Author: Keith L. Alexander
Source: Washington Post

ELK GROVE, Ill., Jan. 25 -- United Airlines may turn a profit as early as this year and will expand its Washington Dulles International Airport operations into a hub for national and international flights, the airline's chief said Wednesday, as the nation's second-largest carrier moves to emerge from bankruptcy.

United could exit Chapter 11 bankruptcy protection as early as next week, ending the longest reorganization of any major U.S. airline. The United bankruptcy is the ninth-largest in corporate history, with $25 billion in assets.

United already is Dulles's dominant airline but, in an interview here Wednesday, UAL Corp. Chairman Glenn F. Tilton said a key strategy for the airline's long-term success is to expand service at Dulles, even though an expansion there flies in the face of advice that executives received when United filed for bankruptcy in December 2002. At that time, most industry consultants said Dulles was one of United's weakest hubs and that the carrier should close it.

But Tilton continues to believe otherwise. He wants Dulles to augment its status as United's East Coast hub, making it a gateway to the Atlantic for such destinations as Munich, Frankfurt and South Africa, while making Dulles a connecting airport for travelers flying from the West Coast and on to their final East Coast destinations. And since United has since scaled back its operations in Miami, Tilton plans to make Dulles the gateway for United passengers flying to the Caribbean, Mexico and Latin America.

In 2002, United averaged 268 flights per day out of Dulles to 72 cities. By November 2005, those numbers had grown to 284 flights to 83 cities.

Tilton prides himself on moving against the industry idea of the moment. When AMR Corp.'s American Airlines reversed plans to offer additional legroom and added seats back to its planes, United not only kept extra leg room on its mainline jets, but also reduced the number of seats on its regional planes to give passengers more legroom on hops to smaller and mid-size cities.

Though Delta Air Lines Inc. phased out its low-cost subsidiary -- Song, a no-frills operation that Delta used to target leisure travelers -- United plans to expand its similar operation, Ted, as part of the airline's overall effort to expand into leisure destinations. And while other airlines have taken pillows and blankets off their flights, United still plans to offer such amenities.

"You can't punish the passenger. It wasn't their fault we were having such financial problems," Tilton said.

Now with $7 billion of its cost eliminated as part of its decision to cut 26,000 jobs, reduce employee pay and benefits, park 100 planes, and eliminate its pension plan, Tilton said the airline is better positioned to grow and become a more powerful airline and more attractive carrier for travelers.

But there remain numerous challenges. Tilton expects United to earn a profit this year, but that largely depends on fuel prices. Low-cost carriers continue to expand in United's key markets. This year, Southwest Airlines Co. began flying into Denver. JetBlue Airways Corp. and AirTran Holdings Inc. continue to grow in many of United's most profitable destinations, including the Washington area. And two of United's biggest competitors, Northwest Airlines Corp. and Delta, are restructuring their operations and cutting costs under Chapter 11 bankruptcy protection.

Tilton wants to make United the airline of choice for high-paying frequent business travelers. But he also wants it to be the airline those travelers fly on family vacations. In addition to new domestic and international routes, Tilton said he plans to form marketing alliances with companies. He said he envisions partnering with record labels as part of the airline's in-flight entertainment so United passengers would become the debut audience for new music and videos.

"We are going to challenge the conventional wisdom of what the future holds for the in-flight experience," he said.

United has hubs at its hometown airport, Chicago's O'Hare International, and in San Francisco, Los Angeles and Denver. Dulles was considered one of United's most expendable operations because the airport is close to two competing airports -- Reagan National Airport and Baltimore-Washington International Thurgood Marshall Airport. Low-cost carriers such as Southwest, JetBlue and AirTran have rapidly expanded in the Washington area and Dulles's archaic design -- with its motorized shuttles -- led many analysts to believe Dulles was too risky and costly for United to continue to operate there.

But United needs Dulles to connect its high-paying international travelers, said airline industry consultant Michael Boyd of the Denver-based Boyd Group. Otherwise, he said, Dulles wouldn't be as profitable.

"Where they make their money is feeding people in and out of Washington and to and from international flights. It's not the greatest place in the world for a hub, but for United, they need it," Boyd said.

In addition to increasing its connections to the West Coast and abroad, Tilton plans to grow Dulles as a hub for its regional express operations with flights to small- and mid-size cities with 70-seat regional planes.

Despite analyst warnings, United grew Dulles instead of backing out, Tilton said, adding the airport has been a "surprise upside" for the airline. Tilton said another attractive asset of Dulles is the rapidly expanding Northern Virginia traveling community.

"Part of the success of Dulles is Reston, Herndon and the Dulles corridor," he said.

Tilton said United also chose to invest in Dulles as a result of the Metropolitan Washington Airports Authority's decision to expand and modernize the airport -- key features of which are new runways and a train system to carry passengers between terminals, planned for a 2009 completion. The airport's modernization, Tilton said, will allow the carrier to attract additional foreign partners and destinations.

"Growth begets growth. As it succeeds, new opportunities present themselves," he said.