United Airlines

founded: 1931 variant name: ual corp.

Contact Information:

headquarters: po box 66100
chicago, il 60666 phone: (847)700-4000 fax: (847)700-5229 url: http://www.ual.com

OVERVIEW

United Airlines in 2001 moved from the number one air passenger carrier in the world to number two in number of daily departures, number of destinations (both domestic and international), and jet fleet size. United Air Lines Corporation (UAL Corp.), its parent company, is the largest majority employee-owned company in the world. In 2002 United's operating fleet totaled 567 aircraft, and, in 2001, the company noted that its average age of aircraft is eight years. However, the troubled company cancelled delivery contracts with Boeing and Airbus for all 18 aircraft ordered for 2003 delivery. In 2002, United flew destinations in the United States and 27 other countries. Like other major airlines, United has established "hubs" or major route and passenger transfer centers in Chicago, Denver, San Francisco, Los Angeles, and Washington, D.C. (Dulles) to fly passengers between North America and the Pacific, and Latin America and Europe. In 2001, United cancelled service to Hong Kong from New York. In 2001 United averaged more than 210,000 passengers per day compared to 230,000 passengers per day in 1997. In 2001 UAL flew about 108 billion passenger miles, down from more than 121 billion revenue passenger miles in 1997, according to UAL Corp.'s 1997 and 2001 annual reports. Besides its domestic and international passenger flights, United also operates a cargo service, but problems in operations saw a 24 percent decline in cargo revenue in 2001 compared to 2000, according to company disclosure statements. The airline currently has two main cargo centers: one a consolidation center in Charlotte, North Carolina, to serve the southeastern and mid-Atlantic states; and a transfer center at JFK Airport in New York. A new cargo transfer center started operating in Honolulu in 1998, which serves as a major cargo connection point for Japanese air cargo coming into and out of the United States and for domestic cargo to and from Hawaii. In 2001 through 2002, new cargo facilities opened in Miami, Newark and Chicago.

Besides its domestic passenger flight operation serving major cities and hubs around the United States, United is able to "feed" or provide flights to smaller cities or shorter distances through its Shuttle by United service and through its United Express program. The latter program is a marketing arrangement with small, independent carriers, In June of 2002, the United Express regional component serviced 150 destinations in the United States, totaling about 1,800 daily flights.

COMPANY FINANCES

Like many other companies in the airline industry, United saw its financial operations plummet in 2001, so much so that a former chief executive officer sent a message to all employees that there was danger of the company perishing. By June of 2002, the company's financial situation was most precarious, and it was again without a CEO after turnaround expert John W. Creighton turned around and left the top position after only a half year in command. "The troubled carrier has been a graveyard of failed executives who have tried to save it," said the Seattle Post-Intelligencer. In addition, a writer for Financial Times in 2002 predicted that the cash-strapped company might have to declare for Chapter 11 bankruptcy for relief from creditors, following news that the company abruptly cancelled all deliveries for new planes slated for 2003. However, other analysts dispute that claim, saying that the company, though clearly in trouble, may be able to get through its current crisis with the aid of loans only.

Before quitting his newly accepted job as chief executive officer, according to the Chicago Daily Herald, Jack Creighton gave UAL shareholders a quotation from Ben Franklin that summed up UAL's economic woes, union worker disputes, and the fallout of the human and economic effects of the September 11 terrorist attacks: "That which hurts, also instructs."

UAL placed too much emphasis in 2001 on its expected merger with USAir, but the consolidation was stopped cold by announced opposition by the U.S. Justice Department which said the merger would result in unfair competition advantages. The merger of the two financially ailing companies would have created the biggest air corporation ion the world. Also in 2001, the company saw two of its flights go down with passengers and crew aboard on September 11 in commandeerings engineered by international terrorists. Trying to stop losses that totaled some $2.1 billion in 2001, the employee-owned company ironically had to force 20,000 workers to accept layoffs.

The only good news for UAL shareholders in 2002 was that the bleeding of the victim was only half as bad as it had been the year before. Instead of the $10 million a day losses incurred the end of 2001, UAL lost $5 million a day or $510 million for the first quarter of 2002, according to self-disclosures. The company expected losses to continue at lease until the end of 2003, but some analysts said normal air traveler patterns for all airlines could be as far away as 2007. Shares of UAL continued to plummet in 2002, selling for under $12 a share.

FAST FACTS: About United Airlines

Ownership: United Airlines is the principal subsidiary of UAL Corporation, a publicly owned company traded on the New York, Chicago, and Pacific Stock Exchanges.

Ticker symbol: UAL

Chief Competitors: United Airlines competes with both domestic and international airlines, chief among them being American Airlines; USAir; British Airways; and Delta.

ANALYSTS' OPINIONS

In spite of staggering losses, managerial problems, and employee layoffs, some analysts point to United's long previous successes as evidence the company can fly out of the turbulence it has been experiencing in the early 2000s. In short, the analysts are buying the airline's slogan carted out for print and broadcast commercials in 2002: "A reason to believe in United." If business travelers who purchase higher-end tickets find that reason to believe, analyst Michael Friedman of American Express Financial Corp. thinks a turnaround is possible before 2003. Perhaps the analyst least optimistic about United's chances of reversing its misfortunes is aviation industry analyst Sam Buttrick of UBS Warburg. "With its current cost structure, it is unlikely that UAL will be profitable until 2004 or even 2005," Buttrick informed the San Francisco Chronicle in May of 2002. "It is further unlikely that UAL will ever be able to earn attractive returns on capital on any consistent basis with its current cost structure." Most optimistic is Michael Boyd, principal of the Boyd Group, who told the San Francisco Chronicle. "I'm high on United Airlines. . .They have cleared the deck and are getting rid of a lot of excess baggage."

HISTORY

The company traces its roots back to the Boeing Company. Between World War I and World War II, the former Boeing Air Transport established the first international air mail route between Seattle and neighboring British Columbia. Starting in 1927 other routes were established, including passenger routes. Boeing Air Transport was merged with National Air Transport, Pacific Air Transport, and Varney Air Lines in 1931 to form United Air Lines and Transport.

Over the years United has pioneered important innovations in the air travel industry. These include flight attendant service, an in-flight kitchen, non-stop coast-to-coast service, and in 1971 the automated reservation system.

In July 1994 United's shareholders approved an historic stock ownership plan, in which United's employees became the majority shareholders in the company—owning 55 percent of United. This resulted in tremendous cost savings for the company in the areas of pay, benefit, and work rules. The most important result of this was that for about six years it strengthened the company's presence in an increasingly competitive airline market. But that advantage unraveled in the 2000s as unions representing baggage carriers, stewardesses and other employees fought management for wage increases and largely won all concessions they had demanded by 2002. Coupled with top management turnover, fewer air traffic after September 11, 2001, and a failure to merge with USAir following U.S. Department of Justice opposition of the plan, UAL experienced a turbulent business economy expected by analysts to continue for years to come.

CHRONOLOGY: Key Dates for United Airlines

1927:

Boeing Air Transport begins offering passenger routes to its air mail routes

1931:

Boeing, National Air Transport, Pacific Air Transport, Varney Air Lines, and Stout Air Services begin working together to eliminate competition calling themselves United Airlines

1934:

Boeing, National, Pacific, and Varney officially merge as United Airlines and Transport

1943:

The company name becomes United Airlines

1954:

United is the first airline to use flight simulators as part of its pilot training

1961:

United acquires Capital Airlines

1967:

Becomes the first airline to surpass $1 billion in annual revenue

1969:

UAL becomes the holding company for United Airlines

1979:

United loses $72 million largely attributable to a month-long labor strike

1985:

Acquires Pan Am's Asian traffic rights; loses number one ranking in passenger volume to American Airlines

1994:

United employees become majority shareholders of United

2001:

On September 11, two United Airlines planes that had been hijacked by terrorists went down in New York and Somerset, Pennsylvania, killing all aboard; following an announcement that the U.S. Justice Department planned to block a merger between USAir and UAL that would have raised airline fares and hurt competition, US Airways Group Inc. and UAL Corp. ended plans to consolidate operations; UAL union workers oust CEO and chairman Jim Goodwin, and Jack Creighton becomes CEO

2002:

Newly named UAL CEO Jack Creighton hands in his resignation and the beleaguered airline looks for a successor

CURRENT TRENDS

Traditionally, economic downturns have especially affected the airline industry directly impacting passenger ticket sales. Another influence on airline revenues has been fare wars. In 2002, for example, United tried to raise tickets on many domestic flights by $20, only to drop the plan when Northwest Airlines announced it was keeping lower fares and used that as a marketing plus. Another trend has been that wage demands from employees not only contributed to United's economic woes in 2002 but also led to the so-called "furloughing" of more than 20,000 employees. Battles between unions and United are hardly over, according to analysts. "Labor is unlikely to agree to permanent wage rollbacks," analyst Sam Buttrick of UBS Warburg in New York told the San FranciscoChronicle. "They have worked hard to get the wage structure where it is."

CORPORATE CITIZENSHIP

Through its United Airlines Foundation, United Airlines supports such charitable causes as the Alzheimer's Association, Make a Wish Foundation, Fulbright Scholars Programs, Habitat for Humanity, Inner-city Games, Museum of Science and Industry, Orbis Flying Eye Hospital, the United Negro College Fund, the United Way, and others. In addition, the company makes travel donations to numerous health organizations and supports schools throughout the country. The company's employees have won high praise for their volunteerism all season long, but the December "Fantasy Flights" have long drawn media notice. Employees arrange trips for disadvantaged children to locations disguised as the North Pole.

GLOBAL PRESENCE

United Airlines expanded to include international service in 1983 with flights to Tokyo. In 1986 the company took over the now defunct Pan Am's Pacific routes and thus added 11 cities in 10 nations to its flight schedules. Four years later the company began flights to Europe from Washington D.C. and further expanded in 1991 when it took over PanAm's flights from London's Heathrow airport, adding 13 more routes to its growing list of destinations. In 1992 the company began Latin American service with flights between Miami and Caracas, Venezuela. Soon after, United added flights to 11 more countries. In 1997 the airline was flying to nearly 30 nations. However, the addition of flights seemed more and more unlikely in 2001 and 2002 as United's financial situation worsened. In fact, in 2001, UAL cancelled its New York to Hong Kong route.

According to its 2001 annual report, United's Pacific operations were responsible for 16 percent of the company's revenues that year, down from 20 percent in 1997. Through its Tokyo hub, United provides passenger service between its U.S. gateway cities: Chicago, Honolulu, Los Angeles, New York, and San Francisco, and Bangkok, Beijing, Hong Kong, Seoul, Shanghai, and Singapore. Within Asia, United provides service between Osaka and Seoul.

EMPLOYMENT

Worldwide, United Airlines employs more than 80,000 persons, but some 20,000 were furloughed in 2002 and not all will be rehired or will be available for rehiring once the economy rebounds. Because United Airlines is an employee majority owned company, its management places particular importance in operating within a consensus framework to gain employee trust and loyalty, which has resulted in increased productivity. But by 2002, employees joined shareholders in expressing frustration with UAL top management and gave the non-binding demand that all future pay to executives be tied to company profits, a demand that made the vacant job of CEO in 2002 most unattractive to superior executives approached by headhunters for UAL.

SOURCES OF INFORMATION

Bibliography

armstrong, david. "flying into turbulence." san francisco chronicle, 9 may 2002.

comerford, mike. "creighton quits the top post at ual." chicago daily herald, 17 may 2002.

earle, julie. "creighton quits the top post at ual." financial times, 1 may 2002.

kesmodel, david. "ual workers suspicious of concessions." rocky mountain news, 4 may 2002.

labich, kenneth. "when workers really count." fortune, 14 october 1996.

merrion, paul. "flight paths divulge for airline rivals." crain's chicago business, 3 june 2002.

lott, steve. "former united ceo takes home $5.7 million after resignation." aviation daily, 28 march 2002.

"ual corp." hoover's company profiles, 2002. available at http://www.hoovers.com.

ual home page, june 2002. available at http://www.ual.com.

united airlines annual report, 2002. available at http://www.google.com/

wallace, james. "creighton quits the top post at ual." seattle post-intelligencer, 6 june 2002.

williamson, tammy. "ual investors vent frustration." chicago sun-times, 17 may 2002.

wong, edward. "united's lame-duck chief may have to move fast." the new york times, 19 may 2002.

——. "ual loses $510 million." new york times, 20 april 2002.

For additional industry research:

investigate companies by their standard industrial classification codes, also known as sics. united airlines' primary sics are:

4512 air transport, scheduled

4522 air transport, non-scheduled

also investigate companies by their north american industry classification system codes, also known as naics codes. united airlines' primary naics code is:

481110 scheduled air transportation