UAL Proposes New Service on Southwest’s Turf : Airlines: If shareholders OK United’s employee takeover, the U-2 carrier will begin offering low-fare, short-haul flights.
United Airlines has chosen the West Coast for the Oct. 1 debut of its new low-fare, short-haul airline in a move that will put it in head-to-head competition with Southwest Airlines, the region’s reigning discount carrier.
The new airline, dubbed U-2, will initially serve 14 cities with 82 flights daily, UAL said Thursday. UAL is the Elk Grove, Ill.-based parent company of United. Plans call for increasing the operation to 143 flights a day by December, which would raise pressure on major carriers such as American, Delta and Continental to also lower prices on competitive routes.
United is expected to eventually take U-2 nationwide.
The plan is contingent on shareholder approval in July of a proposal to transfer ownership of United to its employees. In New York Stock Exchange trading Thursday, UAL stock rose $3.625 to close at $125.125 after the Wall Street Journal’s “Heard on the Street” column reported that savvy investors are betting the proposal will be approved, allowing U-2 to fly.
“There are a lot of large cities on the West Coast that are relatively close together with the population to support a high-frequency service,” United spokesman Joe Hopkins said.
The carrier would not name the 14 West Coast cities, but officials said seven of them are already served by United. Analysts said U-2 will probably operate from smaller regional airports such as Burbank, Ontario and Oakland, where short-haul fliers such as Southwest have made their mark.
“We have plenty of counter space and would seem to match what they are looking for,” said Lonnie Mitchell of Long Beach Airport.
Launching U-2 in the West is a logical move for United, analysts said, because the airline has a substantial infrastructure in the region, including travel agents who can connect travelers on United’s transpacific flights with the short-haul affiliate.
“Here’s United with good facilities on the West Coast, lots of gates and a strong market presence,” said David Banmiller, president of Banmiller & Associates, an aviation consulting firm. “It’s a strong area of their system, and they decided they should go to their strengths.”
Hopkins said approval of the employee buyout is key to the operation’s success.
“The concessions in the form of wage and benefits reductions will substantially lower our costs and allow us to compete effectively,” he said.
But it will take more than employee concessions to reduce operating costs enough to make the venture profitable, analysts said.
“This goes beyond salaries and gets into productivity,” Banmiller said. “United’s success will depend on how quickly they can turn their airplanes around and keep them up in the air, and how effectively they can manage the employee population to be highly productive to make it work.”
U-2’s Boeing 737 fleet will be in the air 11 hours a day--1 1/2 hours longer than United planes currently fly, the airline said--and planes will be on the ground only 20 minutes between flights. To save time and money, seat assignments will be made at airport gates, and no meals will be served on flights, spokesman John Kiker said.
Dallas-based Southwest, which pioneered the low-fare, short-haul concept and now controls 51% of the intra-California market, serves no meals and does not make seat assignments. A spokeswoman for Southwest said it takes more than no-frills changes to run a successful airline.
“There are certain mechanics other airlines can try to copy, but the bottom line is we think our costs are very difficult to match on a long-term basis,” said Linda Burke Rutherford of Southwest.
