United Airlines Replaces Goodwin, Retools Corp. Focus

United Airlines, once the world's largest carrier but now fighting for its very survival after 18 months of turmoil, brought in a new CEO to lead it back to profitability and regain the confidence of consumers and skeptical corporate accounts. John W. Creighton has his work cut out for him, considering United's battered finances—most recently, a $1 billion-plus third-quarter loss—its irritated labor unions and the horrific industrywide revenue environment.

Frank Kent, the carrier's vice president of North America sales since May, however, has seen encouraging signs, including a strong rebound in travel by most of United's corporate accounts. A complete recovery, he said, could occur by the second quarter of next year. "We are a smaller airline, but will be better," he told BTN, in reference to the carrier's 26 percent capacity reduction.

Kent also noted a change in the company's tenor since Creighton, a UAL Corp. director since 1998 and former president and CEO of Weyerhauser Corp., assumed command last month. He replaced embattled James Goodwin, who resigned less than three years into his tenure under fierce pressure from the carrier's labor unions. Creighton said he did not accept the position to preside over a bankruptcy, but expects to stay only "until we are confident that the company is on the road to financial stability." Though he has no experience running the day-to-day operations of a commercial airline, Creighton had been highly regarded for his handling of Weyerhauser and that company's labor unions. United's pilots and machinists unions, each represented on the UAL board that unanimously approved his appointment, quickly released statements of support.

The pace of financial recovery, however, largely is dependent on business travelers, who account for more than 50 percent of all United's passengers and more than 80 percent of its revenue.

"The business traveler was, is and will be our focus. That is our backbone," Kent affirmed. "And this is our chance to enhance customer service. Historically, we have not done as good a job as we could."

As such, national and global accounts support staff and customer service personnel, particularly at hub airports, have not been overly impacted by 20,000 companywide furloughs. The entire salesforce, while thinner at the local and regional levels, has been realigned and managing directors in hub markets now primarily are responsible for sales. "We actually beefed up on the corporate side to cover our key accounts," Kent said. "We definitely have a heavy focus on the corporate travel side of our business."

The intent is to reestablish long-term corporate partnerships, sometimes extending longer than three years and based on many elements beyond corporate volume discounts. "We are revisiting what has become structured as a pricing mechanism and changing that back to a net-effect discount where the overall value perceived by the buyer is much higher," Kent said. "A lot of tools and vehicles for working with corporate accounts started growing moss on the north side. We are looking at all those things and will be smarter and more nimble."

But in the immediate term, United must curb its cash burn rate, still running at $15 million a day at the beginning of this month. In the third quarter, UAL lost $1.16 billion, including special items related to the Sept. 11 terrorist attacks. Absent those items, the company dropped $542 million.

"Our results this quarter reflect the sharp falloff in both business and leisure travel that has occurred, and we anticipate continued weakness in both of these sectors into next year," Creighton said. Unit revenues were down nearly 13 percent and passenger yield was off 14 percent. Overall passenger revenues declined 20 percent in what was easily the worst quarter in company history. UAL at the end of the quarter, however, still had $2.7 billion in cash on hand.

However, 26 percent fewer passengers and 30 percent lower unit revenues point to an awful fourth quarter, for which United expects "a substantially greater" net loss. A loan guarantee from the federal government could play prominently in its recovery, but the carrier has yet to apply.

Meanwhile, United terminated internal financing for the Avolar corporate jet unit, which still is under development. Committed to the business plan, however, United is seeking outside investors and pursuing potential clients. Avolar services will be sold completely apart from mainline flying, rather than as a packaged suite.

The carrier also temporarily shelved most of its technology projects, including streamlined airport processes. It also grounded all of its older Boeing 727s and 737-200s, closed a few airport lounges in smaller markets, curtailed some inflight features, including meal service, and is in discussions to defer many incoming aircraft. Additional capacity cuts and other service and amenity reductions are a strong possibility.

Goodwin left United after a 34-year career. Ironically, United's labor unions opposed former CEO Gerald Greenwald's chosen successor in March 1999 and instead threw their support behind Goodwin. United was profitable and growing quickly at the time, however, trouble started last summer when a bitter contract dispute resulted in severe service disruptions. Goodwin had been on uneven footing since—compounded by a failed attempt to acquire US Airways—and opposition from labor unions peaked last month.