United CEO: airline economic model broken

11 Feb 2010 by Mark Caswell

United Airlines Chairman and CEO Glen Tilton today delivered a sober but damning verdict on the airline business. Tilton, who has been CEO of United since 2002 said the airline’s economic model was “broken” and blamed governments for “Protectionist policies perpetuating outdated and restrictive regulation… excessive taxation, inadequate infrastructure, inefficient security costs and other legacy issues.”

Quoting IATA figures that the airline industry has lost nearly $50 billion worldwide since 2000 and “a staggering $11 billion last year alone”, Tilton said that United had taken tough measures in cutting costs, not least in cutting its workforce during his time from 100,000 to 47,500.

A major proponent of consolidation in the industry, and one who has been criticised for actively seeking a merger for United, Tilton blamed protectionist policies for preventing the airlines from competing effectively.

“What is it that they are protecting? A chronically underperforming industry? Businesses cannot be ‘protected’ from the reality of global competition.”

Tilton said the industry was “severely undercapitalized” and suffering from ”government micromanagement”.

“In the US taxes imposed by airports, the FAA and the Department of Homeland Security represent typically about… 20 per cent of a $300 domestic round trip ticket… What is it about this economically challenged industry that compels government to impose new taxes and regulators to ratchet up fees?”

Tilton pointed out that the taxes levied against it supposedly in the name of environmental protection were often used for other purposes and also stopped it investing in new technology and aircraft which would be less polluting.

Comparing his experience of heading an airline to his previous experience of decades in the oil business, Tilton said that despite the airline industry being “critical to commerce…. the business environment that is ‘essential’ and ‘normal’ in virtually every other industry is outside the grasp of commercial aviation.”

On international routes United has completed the roll out of its new flat bed in business on its B767 and B747 fleet, with the B777 scheduled for retrofit starting this month, but Tilton said investment was difficult while the airline was being forced to operate in an environment with “anachronistic restrictions”, supporting tens of millions of industry-related jobs – yet forced to shed airline jobs to survive.”

Asked if he would be happy with United under foreign ownership, Tilton answered in the affirmative, and said that “the elimination of economic barriers to the free flow of capital is critical to the long term viability and profitability of the industry”. He also urged the US and EU to continue their dialogue towards economic deregulation and regulatory convergence.


Report by Tom Otley

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