United Airlines sets ambitions at lower altitude

United Airlines, which for decades epitomised the US airline industry’s obsession with massive airport hubs, route networks reaching every corner of the planet and fleets of gleaming new aircraft, has lost its appetite for world domination.

Subdued by a protracted period in bankruptcy, the fluctuating price of jet fuel and a steep downturn in demand for air travel, the Chicago-based carrier has set its sights on a more modest – though, for an airline in the current economic climate, perhaps no less elusive – goal: consistently turning a profit.

No major US carrier has made steeper cuts to its flight schedule in the past year than United. The company has raised more than $1.3bn in cash during the deepest financial crisis in 70 years and shed more than 100 planes from its fleet. Rather than clinging to the notion that airlines must grow to thrive, United has eschewed orders for new aircraft, and embraced industry-wide consolidation, international alliances and à la carte passenger fees.

“We have a willingness to take measured risks, to try new things,” says Kathryn Mikells, United’s chief financial officer. “There’s a willingness not to be wedded to things that have not worked well – like market share.”

While United might still lose money this year if the drop in traffic is as dramatic as some analysts fear, its aggressive stances on capacity cuts and capital raisings have given the company a fighting chance to endure what could be the industry’s worst recession since its deregulation 30 years ago.

Nevertheless, to its critics United has become the carrier they love to hate. They argue the company is still paying for failing to squeeze more costs from its operations during several years in bankruptcy, from which it emerged in 2006. And they point to its unrivalled route map, its strategic hubs and vast fleet of aircraft and warn that United’s break from the past is a mistake from which the company may never recover.

“If you don’t buy new aeroplanes, what you’re doing is the equivalent of not maintaining your house,” a former senior airline executive said. “They are at risk of giving up permanently their ultimate potential.”

The unconventional moves have also alienated employees. The steep cuts to United’s flight schedule – capacity fell by 11 per cent in the fourth quarter and will be down almost 12 per cent this year – have cost the company about 9,000 jobs. Many unionised workers who conceded some wages and benefits during bankruptcy have clamoured for new agreements that compensate them for their past sacrifices.

Even its fledgling partnership with Ireland’s Aer Lingus drew scrutiny when United said it would not use its own employees to operate the venture’s flights.  

“Employee relations there have been severely damaged,” said Bill Swelbar, a research engineer at Massachusetts Institute of Technology’s International Center for Air Transportation. “United knew it had a sick operation and had to address the things in a way that they couldn’t really worry about employees.”

United executives have said fuel prices, which soared to a record last summer, and the steep decline in demand for air travel have given them little choice but to take decisive actions they say are working.

Historically United had higher operating costs, excluding fuel, than its peers, but has recently narrowed this gap.

The decision to shed all of its Boeing 737s from the fleet will not only help reduce capacity but should also lower the carrier’s maintenance costs. Steps to charge customers for checking in luggage, upgrading their seats and using priority check-in lines will help lift revenue from fees and services by $300m this year.

Its planned transcontinental alliance with Continental Airlines, which won preliminary approval from US regulators this month, will help United share both revenue and costs on international flights. The new partnership might lead to a merger, creating a world power that would dwarf the old United.

Meanwhile, Ms Mikells says, the great United route network remains intact. The carrier will serve approximately the same number of cities in 2009 that it did last year.

United may never recapture the glory that made it the envy of every US airline executive. But if it can get through the downturn intact and return to profitability, United’s current management will have forged a legacy of their own.