NeoOfTheCRS

The drumbeat of airlines failing is really starting to get me wondering as to where this is all leading. Yes, United did survive the industry downturn following 9/11 and has made some money since then, but only irregularly so. AA & CO seem have had been turning profits much more regularly. US is reaping the benefits of cut-to-the-bone benefits and salaries and DL is in its post-bankruptcy afterglow flush with financing.

Of the majors, I am really most worried about UA given the on again and off-again profit/loss/loss/profit.

I am heavily invested, from a frequent flier standpoint, in UA, with about 600k miles and over halfway to million miler status-which I would very much like to achieve.

But looking at the price of fuel, the economic downturn, should I have a plan B? Just looking at the other airlines frequent flier programs., I like AA, for everything except for the co-payments on intl upgrades which I really abhor.

BUT before I even think of jumping, what are the red flags FROM A FINANCIAL STANDPOINT that you make YOU JUMP? I have to assume that UA would NEVER pull a ATA/Aloha/Skybus move and just shut operations with no warning.

OR should I just wait around to see how all of the merger talk with CO plays out before making a Plan B?

Thoughts?

MileageAddict

Why are you saving such a huge number of miles? Isn't it time to start enjoying them?

jhayes_1780

Try a search.... immediately post bankruptcy there were several similar threads(I got about 3 pages in and gave up).

But.... the gist of it is:
UA MP (on its own) is a cash cow and moster of a company. CO, AA even an intl carrier would lick thier chops if they had a chance to aquire MP (including the liabilities (unredeemed miles).

It is assumed it would happen like Pan Am or TWA dimise.... another airline would honor the miles.

ExCrew

If I were to do a Big 6 Chart 'O Financial Health, here is where I would rank UA:

CO
AA
UA
DL
NW
US

UA would rank around the middle or slightly ahead of the pack. Given the current conditions, UA could be a lot worse.
Depending on how AA's labor woes go, the might go down a peg or two.
I would suspect/expect that if any of the big 6 were to go, it would be either US or NW. UA still has the old PA routes, which gives them easily the most enviable route structure of all of them.

ndhapple

Northwest also has an extensive Pacific route network. The health of each one of these airlines depends on various scenarios such as do DL/NW merge without a labor accord in place? Do UA/CO merge without a labor accord in place? How do AA's labor negotiations go this summer? What's the long term fallout of the SW maintenance debacle? Do US employees finally get so angry with each other and management that the USEast/USWest pissing match; continual discontent with Tempe, breaks out into labor war?

So if I were to rank them... Here is the non-merger list (with 1 being least likely to file for Ch 11 and the lower you go, the more likely a bankruptcy becomes)
1) SW: If worse comes to worse, Herb comes out of retirement.
2) CO/AA: tie; both have lots of cash and very efficient operations and are well run.
3) DL/NW: Delta has a fantastic European operation and a lock on Atlanta. NW owns the US/Japan market. Financially none of these airlines are in fantastic shape, but they have all seen a lot worse.
4) UA: UA has the pacific routes and significant access to Heathrow. But managements sweltering incompetence when it comes to running United and dealing with their passengers and employees has set the stage for a nasty showdown when labor contracts come up for renegotiation.
5) US: Deserving its own little special place in hell because of the bozo's in Tempe seem intent on running this once proud airline into the ground.

If mergers take place, all of these bets are completely off the table. Labor warfare (especially between the pilots and ground crews) combined with $110 oil would make short work of either a DL/NW and/or UA/CO combination. There is a reason management was pressing so hard for the unions to work out seniority, pay scale, and work rule differences before the Delta/Northwest marriage.

J.Edward

Good comments.

One of UA's strongest assets is their route structure. Who else in the world could even come close to having hubs in power house cities UA operates in with the routes they hold?

The catch I see with UA is the costs they incur in running their operations - primarily labor and fuel. The former will protest regardless of UA's performance; if UA fares poorly labor will be "upset" if asked to take another pay cut, likewise should UA have stellar performance give backs will be expected (and demanded).

Similarly when UA's competitors start to fly aircraft which offer material cost advantages realized without labor (i.e. less fuel required for an ASM) then they'll be in a real pickle. UA's competitors will either undercut UA, earn a greater yield, or both, and the only thing UA will be able to do to match the cost structure is cut something...and I personally doubt that thing will be labor.

Despite all my blastings of UA, I truly hope their new C/F product will shore up their yields as UA's future is riding on them being able to overcome competitors through scheduling (routes) and product, not a cost advantage.

Diplomatico

Sorry, just don't see it. UA has a pretty large customer loyalty base through MP. Comparing it to the Southwest model is like comparing Toyota with Kia.

This will be a rough year for all airlines. I don't foresee UA closing up shop any time soon; merger, maybe. Route structure, major U.S. hubs, a bit of premium pricing that customers are paying...I'm sticking around for now.

LAX

Isn't UA flush with cash at the moment? I wouldn't worry about UA folding in the near future. However, if current factors (ie: skyhigh oil prices, prolonged economic downturn, depressed fare by cut-throat competition, etc.) persist for an extended period of time, more airlines will likely fail (barring any saves by mergers), possibly including UA.

LAX

ExCrew

If their C/F product ever sees the light of day beyond the hand full (and that hand is missing fingers, btw) of a/c in which it's currently installed.

The latest rumor from A.net (I know, I know...) is that the 747 has failed it's Suite Dreams EVAC tests.

http://www.airliners.net/aviation-fo....main/3918922/

danville 1K

Higher fares, more delays and crowded planes are expected as carriers struggle with rising fuel costs and increased regulatory scrutiny.

By Peter Pae and Ken Bensinger, Los Angeles Times Staff Writers
April 7, 2008
The nation's air travelers may be wondering whether last week's three airline shutdowns signal more trouble ahead. But a bigger concern this spring may be the likelihood of more flight delays, jammed planes and even higher ticket prices.

http://www.latimes.com/business/la-f...245,full.story

blort

Finally, a meaningful observation.

United ended 2007 with $3.6 billion of cash in the bank. Yes, the company has a significant amount of debt, but the near-term obligations are certainly manageable:

• 2008: $678 million
• 2009: $737 million
• 2010: $918 million
• 2011: $824 million
• 2012: $385 million

Importantly, United generated $2.1 billion of cash from operations during 2007. This is a key figure that tends to go unnoticed for reasons that I cannot begin to understand. Yes, fuel is more expensive this year, but fares are also higher. Although I haven't worked through the numbers in any amount of detail, I would be absolutely shocked if United wasn't cash flow positive this year as well.

Even if United was merely cash-flow breakeven for the next FIVE years, there's still enough in the bank today to repay all of the debt obligations over that period of time.

To the OP, if you're that concerned about your miles, I'd suggest doing some more research before making a rash move that appears to be more the result of headlines than hard data.

harryhv

At the time you acquired your hard-earned miles, you could get a return to Australia for 90k miles or less in C with no "taxes" co-payment; you could also use award inventory on all partners.

Every October UA makes a new degradation of members' miles. In Oct 2006 the redemption prices were raised 20-30%. In Oct 2007 the 500-mile-upgrades became worthless if unused, though this caused an outcry and was reversed for registered premiers only.

At the same time there was an unannounced creeping blackout of some partner award inventory especially the premium classes. The "evil programmer at UA-StarNet" is blocking UAMP members' access to an ever-increasing proportion of award inventory from TG, LH and many other partners.

At a guess, there may be some formalization of this in the Oct 2008 degradation, perhaps an admission that certain city-pairs and classes will never appear for UAMP members unless they pay double-miles. Or the crafty beancounters at UA may come up with some entirely unexepected "enhancement" to ensure that those hard-earrned miles are worth less.

The longer you keep UA miles, the less they buy.

HonestABE

UA ended 2007 with $600 million less cash (and short term investments) than at the start of the year.

Meanwhile, the stock price has plummeted 55% in the last 6 months.

While UA does have a nice chunk of cash on hand, further deterioration in the operating fundamentals of the company (fuel costs, possible labor unrest are just two examples) will make it impossible for UA to raise additional capital, and cause existing creditors to very closely monitor UA's capital spending.

Unless UA is successful in raising fares to offset its higher operating costs, you can expect UA to trim its capital budget, which, btw, is already pretty lean.

Raising fares during a recession is a dicey strategy, to say the least. Business travel is likely to be significantly lower in 2008 than it was in 2007. Leisure travel is also likely to be off. And, many MP members who are feeling the pinch may opt to use accumulated miles rather than purchase tix.

Obviously, UA is not alone when it comes to these issues.

The next 6 months are going to be a watershed for all domestic airlines. If travelers are willing to absorb substantially higher fares, the legacies may be able to survive. If not, expect to see a lot of airplanes get parked in the desert.

tom911

No co-pay on systemwides, though, for top tier flyers, and AA has very different policies than UA on issuing and accumulation. I had 20 in account in December before I burned off some the first few months of this year. I don't like co-pay on mileage upgrades and have never done one of those. Keep in mind AA does not require you to buy up to a higher fare to use your miles, so there may be some savings there.

planemechanic

You need to tell the rest of the story.

http://ir.united.com/phoenix.zhtml?c...-presentations

According to the 2008 investor day presentation, page 98, UA reduced debt by $2.3 billion in 2007 as well as a shareholder distribution of $250 million.

In light of those facts ending 2007 with $600 million less cash is completely understandable. I would think that some would say that paying down debt and reducing interest payment (by $120 million per annum) is a smart way to run the business.