Graham Warwick/CHICAGO
United Airlines plans to use its remaining Boeing 727s and older 737s as a buffer against recession, as it draws up strategies to stay profitable during the next economic downturn.
"We don't know when, but the recession will come," predicts senior vice-president planning Rono Dutta, adding: "If it's not in 1999, it might be in 2000." The airline's main weapon will be to control its capacity, he says.
Instead of replacing its remaining 727s as originally planned, United will now retain them as a capacity buffer, retiring them as and when traffic falls. The airline has already started to remove some of its ageing 30 year-old 737-200s, and Dutta says that more of its older 737s could be retired to reduce capacity further.
This strategy will allow United to continue to take delivery of new aircraft already on order, while restraining its capacity growth. Dutta says unrestrained capacity increases exacerbated that last downturn, in 1990-2.
Retiring the 75 remaining 727-200s would allow United to reduce its capacity from a projected 550 million average daily-available seat miles by 2003 to around 500 million, while still taking delivery of the 69 aircraft now on firm order.
Dutta says United plans to maintain an operating profit margin of at least 5% through the next downturn. Other strategies include route diversification, maintaining customer loyalty and managing yields and costs better.
"Every recession has been traumatic for the passenger. We've been forced to trash the product, then put it back after," Dutta says. When the expected recession comes, he says, "-the challenge will be to cut judiciously".
Source: Flight International
