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Last Updated: Wednesday, 23 June, 2004, 07:48 GMT 08:48 UK
Flying into trouble - again

By Stephen Evans
BBC North America business correspondent

United Airlines plane in the carrier's new livery
A new livery for United, but the same old problems

It's airline Groundhog Day in America again.

With seemingly relentless regularity, the industry bewails its woes: costs must be cut; help is sought in Washington; Something Must Be Done.

It's true there are variations each time the crisis gets acute (low passenger numbers after September 11 has given way to high fuel prices as a source of difficulty), but the broad theme remains the same: big airlines find it hard to make profits in America.

The immediate victim is United (with Delta and US Airways not far behind).

The administration's decision to refuse to guarantee loans of $1.6bn (875m) to the second biggest airline leaves it with the prospect of trying to cut and cut and cut some more.

Cheaper rivals

Even if a renewed, scaled-down application for assistance is accepted, the delay will still postpone United's emergence from bankruptcy and more pain is guaranteed.

The difficulty is that United has already chopped $2.5bn off its wage bill.

The older, bigger carriers still have much adjustment to do
Pay is now on a par with that at the other big carriers but - and here's the nub - still above that of the no-frills airlines.

On top of that, there's a new one crowding into its market.

The Independence airline is already pitching at passengers in Washington DC with attractive adverts on the city's metro and attractive prices at the city's big airport, Dulles.

It's not just the wage bill that's United's problem but the burden of pension provision.

On one calculation, the company owes its pension funds $4bn over the next five years, the sort of sum to cripple a smaller airline.

Fighting back

And perhaps cripple United eventually - despite the efforts of its chief executive, Glenn Tilton.

He spends much of his time in the air between meetings which might take place across three continents in a drive to transform a less-than-nimble culture.

On top of that, he's launched a low-cost airline to try to compete with the other low-cost carriers on their own terms.

Glenn Tilton, United Airlines chief executive
Can Glenn Tilton save United?
There is a view that the denial of the loan guarantee was the best favour the administration could have done United.

It's enabled Mr Tilton to continue focussing minds on the real need: cutting costs and sorting out the airline's structure.

Low-cost carriers have three main advantages: they usually fly from point to point rather than via hubs which are expensive because baggage and people have to be moved; staff are usually younger so they are more flexible and healthier; pay is usually lower.

Race for survival

All of which means that the older, bigger carriers still have much adjustment to do.

The airline analyst, Dorothy Robyn of the Brattle Group likes to tell a story of two hikers in a wood who are confronted by a bear.

One of them puts on a pair of running shoes to which the other replies that running shoes won't do the trick because a bear can run faster than a human.

"But I haven't got to run faster than the bear", says the first hiker, "just faster than you".

The big airlines are each trying to keep ahead of the nearest rival - but the bear may catch one of them sooner or later.

Probably later. TWA took ten years to die and get taken over by American - but die it did in the end.

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