United Airlines’ Tilton: United We Fly?

Glenn F. Tilton has been in his job as Chairman, President and CEO of UAL Corp and United Airlines for less than a year, but, he says, “it feels like 20.” This is hardly surprising given the extraordinary succession of crises that have afflicted the giant carrier both before and since he joined. Some of the crises such as the 9/11 events, the recurrent threat from terrorism, the Iraq conflict and SARS may have been beyond the airline’s control but other wounds, as Tilton freely acknowledged, were self-inflicted.

Speaking at an American Chamber of Commerce lunch supported by Aerospace Forum Asia, Tilton did not attempt to belittle the challenges still facing United, but he sounded confident that the airline was finally getting its house in order.

Giving examples of the enormous cash problems that had beset United, Tilton said that during the second half of 2002 United was running through an average of US$5.3 million per day, clearly not sustainable in a business that has margins as thin as the airline industry.

There were a host of other problems including well-publicised low productivity and labour disputes. But the priority issues were cash flow and costs. “We are on track today to reduce our costs by some US$5 billion per year. We are on track to have one of the most competitive cost structures among major network carriers.” Giving an idea of the scale of the cost cuts, the savings of US$5 billion represents about one third of United’s cost structure today.

“And in the last few months, without declaring any victory laps here, the travel environment has consistently improved and we are now working hard to focus on our customers and to focus on revenue.”

Tilton said that United had just reported $35 million dollars in operating earnings for the month of July. “For us this is a significant turnaround.”

But much more was required than merely cutting costs. Tilton said United’s greatest asset was its global route network, the ability to serve virtually every major market either directly or through the Star Alliance, with partners such as ANA, Singapore Airlines and Lufthansa.

“We had the asset already but we did not have the full flexibility to use our route network to respond quickly and aggressively to changes in the market environment. Working with our labour unions, we now have that flexibility.”

However he cautioned: “The reality is all the progress we have made in United doesn’t make us a global business winner yet. It’s made United ready to compete.”

A vigorous marketing campaign has been launched – Tilton was in Hong Kong to announce a host of promotions for its “Visit Hong Kong Month” in October. “I am here, after all, principally as a salesman.” Also by October United says it will fully restore its Hong Kong flight schedule to pre-SARS levels.

Tilton appeared to play down the impact of low-cost airlines, saying they tended to be point-to-point operators without the network connectivity of airlines such as United. That said, he noted that United was itself going to launch a low-cost unit, probably in February next year, with a distinct fleet flying from one of the airline’s hub cities to leisure destinations.

Calling for drastic structural and regulatory reforms of the highly fragmented aviation industry in which more than 250 carriers were flying internationally every day, Tilton said: “To sum it up from my perspective: what needs to be done is the airline industry needs to have the same tools as any normal industry to make its own rational business decisions.”

As for his own airline, he said: “At United we are far from mission accomplished, but we are now mission ready.”