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Leaner United in tough market

Before emerging from Chapter 11, the airline made one change after another. But rival carriers were making cuts too.

CHICAGO - United Airlines embarked Wednesday on what it called "a new beginning," soaring free of bankruptcy for the first time since 2002 but no longer able to turn to a court for assistance as it faces industry conditions that may be harsher than those when it entered 38 months ago.

The end of Chapter 11 for United and parent UAL Corp. came with the filing of exit documents in U.S. Bankruptcy Court, climaxing the longest and costliest airline restructuring in history.

The next chapter of its recovery won't be easy, with the slimmed-down carrier having to overcome near-record oil prices and multiple discount competitors if it is to succeed and make its first profit since 2000.

Several of United's unions, stinging from steep pay cuts and other concessions in bankruptcy, issued statements putting management on notice that they expect to see better results for their sacrifices. "With bankruptcy behind us, there are no more excuses, no room for error and no second chances," said Mark Bathurst, head of the pilots' union.

The departure from bankruptcy after 1,150 days, however, mostly was cause for quiet celebration within the nation's second-largest airline - and some subtle rebukes for critics who said cost-laden United couldn't pull off the wholesale restructuring.

"When we started this journey three years ago, many people questioned our ability to rebuild United into a company with a sustainable future," chief executive Glenn Tilton said in a message to employees. "But together we have created a fundamentally better airline - strong, confident and ready to compete with the world's best."

Top executives of the carrier fanned out to U.S. airports to thank United's employees for their sacrifices and customers for their loyalty and patience.

United Airlines is the sixth-largest carrier at Tampa International Airport, with 13 daily departures to its hubs in Chicago, Denver and Dulles International Airport outside Washington, D.C. All the flights are on United's all-coach discount division, called Ted. Last year, United flew nearly 1.2-million passengers, 54 percent more than in 2003, when the airline filed for bankruptcy.

Passengers likely did not notice any difference Wednesday, since United never stopped flying even when multibillion-dollar losses forced it to seek protection from its creditors in federal bankruptcy court. But the airline has made one change after another since early in its overhaul.

Bucking its cheaper-is-better trend, United has added or expanded products targeting both ends of the price spectrum. Besides its 2-year-old Ted for leisure travelers, it has an enlarged Economy Plus program with extra leg room for frequent or higher-paying travelers and a premium transcontinental service called "p.s." offering more comfort for more money.

United shed $7-billion in annual expenditures during the complex makeover.

Some industry experts say it could have done more. They note that some of the competitive edge it gained in bankruptcy court has been eroded by rivals following with cuts.

"United comes out of Chapter 11 with no significant advantages over its major competitors," said consultant Michael Boyd of the Boyd Group in Evergreen, Colo.

Ray Neidl of Calyon Securities said that along with other carriers, United faces a tougher challenge on costs than it did when it entered bankruptcy.

"They're on the right path but they've got a few more feet to walk," he said. "I'd like to see the costs come down more in this very competitive environment in which other carriers are reducing their CASM (costs per available seat mile)."

Leading financial institutions have endorsed United's prospects after bankruptcy, with JPMorgan Chase & Co. and Citigroup Inc. leading a $3-billion financing package. Standard & Poor's upgraded UAL's credit ratings as soon as it emerged Wednesday, citing its "extensive and well-positioned route system" and labor and other cost cuts.

Many investors were bullish ahead of the trading debut today of the company's new stock on the Nasdaq Stock Market. United's early estimates were that the stock, whose ticker will be UAUA, would trade for about $15 a share, but on Wednesday they closed at $40 in pretrading on Nasdaq's over-the-counter market.

While United has contracts with its employees in place through 2010, relations with its unions remain tense because of the cost cuts. Several unions issued statements crediting employees, not management, with saving the airline and reiterating their anger at the new stock plan which gives 8 percent of shares to top executives.

Times staff writer Steve Huettel contributed to this report.

United's bankruptcy began on Dec. 9, 2002. Today, it has about 30 percent fewer employees (58,000), 20 percent fewer airplanes (460) and 20 percent lower operating costs (7.5 cents per seat per mile), excluding fuel. Labor costs are down by more than $3-billion annually after two steep pay cuts and the elimination of defined-benefit pensions. Dozens of daily domestic flights have been eliminated, though four flights have been added at Tampa International Airport.

[Last modified February 2, 2006, 02:15:36]