Dutta's "Plan"

 
Old Jul 21, 02, 3:20 am
  #1  
GGpillow
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Dutta's "Plan"

As part of its second-quarter financial results,
United today unveiled its strategic plan. The plan
sets out goals and direction for the company, with a
focus on bringing costs in line with lower revenues.

"We looked at what is happening in the industry and
at United," said President Rono Dutta. "Our goal
was to identify every meaningful cost-saving and
revenue-generating idea. We started by looking at
our assets -- and we have some of the best assets in
the business.

"We have hubs in all the right cities, a modernized
and simplified fleet, a large and very loyal
frequent flier base and a high-end product. We also
have a dedicated group of 83,000 people supporting
those assets every day."

With those strengths well-established, Dutta and his
strategic initiatives team looked at whether or not
those advantages still held in an environment where
high-yield revenue has dropped dramatically.

"We looked at a major restructuring of the airline,
such as significantly shrinking or focusing on
leisure, and ultimately rejected them as
unworkable," Dutta said. "We also looked at our
pricing structure and we have not identified any
alternative that can bring in as much revenue as our
current system. Finally, we determined that the
customer convenience and revenue benefit from the
hub-and-spoke scheduling system dwarfs any cost
inefficiencies the system brings.

"Our conclusion was that we have one true weakness:
we are a high-cost carrier. With our current cost
structure, we determined we can't completely
overhaul our airline. It's hard enough to be a
high-cost carrier in a high-end business market. It
would be worse to try to be a high-cost carrier in a
low-end leisure market."

As a result, Dutta and his team are focusing their
efforts on using United's core and historic
strengths to compete in the new industry
environment. They will concentrate on six areas:

* increasing network efficiency through actions such
as code shares, alliances and regional jets
* reducing the cost of sales
* seizing opportunities to improve the management of
air traffic and irregular operations
* examining areas of under-performance by
distribution channel and customer segment
* reviewing all premium products to ensure they are
cost effective
* improving process and productivity, particularly
in airports and maintenance.

"We are still looking for significant workable ways
to change the business model," Dutta says, "but in
the meantime, we are aggressively implementing the
opportunities we have identified so far."
 
Old Jul 21, 02, 4:08 am
  #2  
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Interesting insight from inside fortress WHQ. Thanks for sharing it. :}

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Old Jul 21, 02, 5:23 am
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<font face="Verdana, Arial, Helvetica, sans-serif" size="2">reviewing all premium products to ensure they are cost effective </font>
Uh oh.

Greg
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Old Jul 21, 02, 6:57 am
  #4  
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reviewing all premium products to ensure they are cost effective

I hope they (UA) don't forget to also look at the (potential) revenue/income effects and not only on the cost side ...
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Old Jul 21, 02, 7:53 am
  #5  
 
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At first glance... it appears as if his working group has decided to, essentially, do nothing more than what they were already doing. More RJs and code shares (instead of expanding on UA's own metal--too bad!), more online sales and fewer commissions, "improve efficiency," and cut more hot towels. What am I missing?

Seems sort of like a weak response to a time of real trouble for the carrier.
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Old Jul 21, 02, 8:06 am
  #6  
doc
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<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by GGpillow:

As part of its second-quarter financial results,
United today unveiled its strategic plan. The plan
sets out goals and direction for the company, with a
focus on bringing costs in line with lower revenues.

"We looked at what is happening in the industry and
at United," said President Rono Dutta. "Our goal
was to identify every meaningful cost-saving and
revenue-generating idea. We started by looking at
our assets -- and we have some of the best assets in
the business.

"We have hubs in all the right cities, a modernized
and simplified fleet, a large and very loyal
frequent flier base and a high-end product. We also
have a dedicated group of 83,000 people supporting
those assets every day."

With those strengths well-established, Dutta and his
strategic initiatives team looked at whether or not
those advantages still held in an environment where
high-yield revenue has dropped dramatically.

"We looked at a major restructuring of the airline,
such as significantly shrinking or focusing on
leisure, and ultimately rejected them as
unworkable," Dutta said. "We also looked at our
pricing structure and we have not identified any
alternative that can bring in as much revenue as our
current system. Finally, we determined that the
customer convenience and revenue benefit from the
hub-and-spoke scheduling system dwarfs any cost
inefficiencies the system brings.

"Our conclusion was that we have one true weakness:
we are a high-cost carrier. With our current cost
structure, we determined we can't completely
overhaul our airline. It's hard enough to be a
high-cost carrier in a high-end business market. It
would be worse to try to be a high-cost carrier in a
low-end leisure market."

As a result, Dutta and his team are focusing their
efforts on using United's core and historic
strengths to compete in the new industry
environment. They will concentrate on six areas:

* increasing network efficiency through actions such
as code shares, alliances and regional jets
* reducing the cost of sales
* seizing opportunities to improve the management of
air traffic and irregular operations
* examining areas of under-performance by
distribution channel and customer segment
* reviewing all premium products to ensure they are
cost effective
* improving process and productivity, particularly
in airports and maintenance.

"We are still looking for significant workable ways
to change the business model," Dutta says, "but in
the meantime, we are aggressively implementing the
opportunities we have identified so far."
</font>

---


Please also see:

http://www.flyertalk.com/forum/Forum.../008730-2.html

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Old Jul 21, 02, 8:37 am
  #7  
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Maybe they should spend some time lobbying Congress again. The TSA-induced "hassle factor" is costing the airline industry 3.8 billion dollars a year. Forcing the TSA to use common sense and probable cause in their screenings might quickly bring in some lost revenue.

------------------
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Old Jul 21, 02, 8:46 am
  #8  
fparker1
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<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by GGpillow:
increasing network efficiency through actions such
as code shares, alliances and regional jets
</font>
ut-oh!

this was very clear in the skywest conference last month. time to buy more skywest stock.



------------------
f
 
Old Jul 21, 02, 8:49 am
  #9  
 
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<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by GGpillow:
* increasing network efficiency through actions such as code shares, alliances and regional jets
* reviewing all premium products to ensure they are cost effective
</font>
Great, just what we need - more RJs. I'd rather pay more for a middle non-E+ seat on a 737 than fly an RJ.
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Old Jul 21, 02, 1:45 pm
  #10  
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If you listen to the Quarterly conference call, there is more detail than the above given by Dutta regarding the evaluation of "Premium Services" and other areas.

The following is not an exact quote, but from my notes from Dutta's talk the other day:

- Customer Segment: United is indentifing customers by various segments and revenue bases..."Road Warriors...Price driven...Occasional"...etc. They feel they are not getting enough of the high revenue travel and want to focus more on that segment and less on others.

- Premium services: United has to compete with low cost carriers that do not have to give out the service levels that United does. United has a tremendously "expensive infrastructure" to reward and enchance the experience of it's loyal customers (Mileage Plus stuff) that the low cost carriers do not have. So, they are looking at reducing benefits on low cost fares that compete with the low cost airlines, and which customers "should not have."

- RCC's will have to operate at a profit on their own.

- Improvements in tariff penalty collections.

He went on to say that these areas have already been identified and that they have aggressively begun implimentation of them.

So in a nutshell to me, this means I might not be surprised to see any or all of the following:

- Look out for no mileage and/or benefit opportunities on some low cost fares.

- Perhaps restructure Mileage Plus or create some other program to reward high revenue flyers more, and perhaps reduce benefits for low yielders.

- Expect some current MP benefits to be eliminated, reduced or restricted to higher priced tickets or higher yield customers.

Some of the above, we have already seen headed. Such as the post the other day about a new T fare that does not permit mileage accrual.

Whether they could pull this off without losing more customers than they would like remains to be seen. But these are my impressions from the talk.

There are many other interesting things discussed, such as the expansion of RJs, improvements in synergy with Star Alliance, restructuring Corporate discounts, performance by market, and some pretty heavy cash outlays that face United in the near future, etc, etc.

Suggest you go to the web site and listen to the replay (especially Dutta's remarks about in the middle) to see if the above seems that way to you.


[This message has been edited by PremEx (edited 07-21-2002).]
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Old Jul 21, 02, 2:20 pm
  #11  
 
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<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by Spiff:
Maybe they should spend some time lobbying Congress again. The TSA-induced "hassle factor" is costing the airline industry 3.8 billion dollars a year. Forcing the TSA to use common sense and probable cause in their screenings might quickly bring in some lost revenue.

</font>
I must say that the CEOs of Delta, Continental and American have been very outspoken on the "hassle factor."

Nobody from United has said a word.

It would be nice if someone from United would address the "hassle factor" as well.

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Old Jul 21, 02, 4:40 pm
  #12  
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I listened to the conference call, and made note of some other issues, too:

1. Difficulty of accessing the markets for financing, and debt due in the 4th quarter that must be refinanced

2. Planned RJ fleet of 250 by 2005

3. The most profitable routes are Pacific, Atlantic and trans-continental (which may be why RJ's are important down the line as feeders)
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Old Jul 22, 02, 9:45 am
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<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by PremEx:
They feel they are not getting enough of the high revenue travel and want to focus more on that segment and less on others.</font>
Baby steps in the right direction helped UAL slightly in Q2, but there is still an uphill climb to recovery. Yield showed surprising improvement to 11.36, as did load factor to 74.4%. However, breakeven is still out of reach at 87%. Operating margins improved slightly, but still runs almost -13%. CASM was down fractionally over Q1, but is still higher year-on-year. The once proud cash position has been eroded to the point of almost vulnerability, and debt is also beginning to mount. Rono continues to focus on the traditional yield-driven revenue model rather than adopt the changes made by DAL and NWAC. The jury is out on whether this will work in the long run or not, but in the short term the focus must be on CASM reductions. So far its been too little, and I hope for UAL's sake that it doesn't get too late.
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Old Jul 22, 02, 9:50 am
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<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by PremEx:

So in a nutshell to me, this means I might not be surprised to see any or all of the following:

- Look out for no mileage and/or benefit opportunities on some low cost fares.

- Perhaps restructure Mileage Plus or create some other program to reward high revenue flyers more, and perhaps reduce benefits for low yielders.

- Expect some current MP benefits to be eliminated, reduced or restricted to higher priced tickets or higher yield customers.

</font>
Sadly the precedence is already here in the UK: British Airways Executive Club (UK)




[This message has been edited by LHR Tim (edited 07-22-2002).]
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Old Jul 22, 02, 9:53 am
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<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by B747-437B:
Baby steps in the right direction helped UAL slightly in Q2, but there is still an uphill climb to recovery. Yield showed surprising improvement to 11.36, as did load factor to 74.4%. However, breakeven is still out of reach at 87%. Operating margins improved slightly, but still runs almost -13%. CASM was down fractionally over Q1, but is still higher year-on-year. The once proud cash position has been eroded to the point of almost vulnerability, and debt is also beginning to mount. Rono continues to focus on the traditional yield-driven revenue model rather than adopt the changes made by DAL and NWAC. The jury is out on whether this will work in the long run or not, but in the short term the focus must be on CASM reductions. So far its been too little, and I hope for UAL's sake that it doesn't get too late.</font>
The most interesting part of the Q2 call was when Buttrick (I believe) asked why UA was having trouble refinancing their $900M dedt due later this year. Was it a problem that the interest rates being asked were too high? Or whether people were not willing to lend the money to UA? When told that it was the latter case, Buttrick asked "Why do you think that is happening?"

One thing I did like was the statement that are trying to separate out the services for low-fare buckets vs. the higher-fare buckets.

[This message has been edited by abigail (edited 07-22-2002).]
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