Aloft and Kicking : Shuttle by United Has Surprised Doubters by Withstanding Southwest, but Turbulence Isn’t Over
When UAL Corp., parent of United Air Lines Inc., launched its Shuttle by United in October 1994 as a low-fare contender in the busy West Coast corridor, many observers believed it was a venture doomed to failure.
After all, the quirky airline-within-an-airline concept had been tried before--Continental Airlines’ now-defunct Continental Lite comes to mind--but it had nearly always flopped. And it was considered especially foolish for an unwieldy behemoth like United to mess with a market owned by Southwest Airlines, the industry’s low-cost powerhouse with its unique formula of short flights, cheap fares, no-frills service and low operating expenses.
Today the surprise is that the Shuttle still might make it. It’s gradually finding a home of its own, some analysts say.
Although last fall it scaled back in some of Southwest’s strongholds--such as Burbank, Oakland and Ontario--the Shuttle beefed up its presence at the Los Angeles and San Francisco airports, United’s hub markets. It doesn’t fly from Burbank to Oakland anymore, but it does fly from Burbank to San Francisco and from Oakland to Los Angeles--important routes for business travelers.
One auspicious sign is that Shuttle planes are flying fuller than a year ago, UAL spokesman Tony Molinaro said. And there’s ample evidence, he said, that United’s long-haul business has bounced back thanks to the Shuttle. If the Shuttle merely breaks even, it’s worth keeping if it continues to feed United’s transcontinental and international flights, he said.
“Through 25 years of Southwest culture, I don’t think they had an idea of a competitor standing up to them, and still standing past the second or third round,” said Dave Stamey, vice president of Avitas Inc., a Reston, Va., airline consulting firm.
For the Shuttle, “it was almost destined that something like that couldn’t work,” Stamey said. “But it did work. United did it. They surprised the industry, they surprised us, they surprised Southwest.”
The two airlines are “solidifying into a Coke and Pepsi,” said analyst Brian Harris at S.G. Warburg & Co.
Still, the Shuttle has had a bumpy ride. Besides retreating from some Southwest-dominated airports, it was forced late last year to match Southwest fares as low as $19 one way. It cost UAL dearly. (Southwest’s costs remain far lower than the Shuttle’s.)
“We’re not bleeding money out there,” Molinaro said. But the Shuttle “didn’t make money in the fourth quarter.” UAL as a whole lost $47 million in 1995’s final quarter, on $3.22 billion in revenue. Chicago-based UAL does not break out Shuttle results.
With a 35% market share in California, the Shuttle is now second in the state next to Dallas-based Southwest, which has more than 50% of the market. The Shuttle operates 375 flights a day from 11 West Coast cities.
The carrier was the offspring of UAL’s July 1994 employee-led buyout. In deep financial straits, the nation’s largest airline was on the verge of splitting apart or drastically downsizing. Instead, the employee-owners--who accepted pay cuts in exchange for stock--chose to expand. Their answer to reclaiming California market share lost to Southwest was the Shuttle.
The new airline was also seen as a way of preserving United’s embattled mainline service, which was under attack in the West from rivals on the lucrative Asian routes. By feeding its long-haul flights from the Shuttle, United would have an important competitive edge, it was thought.
On one recent Shuttle flight to San Francisco, it was evident that many of Southwest’s money-saving tricks have been mimicked: There’s no food service, just pretzels and drinks. Tickets aren’t required; passengers with reservations need only show an ID. Only Boeing 737s are flown, which saves on maintenance and training.
But the differences between the two airlines are also apparent, with the Shuttle’s starchy image contrasting sharply with Southwest’s breezy informality. Unlike their Southwest counterparts, Shuttle flight attendants serve Starbucks coffee, aren’t allowed to wear sneakers and they certainly don’t sing and giggle over the intercom. Briefcase-toting passengers in suits quietly work or read newspapers.
“I’ll cancel business before I fly Southwest,” says Dave Meshriy, a San Francisco banker. “I don’t like the [Southwest] process of shuffling people on and off the plane. It’s like a cattle car.”
Meshriy also likes cashing in his frequent-flier miles from Shuttle flights for upgrades to first class. Southwest doesn’t have first-class service. “On a tough day,” Meshriy says, flying first class “makes a big difference.”
To be sure, doubts remain about the Shuttle’s ability to stay airborne.
The pullback from Southwest-dominated markets “clearly shows United has no business being a Southwest Airlines,” said Michael Boyd, president of Aviation Systems Research Corp. in Golden, Colo. The Shuttle is “a diversion. It’s dragging them down.”
So far, the Shuttle’s efforts to approach Southwest’s operating efficiencies have fallen short, and its costs are about 40% higher than Southwest’s. That’s critical because if the Shuttle isn’t profitable over the long run, United’s ability to pay back debt from the buyout could be jeopardized, and the Shuttle would end up being mothballed.
Also, some Shuttle “innovations” look more like gimmicks than real benefits. In July, self-service boarding machines were installed at the San Francisco and Los Angeles airports, which are supposed to simplify the boarding process and eliminate long check-in lines. But one passenger recently had a tough time navigating the touch-screen commands. And if the machines become popular, customers could end up waiting in lines anyway.
The Shuttle’s seating system is another oddity. It involves boarding in “zones,” with window seats filled first, followed by middle and aisle seats. The process seems to confuse some passengers and clog aisles. One consultant suggested that the system was dreamed up by “a deranged MBA.”
The pressure from Southwest, meanwhile, keeps escalating.
Southwest manages to make money on the cheap fares because it operates so efficiently. Its between-flight turnarounds are like Indy 500 pit stops. Ground crew workers pitch in wherever needed, loading baggage and refueling planes at Mach speed.
Southwest pilots fly more than those on other airlines, and they help pick up trash and fold seat belts even as the last passengers are departing. Next year they’ll begin flying the faster, more fuel-efficient Boeing 737-700s.
Having achieved such success in California, its second-biggest market next to Texas, Southwest started Florida service in January and is now reportedly eyeing the Northeast--a move that would make it a nationwide carrier.
But even Southwest admits to some grudging admiration for United’s unexpected tenacity with the Shuttle.
Dave Ridley, Southwest’s vice president of marketing, said it’s apparent now that the West Coast market is big enough to satisfy the appetites of two tough competitors. “The pie has grown,” he said.
Said consultant Stamey: “We see them both standing toe-to-toe and sharing in the market.”
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Shuttle Wars
Since its West Coast debut in the fall of 1994, Shuttle by United’s attempt to mimic Southwest Airlines’ low-cost structure and gain a significant share of the California skies has met with mixed results. Recently the Shuttle scaled back in Southwest strongholds such as the Burbank-to-Oakland corridor, but it has added flights in the hub markets such as Los Angeles and San Francisco.
Shuttle Daily Round-Trip Flights
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Nov. ’94 Now Burbank-Oakland 7 0 Ontario-Oakland 6 0 Burbank-San Francisco 11 14 L.A.-San Francisco 31 38 L.A.-Oakland 9 14
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