"United is flying in the face of convention"

Friday, September 24, 2004  

United is flying in the face of convention  
By Joe Sharkey
The New York (NY) Times


NEW YORK - Not much makes sense these days in an industry that has lost more
than $20 billion while cutting prices sharply as demand increases. So let's
not automatically scoff at this bright idea from United, a bankrupt airline
that is ready to start up a fancy new transcontinental service to lure
high-paying premium business fliers who will pay top dollar for flat-bed
seats and other frills.

This move comes amid fierce price competition on transcontinental routes.
Monday, for example, I flew on Continental from Newark to Seattle. My
round-trip coach ticket was $296.70, and it wasn't a promotional fare, just
one booked routinely online. Plus, because I fly enough miles on Continental
each year to maintain Platinum Elite status, I was upgraded to first class
each way. So we're talking about a round-trip fare to Seattle, in first
class, of less than $300.

Surely, then, United has to be kidding when it says it expects to make money
selling new premium-class service between New York and Los Angeles and New
York and San Francisco, with round-trip fares of $2,800 in first class,
$1,500 to $1,800 in business class and $200 to $1,000 in what it calls
"economy plus." It's an idea that's going to fly, says Martin White,
United's senior vice president for marketing.

Despite the proliferation of low fares to the West Coast, there is, he
insists, a viable premium market on the most-prized transcontinental routes
out of Kennedy Airport. Right now, American Airlines has half of that
premium market (the first- and business-class fares), and United has 37
percent. So starting next month, United is introducing new service - P.S.
(for premium service) - on those routes. The 767-200 United aircraft now
flying those routes will be replaced by newly configured 757s.

"The idea on these routes is to not fight on a share basis, but on a product
basis," White said. This means appealing to what he said was a significant
niche of well-heeled business travelers, the core of them flying out of
Kennedy Airport and Los Angeles International, who are willing to pay more
for a certain level of premium service they cannot currently get on domestic
flights, he said.

Essentially, the idea at United is to sell the front of the plane at full
fare and fill in the back with yield-managed fares that are still higher
than the going rate on discount airlines. And the only way to do that,
United believes, is to fly airplanes that offer that kind of premium service
business travelers have become accustomed to on international flights,
including flat-bed seats in first class and meal service that he says will
be up to international airlines' standards.

This idea, coming from an airline that has been in bankruptcy since December
2002 (and that is reportedly considering a further work force reduction of
6,000 employees), has generated some derision. But Joe Brancatelli, who is
not shy about ridiculing the business tactics of the major carriers on his
popular business-travel Web site, Joesentme.com, was willing to concede that
United's argument about the transcontinental premium niche made some sense.
On paper. "In transcon, this is basically a good idea," he said. "But for
United business travelers, this also introduces problems. One, it's another
bizarre configuration in an airline that's all over the map. When you book
United now, what in the world are you booking? Ted? Old-line United? United
Premium Service?"

And so far, the marketing of P.S. to United's frequent fliers has been
muddled, leaving potential passengers confused about when the new service
will actually be available.

Not so, White says. United is reconfiguring 13 of its 757s for the routes.
The first flight is scheduled for Oct. 17 from Kennedy to Los Angeles, and
all six aircraft designated for those daily routes should be converted by
mid-December, White said. The six planes for the San Francisco routes will
start flying in January, with the entire fleet converted by late February,
he said. (One 757 will be held in reserve.)

"The fares stay the same" as they are now, he said. But both United and
American have a lot of frequent-flier passengers who have been upgraded -
that is, flying in the expensive seats on a cheap ticket. United's new P.S.
service, White said, is intended to entice more travelers to pay full fare.
"With a better product we feel we can sell more of those seats, which means
we'd need to upgrade fewer."

Upgrade fewer? I'll bet that just got the rapt attention of a lot of United
frequent fliers on the transcontinental trail.


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