United Next To Develop Low-Cost Subsidiary

Hours after Delta Air Lines provided specifics on its new low-cost carrier, Song, United Airlines last night stated its intention to create a similar entity, following weeks of speculation that the bankrupt carrier would attempt to revive or recreate the West Coast shuttle it shelved after Sept. 11, 2001. "We believe that a low-cost carrier, fully integrated into a global hub-and-spoke network for the first time, will be a critical and dynamic element in United's future strength," the airline stated.

The statement followed frustrated comments from a leader of United's pilots union. "Senior management appears to be proposing a plan to break up United Airlines by giving United routes, aircraft and other assets to another company, with a whole set of new managers and employees," said Captain Paul Whiteford, chairman of the United Master Executive Council of the Air Line Pilots Association. "If so, United's management is now telling us to give up on United Airlines as we know it. We will oppose management's breakup plan by every lawful means available to us. There is no magic cure for United or any other airline."

United's low-cost strategy, which may include certain services from Chicago O'Hare as well as West Coast operations, is part of a new and far-reaching business plan being presented this week to union leaders and the company's board of directors.

Meanwhile, in a conference call this morning, JetBlue Airways CEO David Neeleman said he is "skeptical" Delta can outfit Song airplanes by October with the announced inflight entertainment system. "It is great to stand up at a press conference and say how great a product is going to be, but it is a whole different thing to actually deliver," Neeleman said. "They certainly will never get to our costs, and it is even more clear they won't get to our level of customer service when they are laying off employees and lowering salaries."

In a research note yesterday to investors, J.P. Morgan Securities analyst Jamie Baker said, "Song is the name, Blue-bashing is the game." He added that Song's competition and its competitive inflight product "will inevitably result in a modest level of spill/defection from JetBlue," but JetBlue will maintain a cost advantage and seek growth in markets not targeted by Song. "Song isn't about costs, its about retarding the inroads that JetBlue and others are continuing to make into Florida, the second most important state to Delta after Georgia."

Delta officials would not comment on how Song services would be integrated in corporate contracts, if at all, and some travel managers already are wondering if bookings on Song will count toward their contracted Delta goals.