United to Ground Its Ted Carrier
Thursday, June 5, 2008
United Airlines said yesterday that it was dismantling Ted, its low-cost "airline within an airline" created in 2004 to compete with Southwest Airlines. United said Ted was the victim of soaring fuel costs.
The airline also said yesterday that it is slashing 1,100 jobs, unloading 70 fuel-guzzling jets and reducing flying schedules. The cuts come in addition to an earlier announcement of 500 layoffs and 30 planes removed from service.
The deepening cuts come as airlines grapple with profitability. In an e-mail to employees yesterday, Glenn Tilton, United's chairman and chief executive, said the airline was "taking aggressive action" to better position its aircraft to earn a profit and was addressing the need to resize the company. Tilton also said the carrier will focus on ways to bring in money, including fare and fee increases.
"This environment demands that we act and the industry act decisively and responsibly," Tilton said in a statement yesterday.
United scrapped an attempted merger with US Airways last week, in part because the company lacked the upfront cash needed to get the new merged airline going, analysts said.
United launched Ted four years ago with hopes of defending itself against low-fare carriers such as Southwest, JetBlue and now-defunct Independence Air, which started winning away customers with direct flights to popular leisure destinations. Older carriers, like United, were saddled with costs of higher-paid union employees and some low-fare upstarts have of non-union workers.
In 2003, Delta Air Lines launched a similar airline called Song, but the carrier shuttered the operation two years later, citing high overhead and unprofitability.
But given today's dramatically different economic climate and the price of oil, industry analysts said the death of the Ted brand was long overdue.
Lots of travelers found Ted -- and its relationship with United -- perplexing, too.(The name itself was derived from hacking off the first three letters of United.) Some said they found themselves booked on Ted after purchasing what they thought were United tickets.
Ted mainly served such tourist destinations as Las Vegas and Cancun, and lots of points in Florida. United said it planned to repaint Ted's 56 jets to standard United blue and white and reconfigure them to include first-class seating, which will enable the airline to bring in more revenue. Ted planes were serviced by United crew members and flown by United pilots. Ted served 23 cities with 210 daily departures.
"Killing Ted is a good move because it doesn't have a place in the market," said Mike Miller, chief executive of Green Skies, an aviation consulting firm. "The bigger question is: Is it enough to stop the losses, which at United are great."
A United spokeswoman said the airline will begin dismantling Ted in spring 2009 and will finish by the end of the year. Ted flyers won't be stranded: They'll be switched to flights on United or United Express, she said.
A United spokeswoman would not say where the job cuts would fall. The airline employs 5,941 employees at local Washington airports. United also isn't saying where it will cut service. Miller said he expected to follow other airlines and scale back routes at the country's smaller regional airports.
United, the No. 2 U.S. air carrier behind American Airlines, lost $537 million first quarter of the year and last month started charging customers $25 to check a second bag. American is charging passengers $15 to check their first piece of luggage. US Airways announced last week that it would stop serving pretzels and other free snacks on domestic flights.
Miller said travelers should expect to pay more.
"For most airlines, fuel is greater than 50 percent of their cost," he said. "It used to be a quarter of their costs. That means for a $200 ticket, $100 is going to pay for gas. If you are going to pay more for a gallon of gas at home, you should expect air fares to rise at the same time."