United Airlines

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United Airlines

founded: 1931

Contact Information:

headquarters: 1200 e. algonquin rd.
elk grove township, il 60007 phone: (847)700-4000 fax: (847)700-5229 url: http://www.ual.com

OVERVIEW

United Airlines is the number one air passenger carrier in the world 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 also the largest majority employee-owned company in the world. At the end of 1997 United's operating fleet totaled 575 jet aircrafts, more than half of which were directly owned by the company (the rest were leased). In the late 1990s, United flew to about 140 destinations, both in the United States and 27 other countries. It established "hubs" or major route and passenger transfer centers in Chicago, Denver, San Francisco, Tokyo, and Washington, D.C. to fly passengers between North America and the Pacific, and Latin America and Europe. In 1997 United averaged more than 230,000 passengers per day and "flew more than 121 billion revenue passenger miles," according to UAL Corp.'s 1997 annual report. Besides its domestic and international passenger flights, United also operates a cargo service. In 1997 United began an all-cargo service between the United States and Asia. 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.

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, which is a marketing arrangement with small, independent carriers, provides service to United's hubs and international gateways at 182 airports throughout the United States. And in late April 1998 United and Delta Airlines Inc. reached a marketing arrangement whereby their customers can take advantage of both carriers' frequent flyer programs and pricing options, as well as the route and reservation systems of both airline companies. This move followed similar arrangements that have been secured between other large domestic carriers.

COMPANY FINANCES

Like the rest of the airline industry, United posted solid gains in 1997 over the previous year, both from its domestic and international operations. Year-end 1997 saw sales of $17.38 billion, a 6.2 percent growth over 1996, and net income (profits or earnings) of $949 million, an impressive 78 percent growth over 1996 ($533 million). United's North America segment had sales of approximately $11.2 billion in 1997, $10.7 billion in 1996, and $9.6 billion in 1995, while its international segment saw sales of approximately $6.1 billion in 1997, $5.6 billion in 1996, and $5.3 billion in 1995. According to the company's annual report, United foresaw continued growth in 1998, as do other U.S. airlines. On the international front, United expected its sales and profits to decrease because of the economic downturn in Asia.

ANALYSTS' OPINIONS

According to the industry trade magazine Airline Business, in the near future the airline industry will be impacted by the economic downturn in the Asia-Pacific region, government (both national and international) regulations against transatlantic alliances (two or more airlines joining in a marketing alliance), frequent flyer plans, and the competition from low-cost airlines. While the United States and Europe continue to enjoy strong economies, analysts cited by the magazine foresee a possible economic slowdown in these areas, which will influence airline ticket sales. The magazine also cited labor issues; competition for quality workers because of the high employment levels, and labor demands for a greater share in airline industry profits as being other factors that pressure the industry.

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

Officers: Gerald Greenwald, Chmn. & CEO, 62, 1997 base salary $670,490; John A. Edwardson, Pres. & COO, 48, 1997 base salary $463,363

Employees: 91,700 (1997)

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

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 what was then 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 pay, benefit, and work rules. The most important result of this was that it strengthened the company's presence in an increasingly competitive airline market. In 1996 a Forbes article proclaimed that the "$14.4 billion airline is back on its feet."

STRATEGY

In May 1997 United embarked on an aggressive strategy to secure its market position and competitive edge. It formed Star Alliance with Lufthansa, Air Canada, SAS, Thai Airways, and later in the year, Varig. Star Alliance is a marketing arrangement whereby the member airlines jointly participate in frequent flyer programs; coordinate reservations, baggage handling, flight schedules, and code-sharing (code-sharing is an agreement between airlines that allows one airline to market its flights under the two-letter airline designator code of another airline, thereby letting airlines provide customers with a "seamless global travel network" under one airline code).

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. During the mid-1990s, for example, when Southwest Airlines lowered its ticket prices, United responded by introducing its less-expensive Shuttle by United service on the west coast, competing head-to-head with Southwest in that market. Fare competition was the driving force behind United's introduction of an electronic reservation system option on all of its domestic routes, and its policy of allowing its frequent-flier customers to dial directly into its reservation system.

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.

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.

According to its 1997 annual report, United's Pacific operations was responsible for 20 percent of the company's revenues that year. 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, and from Hong Kong it flies nonstop to Singapore and New Delhi. During 1997 United also provided service to the Guam-Osaka and Manila-Seoul markets, but on February 20, 1998, United ended all Guam service and all Manila passenger service (although United continues its cargo service in Manila.)

An important trade-related development occurred on January 30, 1998, when the U.S. and the Japanese governments agreed to expand their 1952 air services agreement. United, among other U.S. airlines, will substantially benefit from this agreement by having no limits placed on the frequency of flights they can operate into Japan. United was quick to take advantage of the agreement; from April 8, 1998, United increased its nonstop service between Chicago and Tokyo from 6 flights each week to 14 weekly fights, and later in the year began nonstop service between Chicago and Osaka.

In April 1997 United began a second nonstop flight between Chicago and London Heathrow, and in June 1998 it initiated service between Munich and Washington Dulles. In 1997 United's Atlantic operations accounted for 10 percent of United's revenues. In 1997 United's Latin America operations was responsible for 5 percent of United's revenues, according to its annual report.

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
1998:: Delta and United reach an agreement where customers can use both airlines' frequent flier miles, pricing options, and reservation systems

EMPLOYMENT

Worldwide, United Airlines employs more than 91,700 persons. 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. Since 1994 the company has seen lower operating costs and higher productivity, fewer labor grievances, and the company's stock price has more than doubled. But in an August 1997 issue of the Economist, a business writer questioned the assumption that employee ownership usually leads to a harmonious relationship between management and workers. The article cited United Airlines (United employees own more than half of the airline, according to the article) and another large American company as examples of companies that have had bitter labor-management disputes, despite their being employee owned. The article acknowledged that employee-owned companies grow 8 to 11 percent faster than their non-employee-owned peers. But in United's case, it had been plagued by disputes between its flight attendants (almost a quarter of its work force) and its pilots. The flight attendant dispute revolved around the company's failure to persuade them to "take shares in exchange for pay cuts" at the time the company launched its employee share-ownership scheme. This and the pilot dispute had "turned at least some of the firm's senior managers against employee ownership."