Will United Fly?

Includes: AAL, LUV, UAUA
by: The Stalwart

The Stalwart submits: United Airlines has been cleared for takeoff, with a judge approving their bankruptcy restructuring plan. But will things get any better? Tom Kirkendall is not too bullish on the company's prospects:

The reorganized United's operations look less like Southwest (LUV) and American's (AMR) than more. As this front-page WSJ article (sub. required) noted a week ago this past Friday, United has been adding more amenities, removing seats to offer more legroom and placing a renewed emphasis on customer service. The Journal article reports that purchases of United's $4,500 first-class tickets from New York to San Francisco have increased by almost 40% recently. In the meantime, other legacy airlines such as American continue to battle United for that high-priced market, but American appears to be better positioned than United to compete with the low-cost carriers as well.

We've talked before about the problem of being hamstrung by competition on both the discount and premium ends of the market. It's interesting that American has made progress by positioning themselves to compete with the low-end carriers.

Part of the problem, however, has to be the bankruptcy system that allows chronically mediocre companies to survive. A few years ago, the steel industry was in crisis, but was helped by companies going out of business, and the resultant cut in capacity. This gave the industry some much-needed pricing power. Another problem is gates. Bankruptcy allows weak carriers to hang on to airport gates, thus stymieing the expansion plans of stronger carriers.

One of the benefits to deregulation is that the strong would survive, while the weak get washed out. Instead our bankruptcy system allows the decaying ghosts of companies to hang around, haunting the others forever.

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