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'Leaner' United eyes bankruptcy exit

After years as the nation's top airline, United fell to second in 2001 following American's purchase of TWA and an industry downturn in the aftermath of 9/11. That, coupled with increased pressure from low-cost competitors, signaled the death knell for the "old" United, which sought bankruptcy protection in order to survive.

Three years and $370 million in legal fees later, United is poised to emerge from Chapter 11 a leaner and more efficient airline. Or so it would have us believe. The truth, I think, is far less rosy. During its three-year bankruptcy, United lost market share to other carriers in all five of its hub cities—and the worst of it may still be ahead, with Southwest joining Frontier as a major fly in the ointment of United's Denver operations.

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In fact, the rise of the low-cost carriers on domestic routes has effectively pushed United and other legacy carriers (like bankrupt Delta) to look to overseas routes as a way to recover lost domestic revenue. Low-cost carriers like JetBlue, which just last week announced it would add 10 new U.S. cities to its route map this year, are able to operate more efficiently while delivering a superior product.

But United's reliance on international and popular domestic routes to save the day is risky, too. Richard Branson's Virgin America airline plans to launch at some point in 2006 and promises to deliver low-cost transcontinental service between New York and San Francisco. JetBlue, meanwhile, applied for new international service between Bermuda and the U.S. last week, adding to its existing international roster of the Bahamas and Dominican Republic. And low-cost carrier Spirit habitually keeps Caribbean prices low. Another low-cost line, ATA, added new Pacific routes last week.

The point? Even with Americans poised to increase their international travel in 2006, United's reliance on international routes and high-end business-class service hardly appears a sure thing. Publicly, United is projecting it will turn a profit this year, but with oil prices still high and competition heating up rather than slowing down, that appears unlikely from where I'm sitting.

At some point, leaner or not, United may be forced to face a harsh reality. The low-cost carriers are simply better positioned to succeed in the industry than older airlines like United. Even three years of bankruptcy protection may not be enough to save it.

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