UAL Corp. has used the protection of federal bankruptcy law to trim $7 billion in annual costs, including two rounds of employee pay cuts; eliminate more than 25,000 jobs; dump its defined-benefit pensions and reduce its cost structure.
It also has shed more than 100 airplanes from its fleet, cut some U.S. flights and expanded internationally.
Now, two questions are presented. First, will United be able to make a profit (its bankruptcy court projects included grossly optimistic predictions about key factors like fuel costs), or will it collapse again because its business model is fundamentally flawed? Second, will a leaner cost structure at United force other legacy airlines to follow suit and go bankrupt themselves in order to make similar cuts, so that they can compete with United?
United is far leaner than it was before and has shifted its business from the more competitive domestic market to the less competitive foreign market. But, even with all the cuts, it is still only at a more or less even starting line with, or even a little behind, carriers like Frontier and Southwest in terms of cost structure. And, United returns to the market with a lot of festering hard feelings within its remaining labor force, who have seen their pay packages slashed and their pleas to control executive compensation ignored. Discount carriers, in contrast, have a long history of relative labor peace and have received several graphic demonstrations in recent airline bankruptcies of what happens when management and labor fail to get along. The payoffs from that kind of harmony are subtle but real.
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