warburg. "It's not at all clear that's going to happen."
United Airlines' pilots are among the most highly paid in the industry.
West Coast Shuttle by United was struggling with high costs even before the September 11 attacks. The airline was having difficulty attracting enough customers.
Mr. Buttrick said "high unit labor costs" contributed to the shuttle's failure to be profitable.
United officials said the September 11 terrorist attacks were the death knell for the West Coast shuttle, which started operating in October 1994 and was phased out Oct. 31, 2001.
The shuttles were supposed to be on the ground between flights no more than 45 minutes, said Chris Brathwaite, United spokesman. New security procedures after the September 11 attacks made the 45-minute turnaround times unattainable.
The post-September 11 security procedures, "coupled with the dramatic downturn in passenger demand, and the shuttle was no longer more efficient than operating our mainline" airplanes, Mr. Brathwaite said.
So far, unions have not opposed a low-cost subsidiary for United.
"We'd like to see that come back, too," said Herb Hunter, spokesman for the Air Line Pilots Association and a United pilot. "The shuttle could work."
He was uncertain about why the West Coast Shuttle by United failed.
"Maybe it wasn't set up right, maybe the pricing wasn't right, maybe the work rules weren't right," he said.


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