United Airlines, whose pilots went on strike a week ago, has already lost about $30 million--enough to buy a new, fully equipped Boeing 737-300.
Although United is flying about 14% of its flights with management pilots, its losses from the strike are running at about $5 million a day, industry analysts agree. And, they say, United’s rivals are benefiting to a limited extent from United’s current misfortunes.
Negotiations continued Wednesday in Chicago between representatives of the airline and the Air Line Pilots Assn., but there were no signs of movement over the key issue: United’s two-tier wage system that calls for new pilots to be paid substantially less than current ones.
Henry Duffy, president of the union, said: “The fact that they’re still talking we see as positive. It does seem as though both sides are really trying.”
Industry analysts calculate that United’s revenues, which averaged between $16 million and $17 million per day last year, have dipped to about $2.5 million during the strike, even though the carrier is still flying about 220 flights daily and these are carrying more passengers than normal.
United is saving on the striking pilots’ pay and on reduced costs for fuel, food and other passenger amenities. Nevertheless, much of its other fixed costs continue: 35% of airline expenses are for labor, for example, though employees may be furloughed if the strike drags on. Several analysts concluded that United’s fixed costs may be running as much as $7.5 million per day.
Robert Joedicke, an airline industry analyst with Shearson Lehman Bros., said United’s biggest losses will occur after the strike.
“As you start back up, your expenses go up to 100% and you don’t have the traffic,” he said.
“The daily losses are heaviest immediately after you return to full service and they become heavier, depending upon the length of the strike and the season. United will be going into the heavy (traffic) season, so they’ll come back quickly.”
The analysts say United is better able than most airlines to sustain losses due to the strike. It has an estimated $1 billion in cash on hand.
Even so, the drain on its resources, if the strike drags on, could hamper some of its plans, such as its recently announced intention to use $750 million of the cash reserve to buy Pan American World Airways’ Pacific division.
“True, they have a big reserve,” said Lee R. Howard, executive vice president of Airline Economics, a consulting firm. “But if the strike goes on forever, it could deplete that reserve and it could affect their debt capability--the airline has a $1.5-billion revolving credit. Common sense tells you that might jeopardize the Pan Am deal.”
United flatly declines to discuss its losses. “We won’t report what we’ve lost until the strike is over,” spokesman Charles Novak said.
Even as United suffers financially, its competitors are carving up the spoils. All the airlines polled by The Times reported some increased business from the United strike, the extent depending on how much they normally compete with United, which flies in all 50 states.
“Every other airline gains when United is on strike because it has such a pervasive route structure,” Shearson’s Joedicke said. “The strike will certainly boost the revenues and second-quarter profits of them all. But the ones to gain most from the strike are the ones that need it badly--Frontier, Midway or Jet America.”
In dollar terms, the biggest beneficiary of the strike is likely to be American Airlines, which flies virtually side by side with United, and Continental Airlines, which competes on 29 routes out of Denver with both United and American.
American spokesman Lowell Duncan said the airline’s planes flew 80% to 85% full all last weekend, compared to a load factor of 65% in April. On May 19, the first Sunday of the strike, American recorded 161 million revenue passenger miles--a revenue passenger mile is a paying passenger carried a mile--compared to an expected 140 million. And American expects to have a record day Friday, the first day of traveling for the long Memorial Day weekend.
Continental reported that its traffic has increased by 25% to 30%.
“We had a profitable first quarter,” a spokesman said. “We made $15 million. We were going to have a very good second quarter without the United strike, but it will help.”
San Diego-based PSA reported a 20% to 25% increase in traffic over the same period last year. A 13% increase in its flight schedule for the summer traveling season had been scheduled to go into effect today but was advanced to last weekend to take advantage of the United strike.
Frontier Airlines, which serves 60 cities out of Denver and competes with United on 38 routes, said its load factor has increased from mid-60% to mid-80%.
However, American, like most of the other airlines, said it hasn’t been able to add very many flights.
Few airlines have idle aircraft to spare, nor do they want to use up all of the flying time that their pilots are allowed. Federal regulations bar pilots from flying more than 1,000 per year, allowing each pilot about 85 hours of flying per month.
In addition, extra revenues derived from the United strike aren’t all gravy for American and the other carriers. To handle the surge of business, for instance, American has had to put on 300 extra reservation clerks and 600 airport counter clerks, many on an overtime or part-time basis.
More than the immediate pickup in business, it is the number of new customers that they can hold onto that interests United’s rivals.
“We’re not hoping just for short terms gains,” American’s Duncan said. “We’re hoping to be able to attract and hold onto a few passengers.”