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Tue, Oct 23, 2007

United's Tilton Continues To Talk About Change

Looking For Merger, Added Charges

Believing United Airlines needs competitive change, Chief Executive Glenn Tilton wants to pursue everything... from a merger, to charging passengers who want their luggage to come first off the plane, according to the Chicago Tribune.

In his first interview since laying out a provocative five-year strategy approved by United's board last month, Tilton (right) maintained that change is difficult, but necessary, if the airline is to remain competitive on the global stage and survive the ups and downs of the airline industry.

Tilton wants to examine new ways to squeeze money out of the carrier. But he's getting nothing but resistance from United's unions and industry observers.

"All those difficult decisions, it's why we're here," Tilton said last week.

United plans to invest $4 billion in complex new information systems and to upgrade its planes, check-in areas and other aspects of the business that affect passengers, Tilton said.

United is also looking at whether to divest its cargo business and frequent flyer program and its San Francisco maintenance base, and charge for new a la carte fees for special service.

United appears to be using an Air Canada strategy, which gained billions of dollars after it emerged from bankruptcy in 2004 by turning its maintenance division and frequent-flier program into separate businesses, analysts say.

"Every management team needs to address it," said Kevin Crissey, senior analyst for US airlines with UBS Investment Research.

But the sale or spin-off of these assets contradicts some of its bankruptcy plans, according to United's flight attendant union.

"It has only now become clear that the sale of these assets is not only a viable option, but that a timely sale would have avoided the need for severe concessions and, perhaps, avoided the bankruptcy altogether," wrote Greg Davidowitch, president of the United master executive council of the Association of Flight Attendants, which represents 17,000 United workers.

Davidowitch called on United's board to direct management to engage in "meaningful negotiations" to restore wages and benefits that workers gave up during bankruptcy and to allocate a proportionate share of the proceeds of any asset sale to the flight attendants.

"We're giving notice that we're laying claim to a portion of that money," he told the Tribune.

United replied it couldn't sell its Mileage Plus, the world's second-largest airline loyalty program, while the carrier's future was in jeopardy.

"Who is going to buy the loyalty program of a company in bankruptcy when the whole value of the program is tied to creating a connection to the company," said spokeswoman Jean Medina. "The increase in value of Mileage Plus is directly related to our exit from bankruptcy and subsequent successful execution of our performance agenda."

United plans to treat the $800 million program as a stand-alone business by year's end.

Among those under consideration United is looking at additional charges for: curbside-to-curbside baggage service, fees to check a second bag and allowing mainstream passengers to "rent" for a day the perks available to elite customers.

"While a la carte pricing is successful for some budget carriers, it could backfire for United if passengers feel like they're being forced to pay for something that was once free," said Michael Boyd, president of the Boyd Group.

Tilton told the Tribune he his looking at mergers with equals, and would like more exposure in New York and a presence in Latin America that could be operated from its hub at Washington-Dulles International Airport.

Workers shudder at the mention of this because of the specter of lost jobs and bitter fights over seniority, which determines job assignments and pay levels.

"Would you rather merge or wind up in bankruptcy, again?" Tilton said he bluntly told United employees when the topic was broached in an open forum. "Can we agree on one thing: We all want to grow."

FMI: www.united.com, http://ir.united.com/phoenix.zhtml?c=83680&p=irol-IRHome

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