United Airlines

P.O. Box 66100
Chicago, Illinois 60666
U.S.A.
(312) 952-4000

Wholly-owned subsidiary of Allegis, Inc.(formerly UAL, Inc.)
Incorporated: December 28, 1934
Employees: 43,800
Sales: $9.918 billion
Market Value: $2.966 billion
Stock Index: New York

United Airlines is one of the world’s largest airline companies. United is a product of several mergers of airline companies which were originally founded in the 1920’s. Through the years United experienced steady growth as a major domestic airline, pioneering the use of modern aircraft and equipment. After 34 years under the leadership of William “Pat” Patterson, United has recently suffered from inept management, inconsistent profits, and strong competition. Despite this, United has overcome many of its problems and achieved its long-time goal of expansion across the Pacific.

United Airlines was created in the early 1930’s by Bill Boeing’s aeronautic conglomerate in order to exploit demand for air transport and to serve as an immediate market for Boeing aircraft. At first United was similar to a consortium, involving the participation of several independent airline companies. One of those companies was Varney Air Lines, credited with being America’s first commercial air transport company. Varnay’s 460-mile network between Pasco, Washington and Elko, Nevada was linked with Boeing Air Transport, which operated an airmail service between Chicago and San Francisco. This route crossed Vernon Gorst’s Pacific Air Transport network, which ran mail between Seattle and Los Angeles. The National Air Transport Company, operated by New York financier Clement Keys, connected with Boeing in Chicago, flying mail south to Dallas. Stout Air Services, which had the financial backing of Henry and Edsel Ford, operated an air service between Chicago, Detroit and Cleveland with Ford tri-motor airplanes.

These airline companies cooperated with Boeing, who manufactured aircraft in Seattle, and Pratt & Whitney, an aircraft engine manufacturer in Connecticut operated by Frederick Rentschler. Together these companies formed a “vertical” aeronautic monopoly, restricting the delivery of new aircraft to its constituent partners and devoting its resources to eliminating competition on its air services. The airline group became known as United Air Lines in 1931.

Among other things, the group was responsible for the introduction of air-to-ground radio and stewardesses. The radio improved communication and safety. The stewardesses, all eight of whom were registered nurses, were actually hired to allay passengers’ fear of flying. A United executive at the time commented, “How is a man going to say he’s afraid to fly when a woman is working on the plane?”

In 1934 National, Varney, Pacific and Boeing officially merged under the name United Air Lines Transportation Company. Pat Patterson, a banker and Boeing official, was placed in charge of the airline at the age of 34. That year, however, congressional legislation outlawed the type of monopoly United had formed with Boeing and Pratt & Whitney. The airline was forced to divorce itself from the conglomerate and subsequently became an independent company based at Chicago’s Old Orchard (now O’Hare) airport.

In 1936, after several airplane accidents, a series of syndicated newspaper stories appeared which sensationalized the horror of airplane crashes. These stories incited a virtual state of panic which drove passengers back to railroads by the thousands. The airline industry was so deeply affected that many smaller companies were faced with bankruptcy. United responded by retaining a popular military test pilot named Major R.W. Schroeder, who was hired to oversee the company’s implementation of new safety codes. With this action United helped to rebuild the public’s confidence in air travel.

As one of the nation’s larger airline companies United maintained a position of leadership in the industry, constantly demanding newer, more advanced aircraft. United funded many of the developmental costs of Douglas’ DC-4, the first four-engine passenger plane. However, when the United States became involved in World War II, all DC-4s were devoted to the war effort before ever having carried a commercial passenger. The company’s name was shortened to United Air Lines in 1943 and new plans were made for the airline in anticipation of the war’s end. When the war ended two years later United redeployed its aircraft and resumed commercial flying.

In 1954 United became the first airline to employ flight simulators as part of its training and pilot testing programs. The following year United placed an order with Douglas aircraft for DC-8s, the airline’s first passenger jetliners. Although Boeing’s 707 jetliner actually became available a few months before the DC-8, United preferred the DC-8 because of its seating arrangement and other cost advantages.

In spite of United’s favorable position in the industry, its competitors were growing rapidly and in many cases outperforming United. In short, the company was in a brief period of decline. However, when United acquired Capital Airlines in 1961 its network in the eastern U.S. was strengthened, helping the company to regain its position as the nation’s number one airline.

United’s president Pat Patterson retired in 1966. The man elected to replace Patterson was George Keck, an engineer who rose to the top position from the company’s maintenance department. Keck was generally regarded as arrogant and secretive. It has been reported that his abrupt manner and authoritarian personality offended many people within the airline, as well as in the Civil Aeronautics Board and the company’s unions. As a result, this severely limited his effectiveness and ability to manage the airline in many ways. In 1971 Keck was forcibly removed in what was described as a “corporate coup” instigated by two members of the company’s board, Gardner Cowles and Thomas Gleed.

In 1967, during Keck’s first year, United became the first airline to surpass $1 billion in annual revenue. On December 30, 1968 United created a subsidiary called UAL to operate its non-airline businesses. On August 1 of the following year United Air Lines became a subsidiary of UAL. Western International Hotels was acquired by the UAL holding company in 1970. Western’s name was later changed to the Westin Hotel Company and linked to another UAL subsidiary which arranged travel packages. Westin’s operations later grew to represent about one-twelfth of UAL’s total business.

Eddie Carlson, who had a record of success while in charge of the Westin Hotel subsidiary, was named to succeed Keck as UAL’s new chief executive officer. Carlson had a warm and personable demeanor which motivated everyone working for UAL, in every division and at every level. He flew 186,000 miles one year, inspecting the facilities and terminating the employment of what he regarded as redundant company bureaucrats. Despite his lack of experience in the airline industry, Carlson was successful in reversing the company’s discouraging trends.

Carlson began to prepare a successor for his position in anticipation of his retirement. The man he chose to run the company was Richard Ferris, whom he had promoted from the Westin hotel subsidiary. When Carlson was named chairman of UAL and United, Ferris was made president of the airline. In 1978 Ferris was promoted to chairman of United and president of UAL. Carlson remained as chairman of UAL until his retirement in 1983.

Notwithstanding efforts to improve the relationship the company has with its unions (which deteriorated during the leadership of George Keck), United remains on cautious terms with its employee representatives. In 1976 the airline agreed to a million dollar pay-back settlement with women and minority employees in an anti-discrimination suit. In 1979 United lost $72 million, largely as the result of a month-long labor strike that year.

Under the leadership of Richard Ferris the airline reached a compromise with its pilots’ union. The agreement guaranteed that layoffs would not be authorized in return for more flexible work rules. The lower operating costs which resulted from the agreement were passed on to the consumer with the formation of a discount air service called “Friendship Express.” The service was also intended to allow the company to more effectively compete with cut-rate airlines such as People Express and New York Air.

In 1978 and 1979 UAL continued to diversify its operations when it acquired Mauna Kea Properties and the Olohana Corporation in Hawaii for $78 million. As resort developments, these acquisitions allowed UAL to take more advantage of the tourist business in the airline’s most popular destination.

In 1978 Congress passed the Airline Deregulation Act. Under the new legislation airline companies were free to enter new passenger markets without prior government approval. United was the first major airline to support deregulation. When the Act was passed, however, United was forced to scale down its operations in order to compete profitably. Richard Ferris later commented, “If we did make a mistake, it was in not recognizing the intensity of pricing competition that deregulation would bring, and getting structured to cope with it.” Executives with smaller airline companies expressed their fear that the larger airlines would concentrate their resources on contested markets with the goal of forcing the smaller companies out of business. One executive poignantly remarked, “What Ferris wants is to have us for lunch, and I don’t mean at McDonald’s.”

In 1985 United acquired Pan Am’s Asian traffic rights for $715.5 million. The agreement also included 18 jets, 2700 Pan Am employees, and all of Pan Am’s facilities in Asia. The addition of 65,000 route miles and 30 destinations to United’s network made other acquisitions pale in comparison. Ferris said, “We could spend two or three lifetimes and never get all the traffic [rights] we’re buying from Pan Am.”

The sale of these routes helped Pam Am out of a short-term financial crisis. United is better suited than Pan Am to operate the Pacific routes because of its well-established network in the western U.S. It may, however, be years before the acquisition pays for itself. The most unique feature about the transfer of these routes is that they were sold as an independent business entity, as if the routes were a subsidiary. The Pan Am routes agreement also provides insight into Richard Ferris’ long-term plans for United.

Ferris joined the board of directors at Procter & Gamble in 1979 with the intention of studying its successful marketing formulas and applying them at UAL. He restructured UAL in order to reduce costs and improve marketing. Since 1982 costs have been controlled, productivity has risen, and profits have stabilized. Part of the new marketing strategy involves the establishment of additional passenger transfer points, or “hubs.” In addition to its main facility at Chicago’s O’Hare airport, United operates secondary hubs in Denver, San Francisco, and Dulles airport near Washington, D.C.

In 1986 United’s purchase of the bankrupt Frontier Airlines unit from People Express was canceled when the United pilot’s union failed to reach an agreement with management over the manner in which Frontier pilots were to be absorbed by United. The $146 million acquisition promised to ease competition at Denver’s Stapleton airport, where United, Frontier and Continental were engaged in a costly battle for passengers. People Express closed Frontier in August of 1986 and declared it bankrupt. Less than a month later People Express was acquired by Frank Lorenzo’s Texas Air Corporation, and Frontier was liquidated. The following February People Express was absorbed into Continental Airlines. Still competing with United in Denver, Texas Air now controls airlines with 20% of the domestic airline market, compared to United’s 16% share.

United has started to replaced its fleet of B-727s with newer wide-body B-767s on more heavily traveled routes. After 25 years United is the last major airline company which still operates DC-8s. Federal regulations on noise pollution, however, have forced United to replace the engines on its DC-8s with quieter models. In addition to these aircraft, United flies large numbers of B-737s, B-747s, and DC-10s.

United lost its number one rank in passenger volume to American Airlines in 1985. In spite of this apparent setback, United’s immediate prospects are very good. Early in 1987 it was decided to change the name of UAL in order to distance it from the initials of its airline subsidiary. UAL was renamed “Allegis,” a curious computer-generated choice which combined portions of the words “allegiance” and “aegis.” With an airline, a hotel chain, the Hertz Rent-a-car company, and the Apollo computerized reservations system to coordinate them all, Allegis has become an integrated full-service travel company.

Shortly afterwards, Allegis encountered a number of problems with Ferris’ strategy to create a travel conglomerate. Several investor groups noted that Allegis’ subsidiaries would be worth more as separate companies than as divisions of Allegis. On May 26, Coniston Partners announced that it had acquired a 13% share of Allegis stock, and that it would be purchasing more in an attempt to gain control of the board and remove Richard Ferris. The Allegis board initiated an anti-takeover defense in which the Boeing Company was given a 16% stake ($700 million) in the company in return for a $2.1 billion aircraft order. The defense failed in June, forcing Ferris and several other board members to resign. The new board appointed Frank A. Olson chairman of Allegis, and later as president and chief executive office of United. The board also announced its intention to sell Westin, Hilton International, and Hertz, in addition to a portion of its Apollo reservations system. The board also expressed a desire to change Allegis’ name back to UAL.

Principal Subsidiaries of Allegis

United Airlines, Inc.; Westin Hotel Company; Mauna Kea Properties, Inc.; The Hertz Corp.

Further Reading

The U.S. Airline Industry: End of an Era by Paul Biederman, New York, Praeger, 1982.

United Airlines

P.O. Box 66100
Chicago, Illinois 60666
U.S.A.
(708) 952-4000

Wholly owned subsidiary of UAL, Inc.
Incorporated: 1934
Employees: 83,000
Sales: $11.663 billion
Stock Exchanges: New York

United Airlines, one of the world’s largest airline companies, is a product of several mergers of airline companies that were originally founded in the 1920s. Through the years United has experienced steady growth as a major domestic airline, pioneering the use of modern aircraft and equipment. After 34 years of leadership by William “Pat” Patterson, United has recently confronted problems with inept management, inconsistent profits, and strong competition and achieved its long-time goal of expansion across the Pacific.

United Airlines was created in the early 1930s by Bill Boeing’s aeronautic conglomerate in order to exploit demand for air transport and to serve as an immediate market for Boeing aircraft. At first United was similar to a consortium, involving the participation of several independent airline companies. One of those companies was Varney Air Lines, credited with being America’s first commercial air transport company. Varney’s 460-mile network between Pasco, Washington and Elko, Nevada was linked with Boeing Air Transport, which operated an airmail service between Chicago and San Francisco. This route crossed Vernon Gorst’s Pacific Air Transport network, which ran mail between Seattle and Los Angeles. The National Air Transport Company, operated by New York financier Clement Keys, connected with Boeing in Chicago, flying mail south to Dallas. And Stout Air Services, which had the financial backing of Henry and Edsel Ford, operated an air service between Chicago, Detroit and Cleveland with Ford tri-motor airplanes. These airline companies cooperated with Boeing, which manufactured aircraft in Seattle, and Pratt & Whitney, an aircraft engine manufacturer in Connecticut operated by Frederick Rentschler. Together these companies formed a “vertical” aeronautic monopoly, restricting the delivery of new aircraft to its constituent partners and devoting its resources to eliminating competition on its air services; the airline group became known as United Air Lines in 1931.

Among other things, the group was responsible for introducing air-to-ground radio, which improved communication and safety, and stewardesses, all eight of whom were registered nurses hired to allay passengers’ fear of flying. A United executive at the time commented, “How is a man going to say he’s afraid to fly when a woman is working on the plane?”

In 1934 National, Varney, Pacific, and Boeing officially merged under the name United Air Lines Transportation Company. Pat Patterson, a banker and Boeing official, was placed in charge of the airline at the age of 34. That year, however, congressional legislation outlawed the type of monopoly United had formed with Boeing and Pratt & Whitney, and the airline was forced to divorce itself from the conglomerate. It subsequently became an independent company based at Chicago’s Old Orchard (now O’Hare) airport.

In 1936 after several airplane accidents, a series of syndicated newspaper stories appeared that sensationalized the horror of airplane crashes and incited a virtual state of panic which drove passengers back to railroads by the thousands. The airline industry was so deeply affected that many smaller companies were faced with bankruptcy. United responded by retaining a popular military test pilot named Major R. W. Schroeder to oversee the company’s implementation of new safety codes. With this action United helped to rebuild the public’s confidence in air travel.

As one of the nation’s larger airline companies United has maintained a position of leadership in the industry, constantly demanding newer, more advanced aircraft. United funded many of the developmental costs of the Douglas DC-4, the first four-engine passenger plane. However, when the United States became involved in World War II, all DC-4s were devoted to the war effort before ever having carried a commercial passenger. The company’s name was shortened to United Air Lines in 1943 and new plans were made for the airline in anticipation of the end of the war. Two years later United redeployed its aircraft and resumed commercial flying.

In 1954 United became the first airline to employ flight simulators as part of its training and pilot testing programs. The following year United placed an order with Douglas Aircraft for DC-8s, the airline’s first passenger jetliners. Although Boeing’s 707 jetliner actually became available a few months before the DC-8, United preferred the DC-8 because of its seating arrangement and other cost advantages.

In spite of United’s favorable position in the industry, its competitors were growing rapidly and in many cases outperforming United, which had entered a brief period of decline. However, when United acquired Capital Airlines in 1961 its network in the eastern U.S. was strengthened, helping the company to regain its position as the nation’s number one airline.

United’s president Pat Patterson retired in 1966 and was replaced by George Keck, an engineer who rose to the top position from the company’s maintenance department. Keck was generally regarded as arrogant and secretive. It has been reported that his abrupt manner and authoritarian personality offended many people within the company and its unions as well as in the Civil Aeronautics Board, which severely limited his effectiveness and ability to manage the airline in many ways. In 1971 Keck was forcibly removed in what was described as a “corporate coup” instigated by two members of the company’s board, Gardner Cowles and Thomas Gleed.

In 1967, during Keck’s first year, United became the first airline to surpass $1 billion in annual revenue. On December 30, 1968 United created a subsidiary called UAL to operate its non-airline businesses, and the following year United Air Lines became a subsidiary of UAL. Western International Hotels was acquired by the UAL holding company in 1970. Western’s name was later changed to the Westin Hotel Company and linked to another UAL subsidiary which arranged travel packages. Westin’s operations later grew to represent about one-twelfth of UAL’s total business.

Eddie Carlson, who had a record of success while in charge of the Westin Hotel subsidiary, was named to succeed Keck as UAL’s new chief executive officer. Carlson’s warm and personable demeanor motivated individuals in every division and level at UAL. He flew 186,000 miles one year inspecting the facilities and terminating the employment of what he regarded as redundant company bureaucrats. Despite his lack of experience in the airline industry, Carlson was successful in reversing the company’s discouraging trends. Anticipating his own retirement, Carlson chose Richard Ferris, whom he had promoted from the Westin hotel subsidiary, to succeed him. When Carlson was named chairman of UAL and United, Ferris was made president of the airline; and in 1978 Ferris was promoted to chairman of United and president of UAL. Carlson remained as chairman of UAL until his retirement in 1983.

Notwithstanding efforts to improve the relationship the company has with its unions, which had deteriorated during the leadership of George Keck, United remains on cautious terms with its employee representatives. In 1976 the airline agreed to a million dollar pay-back settlement with women and minority employees in an anti-discrimination suit. In 1979 United lost $72 million, largely as the result of a month-long labor strike that year.

Under the leadership of Richard Ferris the airline reached a compromise with its pilots’ union. The agreement guaranteed that layoffs would not be authorized in return for more flexible work rules. The lower operating costs that resulted from the agreement were passed on to the consumer with the formation of a discount air service called “Friendship Express.” The service was also intended to allow the company to more effectively compete with cut-rate airlines such as People Express and New York Air.

In 1978 and 1979 UAL continued to diversify its operations when it acquired Mauna Kea Properties and the Olohana Corporation in Hawaii for $78 million. As resort developments, these acquisitions allowed UAL to take more advantage of the tourist business in the airline’s most popular destination.

Under the Airline Deregulation Act, airline companies were free to enter new passenger markets without prior government approval. United was the first major airline to support deregulation; however, when Congress passed the legislation in 1978 United was forced to scale down its yoperations in order to compete profitably. Richard Ferris later commented, “If we did make a mistake, it was in not recognizing the intensity of pricing competition that deregulation would bring, and getting structured to cope with it.” Executives with smaller airline companies expressed their fear that the larger airlines would concentrate their resources on contested markets with the goal of forcing the smaller companies out of business. One executive remarked, “What Ferris wants is to have us for lunch, and I don’t mean at McDonald’s.”

In 1985 United acquired Pan Am’s Asian traffic rights for $715.5 million. The agreement also included 18 jets, 2,700 Pan Am employees, and all of Pan Am’s facilities in Asia. The addition of 65,000 route miles and 30 destinations to United’s network made other acquisitions pale in comparison. Ferris said, “We could spend two or three lifetimes and never get all the traffic [rights] we’re buying from Pan Am.”

Ferris joined the board of directors at Procter & Gamble in 1979 with the intention of studying its successful marketing formulas and applying them at UAL. He restructured UAL to reduce costs and improve marketing. Since 1982 costs have been controlled, productivity has risen, and profits have stabilized. Part of the new marketing strategy involves the establishment of additional passenger transfer points, or “hubs.” In addition to its main facility at Chicago’s O’Hare airport, United operates secondary hubs in Denver, San Francisco, and Dulles airport near Washington, D.C.

In 1986 United’s purchase of the bankrupt Frontier Airlines unit from People Express was canceled when the United pilots” union failed to reach an agreement with management over the manner in which Frontier pilots were to be absorbed by United. The $146 million acquisition promised to ease competition at Denver’s Stapleton airport, where United, Frontier, and Continental were engaged in a costly battle for passengers. People Express closed Frontier in August of 1986, declaring it bankrupt; however, less than a month later Frank Lorenzo’s Texas Air Corporation acquired People Express and liquidated Frontier. The following February People Express was absorbed into Continental Airlines. Still competing with United in Denver, Texas Air now controls airlines with 20% of the domestic airline market, compared to United’s 16% share.

United has started to replaced its fleet of B-727s with newer wide-body B-767s on more heavily traveled routes. Although United is the last major airline company to still operate the DC-8, federal regulations on noise pollution have forced United to replace the engines on its DC-8s with quieter models. In addition to these aircraft, United flies large numbers of B-737s, B-747s, and DC-10s.

United lost its number one ranking in passenger volume to American Airlines in 1985. Despite this apparent setback, United’s immediate prospects are good. Early in 1987 it was decided to change the name of UAL to distance it from the initials of its airline subsidiary; UAL was renamed “Allegis,” a curious computer-generated choice which combined portions of the words “allegiance” and “aegis.” With an airline, a hotel chain, the Hertz rent-a-car company, and the Apollo computerized reservations system to coordinate them all, Allegis has become an integrated full-service travel company. Shortly afterward, Allegis encountered a number of problems with Ferris’ strategy to create a travel conglomerate. Several investor groups noted that Allegis’ subsidiaries would be worth more as separate companies than as divisions of Allegis. On May 26, Coniston Partners announced that it had acquired a 13% share of Allegis stock, and that it would be purchasing more in an attempt to gain control of the board and remove Richard Ferris. The Allegis board initialed an anti-takeover defense in which the Boeing Company was given a 16% stake ($700 million) in the company in return for a $2.1 billion aircraft order. The defense failed in June, forcing Ferris and several other board members to resign. The new board appointed Frank A. Olson chairman of Allegis.

After a brief transition period, the UAL board named Stephen M. Wolf, an airline veteran with executive experience at American, Pan Am, and Continental airlines, as CEO of United. Wolf inherited numerous business troubles, including a contract dispute over company ownership with United’s three major employee unions which went unresolved until 1990.

As the U.S. economy weakened going into the 1990s, United began to feel the effects of recession, which reduced the amount of passenger traffic, and fuel prices, which rose in the late 1980s and jumped sharply during the 1990-91 Persian Gulf crisis. These factors cut into the earnings of all carriers, and in 1991, UAL Corporation suffered a net loss of $331.9 million. United’s losses, as well as those of other major U.S. carriers, were exacerbated by recurrent “fare wars,” often launched by bankrupt airlines, such as TWA and Continental, whose Chapter 11 protection exempted them—unlike relatively well-off airlines—from paying interest on the debt that they incurred as a result of their sharp promotional price cuts. In 1992, United followed the lead of American Airlines in adopting a four-tiered fare-simplification program intended to eliminate these restricted fares; to date, however, the strategy has not yet ceased the eruption of fare wars.

Nonetheless, United has treated the industry’s lean period as an a opportune time to expand. Such financially troubled airlines as Pan Am and TWA began in the late 1980s to sell routes to raise funds, and governments became increasingly willing to allow foreign carriers air rights within their countries; these two factors have prompted United to embark on a strategy of “globalization.” United’s 1985 purchase, for $750 million, of Pan Am’s routes to Asia left the airline well-poised to enter what many industry analysts have described as a transition toward a global free market in transportation. Even American Airlines’ Robert Crandall, who rejected the Pan Am Asian routes as too expensive, later conceded that the purchase was an excellent move. In 1990 United placed a record $22 billion order for new airplanes. In 1991 they purchased six Pan Am routes to London for $400 million, and late that same year finalized a $135 million deal to take over a portion of Pan Am’s Latin American operations.

Although United has yet to regain the number-one status lost to American Airlines, it remains among the strongest world airlines. As the burgeoning Pacific Rim market, a rich source of business travelers, continues to be an expanding center of vigorous business activity, United has moved into the best position to take advantage of opportunities there. Industry analysts increasingly project that, due to the toll of airline battles on weaker carriers, the industry is tending toward a situation in which domestic flights may be virtually monopolized by four or five airlines, and international travel by as few as a dozen. If this proves to be the case, it is considered highly likely, in spite of its recent business difficulties, that United will be among these “supercarriers.”

Principal Subsidiaries

United Airlines, Inc.; Mileage Plus, Inc.; Air Wis Services, Inc.

Further Reading

Biederman, Paul, The U.S. Airline Industry: End of an Era, Praeger, 1982; Laibich, Kenneth, “Winners in the Air Wars,” Fortune, May 11, 1987; Oneal, Michael, “Dogfight! United and American Battle for Global Supremacy,” Business Week, January 21, 1991.

—John Simley

updated by James Poniewozik

United Airlines

founded: 1931 variant name: ual corp.

Contact Information:

headquarters: po box 66100
chicago, il 60666 phone: (847)700-4000 fax: (847)700-5229 url: http://www.ual.com

OVERVIEW

United Airlines in 2001 moved from the number one air passenger carrier in the world to number two in number of daily departures, number of destinations (both domestic and international), and jet fleet size. United Air Lines Corporation (UAL Corp.), its parent company, is the largest majority employee-owned company in the world. In 2002 United's operating fleet totaled 567 aircraft, and, in 2001, the company noted that its average age of aircraft is eight years. However, the troubled company cancelled delivery contracts with Boeing and Airbus for all 18 aircraft ordered for 2003 delivery. In 2002, United flew destinations in the United States and 27 other countries. Like other major airlines, United has established "hubs" or major route and passenger transfer centers in Chicago, Denver, San Francisco, Los Angeles, and Washington, D.C. (Dulles) to fly passengers between North America and the Pacific, and Latin America and Europe. In 2001, United cancelled service to Hong Kong from New York. In 2001 United averaged more than 210,000 passengers per day compared to 230,000 passengers per day in 1997. In 2001 UAL flew about 108 billion passenger miles, down from more than 121 billion revenue passenger miles in 1997, according to UAL Corp.'s 1997 and 2001 annual reports. Besides its domestic and international passenger flights, United also operates a cargo service, but problems in operations saw a 24 percent decline in cargo revenue in 2001 compared to 2000, according to company disclosure statements. The airline currently has two main cargo centers: one a consolidation center in Charlotte, North Carolina, to serve the southeastern and mid-Atlantic states; and a transfer center at JFK Airport in New York. A new cargo transfer center started operating in Honolulu in 1998, which serves as a major cargo connection point for Japanese air cargo coming into and out of the United States and for domestic cargo to and from Hawaii. In 2001 through 2002, new cargo facilities opened in Miami, Newark and Chicago.

Besides its domestic passenger flight operation serving major cities and hubs around the United States, United is able to "feed" or provide flights to smaller cities or shorter distances through its Shuttle by United service and through its United Express program. The latter program is a marketing arrangement with small, independent carriers, In June of 2002, the United Express regional component serviced 150 destinations in the United States, totaling about 1,800 daily flights.

COMPANY FINANCES

Like many other companies in the airline industry, United saw its financial operations plummet in 2001, so much so that a former chief executive officer sent a message to all employees that there was danger of the company perishing. By June of 2002, the company's financial situation was most precarious, and it was again without a CEO after turnaround expert John W. Creighton turned around and left the top position after only a half year in command. "The troubled carrier has been a graveyard of failed executives who have tried to save it," said the Seattle Post-Intelligencer. In addition, a writer for Financial Times in 2002 predicted that the cash-strapped company might have to declare for Chapter 11 bankruptcy for relief from creditors, following news that the company abruptly cancelled all deliveries for new planes slated for 2003. However, other analysts dispute that claim, saying that the company, though clearly in trouble, may be able to get through its current crisis with the aid of loans only.

Before quitting his newly accepted job as chief executive officer, according to the Chicago Daily Herald, Jack Creighton gave UAL shareholders a quotation from Ben Franklin that summed up UAL's economic woes, union worker disputes, and the fallout of the human and economic effects of the September 11 terrorist attacks: "That which hurts, also instructs."

UAL placed too much emphasis in 2001 on its expected merger with USAir, but the consolidation was stopped cold by announced opposition by the U.S. Justice Department which said the merger would result in unfair competition advantages. The merger of the two financially ailing companies would have created the biggest air corporation ion the world. Also in 2001, the company saw two of its flights go down with passengers and crew aboard on September 11 in commandeerings engineered by international terrorists. Trying to stop losses that totaled some $2.1 billion in 2001, the employee-owned company ironically had to force 20,000 workers to accept layoffs.

The only good news for UAL shareholders in 2002 was that the bleeding of the victim was only half as bad as it had been the year before. Instead of the $10 million a day losses incurred the end of 2001, UAL lost $5 million a day or $510 million for the first quarter of 2002, according to self-disclosures. The company expected losses to continue at lease until the end of 2003, but some analysts said normal air traveler patterns for all airlines could be as far away as 2007. Shares of UAL continued to plummet in 2002, selling for under $12 a share.

FAST FACTS: About United Airlines

Ownership: United Airlines is the principal subsidiary of UAL Corporation, a publicly owned company traded on the New York, Chicago, and Pacific Stock Exchanges.

Ticker symbol: UAL

Chief Competitors: United Airlines competes with both domestic and international airlines, chief among them being American Airlines; USAir; British Airways; and Delta.

ANALYSTS' OPINIONS

In spite of staggering losses, managerial problems, and employee layoffs, some analysts point to United's long previous successes as evidence the company can fly out of the turbulence it has been experiencing in the early 2000s. In short, the analysts are buying the airline's slogan carted out for print and broadcast commercials in 2002: "A reason to believe in United." If business travelers who purchase higher-end tickets find that reason to believe, analyst Michael Friedman of American Express Financial Corp. thinks a turnaround is possible before 2003. Perhaps the analyst least optimistic about United's chances of reversing its misfortunes is aviation industry analyst Sam Buttrick of UBS Warburg. "With its current cost structure, it is unlikely that UAL will be profitable until 2004 or even 2005," Buttrick informed the San Francisco Chronicle in May of 2002. "It is further unlikely that UAL will ever be able to earn attractive returns on capital on any consistent basis with its current cost structure." Most optimistic is Michael Boyd, principal of the Boyd Group, who told the San Francisco Chronicle. "I'm high on United Airlines. . .They have cleared the deck and are getting rid of a lot of excess baggage."

HISTORY

The company traces its roots back to the Boeing Company. Between World War I and World War II, the former Boeing Air Transport established the first international air mail route between Seattle and neighboring British Columbia. Starting in 1927 other routes were established, including passenger routes. Boeing Air Transport was merged with National Air Transport, Pacific Air Transport, and Varney Air Lines in 1931 to form United Air Lines and Transport.

Over the years United has pioneered important innovations in the air travel industry. These include flight attendant service, an in-flight kitchen, non-stop coast-to-coast service, and in 1971 the automated reservation system.

In July 1994 United's shareholders approved an historic stock ownership plan, in which United's employees became the majority shareholders in the company—owning 55 percent of United. This resulted in tremendous cost savings for the company in the areas of pay, benefit, and work rules. The most important result of this was that for about six years it strengthened the company's presence in an increasingly competitive airline market. But that advantage unraveled in the 2000s as unions representing baggage carriers, stewardesses and other employees fought management for wage increases and largely won all concessions they had demanded by 2002. Coupled with top management turnover, fewer air traffic after September 11, 2001, and a failure to merge with USAir following U.S. Department of Justice opposition of the plan, UAL experienced a turbulent business economy expected by analysts to continue for years to come.

CHRONOLOGY: Key Dates for United Airlines

1927:

Boeing Air Transport begins offering passenger routes to its air mail routes

1931:

Boeing, National Air Transport, Pacific Air Transport, Varney Air Lines, and Stout Air Services begin working together to eliminate competition calling themselves United Airlines

1934:

Boeing, National, Pacific, and Varney officially merge as United Airlines and Transport

1943:

The company name becomes United Airlines

1954:

United is the first airline to use flight simulators as part of its pilot training

1961:

United acquires Capital Airlines

1967:

Becomes the first airline to surpass $1 billion in annual revenue

1969:

UAL becomes the holding company for United Airlines

1979:

United loses $72 million largely attributable to a month-long labor strike

1985:

Acquires Pan Am's Asian traffic rights; loses number one ranking in passenger volume to American Airlines

1994:

United employees become majority shareholders of United

2001:

On September 11, two United Airlines planes that had been hijacked by terrorists went down in New York and Somerset, Pennsylvania, killing all aboard; following an announcement that the U.S. Justice Department planned to block a merger between USAir and UAL that would have raised airline fares and hurt competition, US Airways Group Inc. and UAL Corp. ended plans to consolidate operations; UAL union workers oust CEO and chairman Jim Goodwin, and Jack Creighton becomes CEO

2002:

Newly named UAL CEO Jack Creighton hands in his resignation and the beleaguered airline looks for a successor

CURRENT TRENDS

Traditionally, economic downturns have especially affected the airline industry directly impacting passenger ticket sales. Another influence on airline revenues has been fare wars. In 2002, for example, United tried to raise tickets on many domestic flights by $20, only to drop the plan when Northwest Airlines announced it was keeping lower fares and used that as a marketing plus. Another trend has been that wage demands from employees not only contributed to United's economic woes in 2002 but also led to the so-called "furloughing" of more than 20,000 employees. Battles between unions and United are hardly over, according to analysts. "Labor is unlikely to agree to permanent wage rollbacks," analyst Sam Buttrick of UBS Warburg in New York told the San FranciscoChronicle. "They have worked hard to get the wage structure where it is."

CORPORATE CITIZENSHIP

Through its United Airlines Foundation, United Airlines supports such charitable causes as the Alzheimer's Association, Make a Wish Foundation, Fulbright Scholars Programs, Habitat for Humanity, Inner-city Games, Museum of Science and Industry, Orbis Flying Eye Hospital, the United Negro College Fund, the United Way, and others. In addition, the company makes travel donations to numerous health organizations and supports schools throughout the country. The company's employees have won high praise for their volunteerism all season long, but the December "Fantasy Flights" have long drawn media notice. Employees arrange trips for disadvantaged children to locations disguised as the North Pole.

GLOBAL PRESENCE

United Airlines expanded to include international service in 1983 with flights to Tokyo. In 1986 the company took over the now defunct Pan Am's Pacific routes and thus added 11 cities in 10 nations to its flight schedules. Four years later the company began flights to Europe from Washington D.C. and further expanded in 1991 when it took over PanAm's flights from London's Heathrow airport, adding 13 more routes to its growing list of destinations. In 1992 the company began Latin American service with flights between Miami and Caracas, Venezuela. Soon after, United added flights to 11 more countries. In 1997 the airline was flying to nearly 30 nations. However, the addition of flights seemed more and more unlikely in 2001 and 2002 as United's financial situation worsened. In fact, in 2001, UAL cancelled its New York to Hong Kong route.

According to its 2001 annual report, United's Pacific operations were responsible for 16 percent of the company's revenues that year, down from 20 percent in 1997. Through its Tokyo hub, United provides passenger service between its U.S. gateway cities: Chicago, Honolulu, Los Angeles, New York, and San Francisco, and Bangkok, Beijing, Hong Kong, Seoul, Shanghai, and Singapore. Within Asia, United provides service between Osaka and Seoul.

EMPLOYMENT

Worldwide, United Airlines employs more than 80,000 persons, but some 20,000 were furloughed in 2002 and not all will be rehired or will be available for rehiring once the economy rebounds. Because United Airlines is an employee majority owned company, its management places particular importance in operating within a consensus framework to gain employee trust and loyalty, which has resulted in increased productivity. But by 2002, employees joined shareholders in expressing frustration with UAL top management and gave the non-binding demand that all future pay to executives be tied to company profits, a demand that made the vacant job of CEO in 2002 most unattractive to superior executives approached by headhunters for UAL.

SOURCES OF INFORMATION

Bibliography

armstrong, david. "flying into turbulence." san francisco chronicle, 9 may 2002.

comerford, mike. "creighton quits the top post at ual." chicago daily herald, 17 may 2002.

earle, julie. "creighton quits the top post at ual." financial times, 1 may 2002.

kesmodel, david. "ual workers suspicious of concessions." rocky mountain news, 4 may 2002.

labich, kenneth. "when workers really count." fortune, 14 october 1996.

merrion, paul. "flight paths divulge for airline rivals." crain's chicago business, 3 june 2002.

lott, steve. "former united ceo takes home $5.7 million after resignation." aviation daily, 28 march 2002.

"ual corp." hoover's company profiles, 2002. available at http://www.hoovers.com.

ual home page, june 2002. available at http://www.ual.com.

united airlines annual report, 2002. available at http://www.google.com/

wallace, james. "creighton quits the top post at ual." seattle post-intelligencer, 6 june 2002.

williamson, tammy. "ual investors vent frustration." chicago sun-times, 17 may 2002.

wong, edward. "united's lame-duck chief may have to move fast." the new york times, 19 may 2002.

——. "ual loses $510 million." new york times, 20 april 2002.

For additional industry research:

investigate companies by their standard industrial classification codes, also known as sics. united airlines' primary sics are:

4512 air transport, scheduled

4522 air transport, non-scheduled

also investigate companies by their north american industry classification system codes, also known as naics codes. united airlines' primary naics code is:

481110 scheduled air transportation

United Airlines

founded: 1931

Contact Information:

headquarters: 1200 e. algonquin rd.
elk grove township, il 60007 phone: (847)700-4000 fax: (847)700-5229 url: http://www.ual.com

OVERVIEW

United Airlines is the number one air passenger carrier in the world in number of daily departures, number of destinations (both domestic and international), and jet fleet size. United Air Lines Corporation (UAL Corp.), its parent company, is also the largest majority employee-owned company in the world. At the end of 1997 United's operating fleet totaled 575 jet aircrafts, more than half of which were directly owned by the company (the rest were leased). In the late 1990s, United flew to about 140 destinations, both in the United States and 27 other countries. It established "hubs" or major route and passenger transfer centers in Chicago, Denver, San Francisco, Tokyo, and Washington, D.C. to fly passengers between North America and the Pacific, and Latin America and Europe. In 1997 United averaged more than 230,000 passengers per day and "flew more than 121 billion revenue passenger miles," according to UAL Corp.'s 1997 annual report. Besides its domestic and international passenger flights, United also operates a cargo service. In 1997 United began an all-cargo service between the United States and Asia. The airline currently has two main cargo centers: one a consolidation center in Charlotte, North Carolina, to serve the southeastern and mid-Atlantic states; and a transfer center at JFK Airport in New York. A new cargo transfer center started operating in Honolulu in 1998, which serves as a major cargo connection point for Japanese air cargo coming into and out of the United States and for domestic cargo to and from Hawaii.

Besides its domestic passenger flight operation serving major cities and hubs around the United States, United is able to "feed" or provide flights to smaller cities or shorter distances through its Shuttle by United service and through its United Express program. The latter program, which is a marketing arrangement with small, independent carriers, provides service to United's hubs and international gateways at 182 airports throughout the United States. And in late April 1998 United and Delta Airlines Inc. reached a marketing arrangement whereby their customers can take advantage of both carriers' frequent flyer programs and pricing options, as well as the route and reservation systems of both airline companies. This move followed similar arrangements that have been secured between other large domestic carriers.

COMPANY FINANCES

Like the rest of the airline industry, United posted solid gains in 1997 over the previous year, both from its domestic and international operations. Year-end 1997 saw sales of $17.38 billion, a 6.2 percent growth over 1996, and net income (profits or earnings) of $949 million, an impressive 78 percent growth over 1996 ($533 million). United's North America segment had sales of approximately $11.2 billion in 1997, $10.7 billion in 1996, and $9.6 billion in 1995, while its international segment saw sales of approximately $6.1 billion in 1997, $5.6 billion in 1996, and $5.3 billion in 1995. According to the company's annual report, United foresaw continued growth in 1998, as do other U.S. airlines. On the international front, United expected its sales and profits to decrease because of the economic downturn in Asia.

ANALYSTS' OPINIONS

According to the industry trade magazine Airline Business, in the near future the airline industry will be impacted by the economic downturn in the Asia-Pacific region, government (both national and international) regulations against transatlantic alliances (two or more airlines joining in a marketing alliance), frequent flyer plans, and the competition from low-cost airlines. While the United States and Europe continue to enjoy strong economies, analysts cited by the magazine foresee a possible economic slowdown in these areas, which will influence airline ticket sales. The magazine also cited labor issues; competition for quality workers because of the high employment levels, and labor demands for a greater share in airline industry profits as being other factors that pressure the industry.

FAST FACTS: About United Airlines

Ownership: United Airlines is the principal subsidiary of UAL Corporation, a publicly owned company traded on the New York, Chicago, and Pacific Stock Exchanges.

Ticker symbol: UAL

Officers: Gerald Greenwald, Chmn. & CEO, 62, 1997 base salary $670,490; John A. Edwardson, Pres. & COO, 48, 1997 base salary $463,363

Employees: 91,700 (1997)

Chief Competitors: United Airlines competes with both domestic and international airlines, chief among them being American Airlines; British Airways; and Delta.

HISTORY

The company traces its roots back to the Boeing Company. Between World War I and World War II, the former Boeing Air Transport established the first international air mail route between Seattle and neighboring British Columbia. Starting in 1927 other routes were established, including passenger routes. Boeing Air Transport was merged with National Air Transport, Pacific Air Transport, and Varney Air Lines in 1931 to form United Air Lines and Transport.

Over the years United has pioneered important innovations in the air travel industry. These include flight attendant service, an in-flight kitchen, non-stop coast-to-coast service, and in 1971 the automated reservation system.

In July 1994 United's shareholders approved what was then an historic stock ownership plan, in which United's employees became the majority shareholders in the company—owning 55 percent of United. This resulted in tremendous cost savings for the company in pay, benefit, and work rules. The most important result of this was that it strengthened the company's presence in an increasingly competitive airline market. In 1996 a Forbes article proclaimed that the "$14.4 billion airline is back on its feet."

STRATEGY

In May 1997 United embarked on an aggressive strategy to secure its market position and competitive edge. It formed Star Alliance with Lufthansa, Air Canada, SAS, Thai Airways, and later in the year, Varig. Star Alliance is a marketing arrangement whereby the member airlines jointly participate in frequent flyer programs; coordinate reservations, baggage handling, flight schedules, and code-sharing (code-sharing is an agreement between airlines that allows one airline to market its flights under the two-letter airline designator code of another airline, thereby letting airlines provide customers with a "seamless global travel network" under one airline code).

CURRENT TRENDS

Traditionally, economic downturns have especially affected the airline industry directly impacting passenger ticket sales. Another influence on airline revenues has been fare wars. During the mid-1990s, for example, when Southwest Airlines lowered its ticket prices, United responded by introducing its less-expensive Shuttle by United service on the west coast, competing head-to-head with Southwest in that market. Fare competition was the driving force behind United's introduction of an electronic reservation system option on all of its domestic routes, and its policy of allowing its frequent-flier customers to dial directly into its reservation system.

CORPORATE CITIZENSHIP

Through its United Airlines Foundation, United Airlines supports such charitable causes as the Alzheimer's Association, Make a Wish Foundation, Fulbright Scholars Programs, Habitat for Humanity, Inner-city Games, Museum of Science and Industry, Orbis Flying Eye Hospital, The United Negro College Fund, the United Way, and others. In addition, the company makes travel donations to numerous health organizations and supports schools throughout the country.

GLOBAL PRESENCE

United Airlines expanded to include international service in 1983 with flights to Tokyo. In 1986 the company took over the now defunct Pan Am's Pacific routes and thus added 11 cities in 10 nations to its flight schedules. Four years later the company began flights to Europe from Washington D.C. and further expanded in 1991 when it took over PanAm's flights from London's Heathrow airport, adding 13 more routes to its growing list of destinations. In 1992 the company began Latin American service with flights between Miami and Caracas, Venezuela. Soon after, United added flights to 11 more countries. In 1997 the airline was flying to nearly 30 nations.

According to its 1997 annual report, United's Pacific operations was responsible for 20 percent of the company's revenues that year. Through its Tokyo hub, United provides passenger service between its U.S. gateway cities: Chicago, Honolulu, Los Angeles, New York, and San Francisco, and Bangkok, Beijing, Hong Kong, Seoul, Shanghai, and Singapore. Within Asia, United provides service between Osaka and Seoul, and from Hong Kong it flies nonstop to Singapore and New Delhi. During 1997 United also provided service to the Guam-Osaka and Manila-Seoul markets, but on February 20, 1998, United ended all Guam service and all Manila passenger service (although United continues its cargo service in Manila.)

An important trade-related development occurred on January 30, 1998, when the U.S. and the Japanese governments agreed to expand their 1952 air services agreement. United, among other U.S. airlines, will substantially benefit from this agreement by having no limits placed on the frequency of flights they can operate into Japan. United was quick to take advantage of the agreement; from April 8, 1998, United increased its nonstop service between Chicago and Tokyo from 6 flights each week to 14 weekly fights, and later in the year began nonstop service between Chicago and Osaka.

In April 1997 United began a second nonstop flight between Chicago and London Heathrow, and in June 1998 it initiated service between Munich and Washington Dulles. In 1997 United's Atlantic operations accounted for 10 percent of United's revenues. In 1997 United's Latin America operations was responsible for 5 percent of United's revenues, according to its annual report.

CHRONOLOGY: Key Dates for United Airlines

1927:

Boeing Air Transport begins offering passenger routes to its air mail routes

1931:

Boeing, National Air Transport, Pacific Air Transport, Varney Air Lines, and Stout Air Services begin working together to eliminate competition calling themselves United Airlines

1934:

Boeing, National, Pacific, and Varney officially merge as United Airlines and Transport

1943:

The company name becomes United Airlines

1954:

United is the first airline to use flight simulators as part of its pilot training

1961:

United acquires Capital Airlines

1967:

Becomes the first airline to surpass $1 billion in annual revenue

1969:

UAL becomes the holding company for United Airlines

1979:

United loses $72 million largely attributable to a month-long labor strike

1985:

Acquires Pan Am's Asian traffic rights; loses number one ranking in passenger volume to American Airlines

1994:

United employees become majority shareholders of United

1998:

Delta and United reach an agreement where customers can use both airlines' frequent flier miles, pricing options, and reservation systems

EMPLOYMENT

Worldwide, United Airlines employs more than 91,700 persons. Because United Airlines is an employee majority owned company, its management places particular importance in operating within a consensus framework to gain employee trust and loyalty, which has resulted in increased productivity. Since 1994 the company has seen lower operating costs and higher productivity, fewer labor grievances, and the company's stock price has more than doubled. But in an August 1997 issue of the Economist, a business writer questioned the assumption that employee ownership usually leads to a harmonious relationship between management and workers. The article cited United Airlines (United employees own more than half of the airline, according to the article) and another large American company as examples of companies that have had bitter labor-management disputes, despite their being employee owned. The article acknowledged that employee-owned companies grow 8 to 11 percent faster than their non-employee-owned peers. But in United's case, it had been plagued by disputes between its flight attendants (almost a quarter of its work force) and its pilots. The flight attendant dispute revolved around the company's failure to persuade them to "take shares in exchange for pay cuts" at the time the company launched its employee share-ownership scheme. This and the pilot dispute had "turned at least some of the firm's senior managers against employee ownership."

SOURCES OF INFORMATION

Bibliography

gallacher, jackie. "holding the pieces together." airline business, january 1998.

labich, kenneth. "when workers really count." fortune, 14 october 1996.

"parcel bomb: employee ownership?" the economist, 9 august 1997.

"ual corp." hoover's company profiles, 1998. available at http://www.hoovers.com.

"ual corp." market guide, may 1998. available at http://www.marketguide.com.

ual home page. april 1998. available at http://www.ual.com.

united airlines annual report. april 1998. available at http://ww.sec.gov/edaux/formlynx.htm.

united airlines executive compensation, april 1998. available at http://www.sec.gov/edaux/formlynx.htm.

united airlines facts, united airlines, 1996.

"united, delta air lines form alliance." reuters limited, 30 april 1998.

For an annual report:

on the internet at http://www.sec.gov/edaux/formlynx.htmor write: investor relations, ual corporation, p.o. box 66910, chicago, il 60666

For additional industry research:

investigate companies by their standard industrial classification codes, also known as sics. united's primary sics are:

4512 air transport, scheduled

4522 air transport, non-scheduled