United Airlines parent UAL Corp. this month asked the bankruptcy court overseeing its Chapter 11 restructuring to extend for six months—until April 6, 2004—the exclusivity period for filing a reorganization plan "to avoid a premature formulation" of the plan and to allow for "sufficient time to secure exit financing." UAL called its case "one of the largest and most administratively complex Chapter 11 cases ever filed."
Its current goal is to emerge from bankruptcy protection late in the first half of 2004. To do that, UAL likely will require a federal loan guarantee, which is contingent on it first resolving pension issues. The Air Transportation Stabilization Board in December rejected United's first loan guarantee application, prompting the bankruptcy filing a few days later, but said it would reconsider once United improved its business plan
(BTN, Dec. 9, 2002)."At this point, we think United's prospects of successfully emerging are pretty good, helped along by a strengthening economy," said Deutsche Bank analyst Susan Donofrio.
A primary element of United's restructuring plan is a February launch of a low-cost operation at the carrier's Denver hub. Initial plans call for flights using four Airbus 156-seat A320s from Denver to Las Vegas, New Orleans, Orlando, Ontario, Calif., Phoenix, Reno, Nev., and Tampa. United rival Frontier Airlines already operates from Denver to each of the seven destinations.
United said other destinations—including hubs—will be announced at a later date. Once fully deployed in late 2004, United's low cost operation will field a fleet of 40 A320s.
The new unit, which for months has been unofficially dubbed Starfish, will offer a "simplified fare structure with low-cost business and leisure fare options." It will provide pre-assigned seating—including slightly roomier Economy Plus seats—and inflight food and beverage service.
The low-cost carrier within a carrier concept has failed several times in the past, though Delta continues to grow its Song unit, which, unlike United's new concept, does not operate from a mainline hub. United used that fact as a differentiator, saying its operation will be "the only low-cost carrier to benefit from mainline connectivity and seamless access to the global network." In a hotline message last week to employees, United said the difference between its new operation and the defunct United Shuttle is the ability to leverage "significant, long-term cost reductions" already achieved as part of the reorganization. United said the development represents a long-term commitment to Denver, debunking industry speculation that it may significantly downsize Denver services.
"They chose Denver because they didn't know what else to do," said Michael Boyd, president of the Boyd Group consultancy in Evergreen, Colo., noting that the original United low-cost plan called for direct competition against Southwest Airlines in such markets as Chicago. "This is a non-event. All United is doing is taking some Airbuses, putting more seats on them and going into markets in which they already have matched Frontier."
Tickets for the new services will go on sale in November.