United Airlines says that if all goes well, it will emerge from bankruptcy in February, with a strategy that differs markedly from most of its competitors. United wants to pamper its best customers even if that means spending a little more on pillows, leg room and entertainment.
Noting the high failure rate among legacy carriers trying to copy Southwest and other cut-rate airlines, United is planning upgrades in both coach and first class. It will also keep careful track of its most frequent flyers and pamper them with extras.
No one doubts a blanket or a little extra leg room will be welcome but the big gamble is whether United will be able to extract a premium price, even from leisure flyers traveling in coach.
The company claims it has shed so many costs during the bankruptcy proceeding that the relatively minor expense of a few creature comforts will be outweighed by the added revenue they're supposed to create.
United parent UAL Corp. has been operating in bankruptcy for three years, the largest and longest-running airline bankruptcy in history. During that time, the company has shaken up management, improved its on-time record and slashed costs by $7 billion a year.
It has also used the mantle of the bankruptcy court's protection to crush more than one upstart competitor -- most notably, Independence Air, the plucky Dulles-based carrier that tried to invade United's cherished East Coast routes. United matches Independence's routes and fares until its smaller rival finally perished.
No one more eagerly anticipates United's exit from bankruptcy than the members of its creditors committee.
Dana Lockhard, chairman of the committee, said the bankruptcy agreement would benefit the creditors and the company alike. Lockhart, who is also chief financial officer for Airbus of North America, said United's successful exit from bankruptcy would be good for the industry if United regains its position as a vital competitor.
Among the issues resolved in the agreement are those relating to the proposed Management Equity Incentive Plan, the amount of the claim by the Pension Benefit Guarantee Corporation (PBGC), stock and note distributions for salaried and management employees, and certain corporate governance matters. The deal was nearly derailed by United managements plan to take a 15 percent equity stake in the new company. Creditors negotiated that down to eight percent.
If the court approves the deal and United emerges from its three year bankruptcy next month, the largest single shareholder in the new company will be the Pension Benefit Guaranty Corp., the government insurance agency that took over the carrier's pension plans.
Under the plan, PBGC would end up with a 20 percent stake in United. The shares would eventually be sold to help the PBGC pay for the $10 billion in underfunded pension-benefit liabilities that the agency inherited when United terminated all four of its employee pension plans in bankruptcy.
