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United Airlines : company profile

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United Airlines is one of what are now only three major global air carriers based in the US. The business was created in 2010 from the merger of the old United with Continental Airlines. It was until recently the leader by international passengers, having carved out a strong global profile during the 1980s and 1990s through the acquisition of worldwide routes from failing giant PanAm and the creation of the Star Alliance with Lufthansa and other carriers. (It was overtaken in international passengers in 2015 by American). The path has never been easy. The global airline industry has been in turmoil since 2001 as a result of the economic fallout from terrorist attacks, cumbersome internal security measures and (for a while) soaring fuel prices. Until the beginning of 2006, United spent more than two years in bankruptcy protection, struggling to find a way to restructure its finances. All the US carriers agreed that the disappearance of one of the majors would relieve the general pressure across the industry as a whole, but United had to fight hard to ensure it didn't become the fall-guy for its rivals. After several years of on-off negotiations, it finally secured an agreement to merge with rival Continental.

Advertising

Who handles advertising? Click here for Agency Account Assignments. United declared advertising expenses of $201m for 2015.

Competitors

United's main competitors are the two main US-based international carriers, American Airlines and Delta as well as domestic giant Southwest and other regional and foreign companies. See Travel Sector index for other companies.

Brands & Activities

At the time of its merger, United Continental Holdings claimed to operate the world's biggest airline, but it has been overtaken since then several times by other newly combined carriers. It still claims the widest global network, with approximately 5,000 daily flights to 342 destinations across six continents. For 2015, United claimed a total of 96,327 paid mainline passengers, and revenue passenger miles (or RPMs - passengers multiplied by distance travelled) of 183,642m. Of total passengers, 26,148 were for international flights to or from the US according to government statistics. It was the #4 US airline by total passengers, and #2 by international passengers behind American.

Regional passengers are actually transported by a group of independent affiliated airlines, operating under the United Express banner, and feeding passengers into United's eight US hubs (including Guam) from regional airports. PS is a separately branded premium service connecting New York with Los Angeles and San Francisco, mainly targeting first class passengers. Total consolidated passengers including partner airlines were 140,369 individuals, with a total of 208,611m RPMs.

In theory, the Continental merger matched the two airlines' respective strengths. United was especially strong on the US West coast and across the Pacific region; Continental's stronghold was regarded as the East coast, including New York, and Latin America. United was first reported to have opened exploratory merger discussions with Continental in December 2007. Despite the subsequent announcement of a link-up between rivals Delta and Northwest, the United-Continental talks ended without agreement in April 2008. New talks opened instead with smaller carrier US Airways, but these too subsequently stalled. However, United did at least agree the terms of a new marketing partnership with Continental, which led to closer cooperation on schedules and fares. With all airlines suffering the impact from the 2009 recession, United reopened tentative merger talks with US Airways in early 2010. This served to pull Continental off the fence. US Airways walked away from the talks, and United and Continental agreed the terms of a merger a matter of days later. Under the agreement announced in May 2010, the two carriers agreed to merge under the United Airlines name. The deal completed in October that year, but integration of the two companies and their separate fleets, staff and systems wasn't finalised until Spring 2013. The Continental brand has been phased out.

United was subsequently voted the world's most admired airline in the annual Fortune ranking for 2012, overtaking the previous year's winner Delta. However the consolidation process was not easy and numerous serious challenges emerged during the course of that year, not least after the combination of both airlines' reservations systems. Alterations to United's existing frequent flyer scheme enraged its passengers, and the system crashed twice, in August and October, shutting down all bookings altogether and causing serious delays to flights. These problems have dragged on ever since, earning the airline a reputation for poor punctuality, and also leading to a series of run-ins with labor unions. Some of these problems originated at United's main New York hub at Newark, where it had struggled to negotiate improved facilities with the airport's Port Authority controlling body. These negotiations eventually led to the abrupt departure of United CEO Jeff Smisek in 2015 in connection with a separate federal investigation into the business dealings of the Port Authority's former chairman.

A key component in United's global footprint is its membership of Star Alliance, the first and still the biggest joint marketing initiative of international airlines. The old United was one of the Star Alliance's founder members, and Continental quit rival SkyTeam to join it in 2008. The 28 partners within the alliance include Air Canada, Lufthansa, Singapore Airlines and Thai Airways among others, serving a combined total of approximately 1,300 destinations in 190 countries. United also has revenue-sharing joint ventures with Air Canada for cross-border flights; with Lufthansa and other German-speaking carriers for trans-Atlantic flights; and with All Nippon Airways for Asia.

The group also has a substantial delivery division, United Cargo, one of the world's largest after FedEx, offering national and international door-to-door delivery services of small packages as well as heavy freight. MileagePlus is the airline's widely admired frequent flyer scheme, and includes a co-branded Visa credit card operated in partnership with JP Morgan Chase. It absorbed Continental's OnePass program after merger. In 2014 it was voted Best Frequent Flyer Program by readers of Global Traveler magazine for the 11th consecutive year.

In 2004, United launched its own low-fare service, Ted, serving selected leisure markets in the US and Mexico. As a result of steep rises in fuel costs, however, that business was discontinued in 2008 as part of a group-wide cost-cutting programme.

Financials

Despite its prominent position and a distinguished heritage, United struggled for years with recurring financial problems that were to some extent initiated by an unwise diversification into other industries back in the 1970s and 1980s. These reached crisis point on several occasions, most recently as a result of the general problems within the air travel industry since 2000. United was directly affected by the September 11th 2001 atrocity when two of its planes were hijacked and destroyed, along with their crew and passengers. Unable to meet its debt repayments as a result of the subsequent sharp decline in air travel, United filed for Chapter 11 bankruptcy protection at the end of 2002. As a result of a growing stability in the industry as a whole, it was able to emerge from Chapter 11 in February 2006.

In 2007, parent company UAL reported its first full-year profit since 1999, with net income of $403m on revenues of $20.1bn. However the following two years proved challenging, resulting in a loss of $5.4bn in 2008 and a further $651m in 2009. The group was back in the black in 2010, and profits more than tripled in 2011 following the merger. Revenues for 2012 were flat at $37.15bn. The company reported a net loss of $723m as a result of a $1.3bn charge for continuing integration, labor agreements and severance payments related to the merger. It also has significant costs relating to its debt burden, which cost it $763m in net interest expense in 2012. For 2014, revenues reached a best-ever level of $38.90bn, up almost 2% on the year before. Net income more than doubled to $1.13bn, as a result of reduced costs.

Revenues for 2015 slipped back from the previous year's high to $37.86bn. However net income soared to a spectacular $7.34bn, including a $3.1bn non-cash tax revaluation. Another major factor was the sharp fall in fuel prices over the course of the year.

Background

United Air Lines was formed in the late 1920s from the acquisition of three regional mail delivery services by Boeing Air Transport, an offshoot of William Boeing's aircraft manufacturing business. Boeing was among the first companies to sell tickets to commercial passengers and the first to introduce stewardess service in 1930. After accusations of favouritism in the allocation of mail contracts, the US government regulated the industry in 1934, separating aircraft manufacturers and commercial services. United was spun off from Boeing as a standalone business, and its fortunes were greatly enhanced by the increasing popularity of air transport after World War II. The acquisition of cargo carrier Capital Airlines in 1961 made United the world's largest commercial airline. It adopted its long running Fly The Friendly Skies slogan in 1965, and formed holding company UAL Corporation in 1969.

Diversification as a conglomerate caused numerous problems in the ensuing years. In 1970 the group acquired Westin Hotels, and a series of additional purchases followed including Hilton Hotels and the Hertz car rental service in the 1980s. These and other developments angered employees within the core airline business, leading to several labour disputes, capped by a six week strike by pilots and flight attendants in 1985. United's pilots also launched two unsuccessful attempts to buy out the airline. The group's diversified holdings were gradually sold off towards the end of the 1980s.

In the meantime United had also expanded its operations beyond the US, launching its first commercial intercontinental flight to Tokyo in 1983. It profited from the sad decline of PanAm, acquiring the latter's routes to the Pacific in 1986, to London in 1990, and to Latin America in 1991. Yet expansion also led to huge losses. In an attempt to reduce costs the group negotiated a landmark agreement with employees, swapping almost $5bn of wage concessions for the creation of the world's largest employee share ownership scheme controlling a 55% majority shareholding in the company as well as several seats on the board. The group cemented its global service by establishing the Star Alliance network in partnership with co-founders Air Canada, Lufthansa, SAS and Thai Airways in 1996, as a response to a similar strategic alliance between rival American and British Airways.

The middle and late 1990s marked United's most profitable and successful period until cut short by economic turmoil from 2000 onwards. The wage freeze agreed with the unions expired that year, causing renewed friction over pay increases. Plans to merge with rival US Airways also complicated labour negotiations. (They were later vetoed by regulators). United cut 7,000 flights from its schedule in 2000 and many others were delayed or temporarily cancelled, forcing the company to run ads apologizing for the problems. A year later, two United flights were hijacked and destroyed in the terrorist atrocities of September 2001. These events caused a steep downturn in worldwide air travel. United laid off a further 20,000 jobs, generating a record loss for the year.

Faced with substantial debt repayments in 2002, the company negotiated further job cuts with the unions and applied to the US government for an emergency loan of $1.8bn. After deliberation, this was declined and the group sought Chapter 11 protection at the end of the year. A renewed application for a loan to speed up reorganization of the business in 2004 was also denied, although United has been granted an extension to the timing of the process and was subsequently granted permission to transfer $6.6bn of unfunded pension liabilities to third party pensions manager PBGC. This deal, a significant lifeline for United, was accepted by the company's pilots, despite the fact that it would halve their expected pension benefits, because of the promise of enhanced future benefits and equity in the company if and when it could escape bankruptcy. The airline's machinists and flight attendants were less satisfied and threatened further action.

Last full revision 18th July 2016

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