"American and United Step Up Fight"

Tuesday, September 13, 2005

American and United Step Up Fight 
The Dallas (TX) Morning News


CHICAGO -- Fresh trench lines are being dug between the world's top two
carriers, American Airlines Inc. and United Airlines Inc., at O'Hare
International Airport. 
 
Since Delta Air Lines Inc. sharply reduced its Dallas/Fort Worth operations
in January, O'Hare has served as the nation's last major battleground
between two traditional carriers over a transcontinental hub. 

Rich with lucrative business travelers, Chicago also represents a critical
airline market. 

United flies a bigger schedule at O'Hare, but officials at American's
parent, Fort Worth-based AMR Corp., say they're gaining ground. 

American executives say they're concerned about how aggressive United will
be here once it emerges from nearly three years of Chapter 11 bankruptcy
protection, perhaps as soon as this fall. 

United has been upgrading features on its planes and getting more aggressive
in its advertising. 

In fighting back, American has expanded the lobby of its O'Hare terminal,
simplified operations to smooth out its schedule and added international
service to cities including Shanghai and New Delhi. 

"We continue to see improvement in our share of business traffic and overall
traffic" at O'Hare, said David Cush, American's vice president and general
sales manager. 

"Some of it may have to do with United's long stay in bankruptcy, and some
of it probably has to do with our focus on more local passengers and fewer
connecting passengers." 

Market share is the key to a hub's survival -- witness Delta's downsizing at
Dallas/Fort Worth International Airport. Delta lost money in nine out of its
last dozen years at D/FW as its share of overall traffic fell rapidly. 

While United, based near O'Hare in suburban Elk Grove Village, remains on
top in Chicago, its lead has narrowed. 

Last December, United's 48.4 percent market share represented a 12
percentage point lead over American. By July, United's share had fallen to
46.8 percent, and its lead over American was just over 9 percentage points. 

"There is a perception that American has become Chicago's 'business'
airline," said Joe Schweiterman, a professor at Chicago's DePaul University
and a former United employee. 

"I've always been amazed at how well American has done at O'Hare because it
was a bit of a latecomer into the hub and has always had to fight the image
of not being the local airline." 

While the rivalry between American and United has always been fierce, the
competition has intensified during the last two years as the carriers fight
to survive during the industry's worst downturn. 

United lured away two top executives from American -- Jane Allen in
operations and Dennis Cary, who used to run American's frequent flier
program and now is United's chief marketing officer. 

This spring, United rolled out television commercials that mocked American's
move to add seats back to its fleet of planes, emphasizing United's "Economy
Plus" product in which the first 10 rows of most of its planes have more
legroom. 

AMR chairman and chief executive Gerard Arpey quickly countered that
United's other coach seats -- the bulk of its capacity -- have less legroom
than American's reconverted planes. American's Mr. Cush said his carrier
lost no market share because of United's ads. "It was somewhat irritating to
us," he said, for a campaign that had "limited usefulness." 

United said the campaign, along with other product enhancements, such as
lie-flat beds and better food on some of its transcontinental flights, show
it's more in tune with passengers. 

"All our recent initiatives are very successful because they answer to what
our customers are telling us they want and that is a more comfortable,
enjoyable flying experience," said United spokeswoman Robin Urbanski. "If
other airlines like American do not realize that this is important to fliers
-- especially the most frequent flyers -- then they must not be listening to
their customers as closely as we are." 

Despite well-publicized spats with unions and creditors, United has kept
most of its customers and even a rush on frequent flier mile redemptions in
the 32 months it has tried to reorganize, Mr. Schweiterman said. 

"Chicago's loyalty to United has been stronger than most of us had
expected," he said. With bankruptcy allowing it to sharply lower costs and
discharge its pension liabilities, United is likely to have costs low enough
to turn profits even with high oil prices and low fares. 

Part of the change in market share at O'Hare comes from United's schedule
change, Ms. Urbanski said. United cut its domestic schedule nearly 14
percent in 2005, mostly from its Denver hub. 

United could "become the category killer," said independent airline
consultant Alan Sbarra, because it will have very low costs and still have
its powerful global network to sell to large corporate travel customers. 

"I still think that if they can get it together, United's the one to beat,"
he said. 

Chicago's business travelers can be passionate about their carrier of choice
from O'Hare. 

"I personally feel that United is looking to put some more comfort back into
flying for the business traveler and is willing to act accordingly," said
Barratt May, a supply chain manager for the Irish Dairy Board, who takes
about 120 flights a year on United from Chicago. 

Mr. May said he values how the carrier treats its best frequent fliers, but
also amenities such as pillows on all its flights, something American
ditched for cost savings. "United is looking like a better deal for me based
on their upgrade policy and Economy Plus." 

American's backers say they like the carrier's service quality and its
reliability. 

"Lately, American's employees have really seemed to be making the extra
effort -- more smiles, calling me by name, making an extra phone call to
solve a problem," said Bart Bruckert, who works for Accenture in Chicago and
flies nearly 120,000 miles a year, most on American. "That makes all the
difference for me. I haven't been seeing it as much on United." 

A critical mass of locally based, frequent business fliers allow two hubs to
coexist at O'Hare, analysts said. Chicago is considered to have the
healthiest such traffic pool outside the New York area. 

Most hubs, including D/FW, have about a third of their total traffic
considered "local," meaning those fliers start or end their travels at the
airport instead of connecting onto other cities. 

At O'Hare, the typical airline mix between local and connecting passengers
is more evenly split, adding to the attraction because local passengers are
more profitable. 

"Eight or ten years ago, our operation was like other hubs," said Bernie
DeSena, a 37-year veteran of American who now runs the O'Hare operations
from an office that overlooks the busy Terminal 3 lobby. "Now it's
essentially 50/50 -- and our local revenue share is extraordinarily
competitive." 

American officially opened the Chicago hub in 1982, and quickly added
international flights to strengthen the operation, said Robert L. Crandall,
former chairman of American who was appointed president and chief operating
officer in 1980 and is generally credited with American's increased focus
here. 

"When you look at relative success of the two airlines at Chicago, there
isn't any single measure you can look at that tells the whole story, but the
share of the local market is a very important part," Mr. Crandall said. "We
were always slightly handicapped because United had more slots ... but we
built our success on our own excellence and with a focus on a quality
operation." 

Some experts agree that American is making a strong play at O'Hare despite
running a smaller operation. 

A study by Unisys R2A earlier this year said American outperforms United in
revenue per seat flown on competitive O'Hare routes. 

In theory, revenue should match market share, but the research showed
American earning a higher percentage of revenue than its market share would
indicate. 

United dismisses the figures, saying that its research suggests it performs
"the highest" at O'Hare, Ms. Urbanski said. "We have great people in Chicago
at the airport and in our sales organization," she added.

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