United Airlines steers through crisis
By Dave Carpenter
Associated Press Business Writer
CHICAGO — With the threat of a year-end holiday strike by its mechanics averted and its stock no longer in free fall, United Airlines' bumpy ride looks a bit smoother.
But the nation's second-biggest carrier still must navigate through difficult operating and labor challenges in order to reverse its descent into financial instability.
Like other major airlines, United badly needs a rebound in slumping air traffic in order to reduce losses that continue to total millions of dollars a day.
Experts see its situation as somewhat more urgent than its competitors', however, since United's record third-quarter loss of $1.16 billion was the ailing industry's worst.
"Everybody's on the Titanic here, except United may be in steerage," says Denver airline consultant Michael Boyd.
John Creighton, who replaced James Goodwin as chief executive on Oct. 28, has received positive early reviews from the company's influential unions for opening the books and pledging to do what it takes to avoid bankruptcy for the airline's parent, UAL Corp.
In order for his urgent cost-cutting mission to succeed he still needs to untangle a difficult knot in labor-management relations at the 55 percent employee-owned company.
UAL wants wage and other concessions in order to reduce labor costs, which are its largest single operating expense and about 40 percent of its operating tab. But union leaders insist on Creighton first cutting executive pay and dumping the rest of Goodwin's management team — a shake-up that some expect soon.
"All of us (union groups) are unanimous that the management is absolutely dysfunctional," Rick Dubinsky, head of the United pilots union and a UAL board member, said in an interview. "I believe Jack Creighton will recognize some of that dysfunction and will make appropriate changes."
At the top of unions' wish list for dismissal: president Rono Dutta and chief operating officer Andrew Studdert.
United has declined to discuss the unspecified "tough compromises" Creighton has warned would be necessary.
But his intent to crack down on labor costs became clear with his recent refusal, according to union negotiators, to offer an immediate pay increase to the airline's 15,000 mechanics, despite the fact they haven't had one since 1994 and are nearly two years into contract talks.
That impasse moved closer to a strike when federal mediators started the required 30-day countdown Wednesday. But the White House's swift assurance that President Bush would intervene to prevent a holiday work stoppage by creating a presidential emergency board means it couldn't legally start until Feb. 21.
United also got a boost last week from the continued recovery of its stock. UAL shares, which had plunged in the final months of Goodwin's tenure, have rebounded 77 percent since then, closing at $16.62 Friday since bottoming out Nov. 12 at $9.40.
With mechanics' negotiations on hold and contract talks with ground workers also in limbo, the airline is expected to soon seek pay cuts from its pilots, who received 28 percent wage hikes a year ago.
Dubinsky, who notes that the pilots, too, hadn't gotten a raise since '94, warns that they won't make concessions "for nothing."
"If there's going to be any reduction in costs of the pilot contracts, there will be exchanges of good and valuable consideration," he said. "We're going to get something in return for it."
The outcome of labor talks may determine whether Creighton makes more layoffs on top of the 20,000 Goodwin announced Sept. 19. United also has made the biggest schedule cutbacks in its 75-year history this fall, slimming down to about 1,650 daily flights from 2,400.
Many analysts agree with United that its high labor costs must be trimmed further, although consultant Boyd says that won't nearly overcome a revenue shortfall that United last month put at $15 million a day.
"It's somewhat out of their control, but they have to figure out how to get more people on flights at higher fares," he said. "They focused for 1 1/2 years on the failed merger with U.S. Airways, which put them way behind others in strategic planning."
Dubinsky, known widely as "Mad Dog" for his combative negotiating, sounded hopeful about the prospects of union cooperation with Creighton, whose approach he praises.
"I believe we're going to pull ourselves through this thing," he said. "We're going to do what we can to preserve the enterprise."
