It depends on where you stand. If you are an avid United supporter such as myself, you hope the airline has done enough but as you read more and more and start to fully understand the stratagey that United has come out with, you begin to wonder if their calcuated risk is going to pay off.
Here is what the issues are:Structure: United unlike other carriers in bankruptcy has expanded service instead of reducing services. They have added new destinations and better locations. Understandably they have increased their international destinations to increase profit, because of the non existant LCC competition. But United has also reduced their domestic services, some of them have been shifted to Ted.
All of these moves were probably in the best interest of the company. You can't make money if you don't spend it. Same proverb applies here, you can't make money if you don't offer better destinations than your competitor at a better price.
photo from United.com Services on Board: Here is where United is taking the risk. They have invested in newer aircraft. Good. They have reduced the types of their aircraft from 10 models to 5. Good. But they have been restructuring their regional jet services to offer this new ExPlus service. Now I love this service. Seeing how my home airport is a regional feeder to Chicago and Denver, I get to chance to use their new planes and services on most of my flights. But the problem is that this new ExPlus reduced the number of seats on the aircraft. Less seats equal less revenue. The service is like a plane full of first class seats. The increased services could be costly when it comes to generating revenue for the airline.
On the other hand, this service could draw in people to use United rather than other carriers. Especially in markets in which United does not compete with JetBlue, Frontier, or Air Tran. If given the choice between United Express to Chicago from St. Louis and American Connection on the same route, I would hands down take United especially if they offer the ExPlus Service.
Now United has this new service on their New York to San Francisco/Los Angles route, called P.S. (Premium Service). P.S. flights offer three-class service on Boeing 757s. For $4,550 round trip in first class, P.S. offers the domestic industry's most pampering, with fully reclining seats and DVD players. This service is definitely marketed towards the business travelers. Mostly likely not a service that the average flying Joe would pay for to go see Aunty Anne.
United's Business Plan: The plan forecasts oil to be at US$50 a barrel. Today it was at nearly US$69 a barrel, nearly 20 dollars above what United has fore-casted in order to make their business plan work. Now the implication of newer aircraft that are more fuel efficient will help keep costs down but with the reduction of seats on aircraft and the higher oil price could cause the airline to stumble the first couple of quarters.
Market share for United has been a problem at all five of their hubs. Especially at Denver where they have fallen from a market share of 70% to just over 50% today. The increased competition from hometown carrier Frontier and now the arrival of Southwest could eat away at United's market share even more. If you live in a market in which United is the only competitor or has very little competition from LCCs watch your fares jump higher. This was evident with the loss of Independence Air at Dulles. If you live in a market in which United competes with LCCs such as Frontier, JetBlue and Southwest, watch out for some really brutal battles in fare wars. United wants your dollar, they want you in that seat.
It will be interesting to see how United will come out of this protection.
USA Today
United
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Tracked on: January 26, 2006 5:09 PM | Permalink to Trackback