Troubled Times for United Airlines
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ELIZABETH BRACKETT: It’s been a difficult year for United Airline pilots like Capt. Scottie Clark. In January, the 14-year veteran of United took a 29 percent pay cut, along with the rest of her colleagues.
CAPT. SCOTTIE CLARK: I don’t think that’s the major part of what we lost… have lost though. I think the major thing that I have lost, and most pilots have lost here, is the peace of mind we used to have working here.
ELIZABETH BRACKETT: Two months after filing for Chapter 11 bankruptcy, the 76-year-old airline faces an uncertain future. In January, e troubled company announced a record $3.2 billion loss for 2002. Since the first of the year, United has been struggling to get its costs under control. But airline analyst William Warlick thinks chances are good the airline will not emerge from bankruptcy.
WILLIAM WARLICK: We still think that the chances of a liquidation sometime in 2003 are probably better than 50/50. Unfortunately, the operating environment that United faces, even with a radically transformed cost structure, is so difficult right now. The revenue environment shows very little sign of improvement, and obviously the overhang of a new Gulf War presents additional problems for the company and the entire industry.
ELIZABETH BRACKETT: United insists the company has found a way to survive. The centerpiece of the new business plan is the launch of a separate low-cost airline that could compete with existing discount airlines such as Southwest, Jet Blue, and Air Tran. Those airlines feature a single class of service, no meals, fast turnaround, and point-to-point flying, and are the only airlines that have turned a profit since Sept. 11. Senior vice president Pete McDonald says the low-cost airline, dubbed the starfish internally, is the key to United’s survival.
PETER McDONALD: We think it’s really simple. When we look at the data, and we see that low-cost competition is in 70 percent of the markets that we currently serve and we look at the growth over the last ten years of continued expansion of low-cost carriers throughout the industry, and we look at what the current costs are for mainline carriers, we can see that for us to be a long-term, durable airline, we’ve got to be able to compete with low-cost competition.
ELIZABETH BRACKETT: The idea of a separate low-cost carrier has run into fierce opposition from United’s unions. Paul Whiteford chairs the pilots’ union at united. He says pilots are willing to take more pay cuts, work longer hours, and fly more regional jets to increase productivity, but if a separate airline remains a key factor in the plan, they won’t buy it.
PAUL WHITEFORE: They are still claiming a key factor is a separate airline, meaning a separate seniority list and a separate collective bargaining agreement, which is a non-starter for the Airline Pilots’ Association. It’s not necessary. It’s not an economic driver there. What they need to do is market a product to compete against low- cost carriers. We can help them do that.
ELIZABETH BRACKETT: The reaction was nearly the same from the flight attendants’ union, which has already taken a 9 percent pay cut. President Greg Davidowitch:
GREG DAVIDOWITCH: What they have said is that between 30 percent and 40 percent of United’s business as we know it today would no longer exist, and that a separate company would be created, and that flight attendants that are here today will not be here tomorrow, and therein lies one of, I think, the primary challenges. How do we work to create something that is going to put ourselves out of business? And why would we do something like that?
PETER McDONALD: It’s not going to take them out of their jobs, but we really don’t have a choice but for us to continue to be a network carrier, okay? The mainline will continue to be the lifeblood of our business, okay, but we also need to be able to compete in these markets with carriers that have different cost structures.
ELIZABETH BRACKETT: United tried a low- cost airline in the 90s, Shuttle by United, but could not contain labor costs.
PETER McDONALD: We learned, you know, in the shuttle that wasn’t separate that that didn’t work, okay, and separateness will enable us to compete with a different cost structure against the low-cost competition. But we have to work out that definition of separateness, which we’re working very hard on, and we want to engage our union leaders and union groups in that discussion.
ELIZABETH BRACKETT: That discussion has reignited years of hostility between United and its work force. United pilots staged a slowdown during contract negotiations in 2000, and the machinists’ union nearly walked out over contract disputes in 2002. The arrival of new United CEO Glenn Tilton had appeared to improve labor relations, according to airline analyst Joseph Schweitermann.
JOSEPH SCHWEITERMANN: After years of deteriorating labor relations, we’re really starting to see some progress. We had wage giveback. We had talk about a commitment to make United an airline that’s going to survive. Unfortunately, we see those old wounds have again been opened in the la few weeks, and then labor groups have showed very little restraint in voicing their lack of confidence in company leadership. And that sends the wrong signal to everybody– to travelers, to investors, and even to other labor groups who may not be quite so skeptical of United’s new plan.
ELIZABETH BRACKETT: Some of the most contentious relations have been with the machinists’ union. Union vice president Michael Peat:
MICHAEL PEAT: The employees, for the most part, have no faith in the management of United Airlines. We haven’t had a demonstration of good leadership in the past. What’s changed? What’s really changed here? We’ve got a new CEO, but the rest of the suspects are still in place. Those people who made those decisions that got United Airlines to the bankruptcy court are still here making these new business plans. Why should this new business plan be any better than the old business plan, which was no good?
ELIZABETH BRACKETT: When members of the union retire, they are given a $75 watch. Peat says his members are so fearful about United’s future, they are retiring in droves, leaving the union’s watch budget stretched to the limit.
MICHAEL PEAT: We spent $23,000 on watches.
ELIZABETH BRACKETT: In the last…
MICHAEL PEAT: In the last six months. And it’s going to get worse.
ELIZABETH BRACKETT: These two union members got their watches several years ago. John Podlesny put in 40 years in ramp service and parts distribution; 41 years for Ken Schill. They retired with stock purchased through United’s mandatory stock ownership plan, that was then worth $70,000 to $80,000. That stock is now nearly worthless. To them, it’s further evidence of the decline of the company that was once such a source of pride.
KEN SCHILL: They washed the pride down with all these so-called givebacks that the people are very disheartened and the pride is gone. And the first think they’ve got to do is build up the morale and build up the pride, and the only way to do that is for the management team and the people on the floor to work together. And that’s going to be what brings United out of their so- called bankruptcy.
ELIZABETH BRACKETT: As United fights its way out of bankruptcy, its operating statistics have never been better.
SPOKESMAN: Getting this number one on time performance for 2002, it really shows how resilient the people of United really are.
ELIZABETH BRACKETT: That resilience will be tested in the upcoming weeks. United will ask the courts to impose its new business plan, with its controversial low-cost airline, if the unions and the creditors won’t agree voluntarily.