United's woes shake Chicago's economy
By Kirstin Downey
Washington Post
CHICAGO — For 88 years, the Radiological Society of North America has held its annual convention here. Some 60,000 radiologists fly in from around the world, mostly on United Airlines. But now, Dave Fellers, the society's executive director, wonders whether Chicago's the right place for the nation's largest medical convention.
Advertiser library photo • Dec. 9. 2002
The radiologists stream into Chicago because United has made it so convenient. But as the airline struggles with bankruptcy, Chicago's reputation as America's transportation hub is taking a hit.
In addition to bringing in thousands of business travelers a day into Chicago, United employs 19,000 people in the area.
"A lot of people question the future of United — whether it'll survive," Fellers said. "Should we continue to book on it here?"
Fellers' doubts illustrate how United's woes are flowing into the economic lifeblood of Chicago. For decades, the airline and city have seen their fortunes march together. As Gerald Roper, president and chief executive of the Chicagoland Chamber of Commerce, put it: "We believe that as United goes, so goes Chicago."
United, like all the major airlines, has suffered since the Sept. 11 terrorist attacks. It filed for bankruptcy protection Dec. 9. With each body blow to the carrier, Chicago has staggered a little, too. Businesses have been drawn to Chicago because, as United's hub, the city has served as a crossroads to the world. United sends 370 flights out of O'Hare International Airport every day, greasing the wheels of commerce for some 200,000 companies in the Chicago region, including 32 Fortune 500 companies.
Under pressure from its creditors, United has eliminated some flights and may be forced to substantially shrink operations. Travelers could see fewer direct flights from O'Hare. In a worst-case scenario, the airline — which is losing $20 million a day — could fail and be liquidated.
United "is our fundamental infrastructure for connecting with the rest of the world, and it establishes our ability to serve as an operational center for companies in North America," said Paul O'Connor, executive director of World Business Chicago, the city's economic development arm. "The whole system is at stake. Nobody's going to change planes to do business."
United's difficulties could ripple into the tourism industry and put a dent in local consumer spending if layoffs at the airline accelerate. United had 100,000 workers on the payroll 18 months ago; today it has 77,000.
Some frequent fliers are already adjusting. Michael Lynch, a lobbyist with Glenview, Ill.-based Illinois Tool Works Inc., used to take the 6 a.m. United flight from O'Hare to Reagan National Airport, which got him into Washington for the start of the business day.
"Now that flight doesn't exist anymore," Lynch said, adding that he has to fly into Washington the night before an early-morning meeting or ask that the meeting be delayed until later in the day.
United also announced it will discontinue flights to New Zealand and Italy, and trim service to a number of South American cities. In addition, the airline will fly smaller jets to its less-popular domestic destinations to save on fuel, cutting the number of available seats.
"It's no secret the airline industry has changed dramatically in the past 18 months," said United spokesman Jeff Green. "Everyone's got to look for new ways to operate within the current revenue structure — that is, getting costs in line with revenue."
United and its chief competitor, American Airlines, for which Chicago is also a hub, offer more flights from here than are economically viable, said aviation analyst Glenn Engel of Goldman Sachs & Co.
"Right now there's a lot of duplication in Chicago," Engel said. "You'll see that duplication stop. In the near term, travelers will have fewer choices, but in the long term, well, it's a big local market, and someone will fill that vacuum."
International journeys may get longer. Margot Brown, a spokeswoman for Motorola Inc., said employees flying overseas could experience more stopovers if United has to reduce its direct flights. United has a nonstop flight from Chicago to Beijing that takes 14 hours. American Airlines and Northwest Airlines also offer flights to Beijing, but travelers are routed through Tokyo, Los Angeles or Minneapolis, making the trip 20 hours.
Some travelers are at least finding cheaper fares. United has slashed ticket prices for business travelers by 40 percent, pleasing some frequent fliers. But, warned analyst Ray Neidl of Blaylock & Partners LP, if fare-cutting goes too far, the restructuring collapses and United fails, Chicago "would lose a lot of jobs and a lot of service."
The 19,000 United employees in the Chicago area constitute a combined annual payroll of $1.1 billion — money generally pumped back into the Chicago economy. Layoffs and wage cuts, ranging from 3 percent to 29 percent annually, already have had an effect on how United employees buy and spend, said the Chamber of Commerce's Roper.
Boeing Capital Corp. also is keeping a keen eye on United's struggles. The aircraft-manufacturing company moved its headquarters from Seattle to Chicago in September 2001, partially because of Chicago's easy air links to many American cities.
Russ Young, a Boeing spokesman, said he expects things to work out. "In our experience, when airline bankruptcies occur, generally other airlines fill any void that exists," he said. "If there are seats to be sold, other airlines will step up."
Boeing is also one of United's largest creditors, holding $1.3 billion in financing for about a dozen 777 aircraft the airline purchased over the past three years. If United and Boeing can't negotiate new lease terms that both sides find "mutually beneficial," Boeing might have to take the aircraft back and sell them elsewhere, he said.
