United Part Seven: 1978 Airline Deregulation and the Future of United Airlines – February 18, 2011

Part Seven

1978 Airline Deregulation and the Future of United Airlines

The 1978 Airline Deregulation Act affected all of the major airlines in a negative way, including United. Economic trouble and labor problems left United with few resources and the airline experienced a high turnover of senior management through the 70s and 80s. Still, it pressed on.

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When American Airlines introduced its AAdvantage frequent flier program in 1981, United launched its Mileage Plus program – just a week later. United and American became very competitive and continue to be the primary competitors in the United States market to this day.

By 1984, United Airlines was the first airline to serve all 50 states. It had introduces service to several new destinations, including Atlanta, Memphis, Nashville, Fargo, Little Rock, Casper, Charleston and Jackson.

On May 17, 1985, United’s pilots went on a 29-day strike claiming that the CEO was trying to break up the unions. CEO Richard Ferris attempted to assuage the problem by offering a word-for-word contract that matched American Airlines B-scale pilot pay rate. This ended up being much more generous than American’s pay rates and the issue was resolved in an effort to avoid a strike.

In 1988, United set a new world record, flying a two-stop, around-the-world flight to raise money for the Friendship Foundation. This ended up being the fastest recorded flight around the globe but the record was broken by a Gulfstream IV business jet just a month later.

During the 1990s, United continued to expand rapidly and the decline of Pan American World Airways strengthened United’s position. United was able to purchase many of Pan Am’s routes to London Heathrow Airport and obtained rights to fly from Heathrow to Chicago. Increased competition with low-cost carriers led to some losses in the early 90s, but United continued to grow at a slower pace.

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In 1997, United co-founded the Star Alliance group with Air Canada, Thai Airways, Scandinavian Airlines and Lufthansa. It also opened a major hub in Los Angeles that same year. The airline announced plans to acquire US Airways in May 2000. At the time, US Airways was valued at $11.6 billion. However, the merger was considered to be a violation of antitrust laws so United withdrew the offer.

Even though United experienced a boom during the dot-com era, it lost $2,137 million in revenue during this same time period and had to apply for a $1.5 billion loan guarantee from the federal Air Transportation Stabilization Board. Its application was rejected and the company was forced to file Chapter 11 against bankruptcy in December 2002.

Still, United Airlines maintains operations to this day and is working its way through bankruptcy. It has invested in new projects and continues to compete with low-cost carriers and some of the major airlines. It has cut its flight capacity and has increased fares over the years, especially to overseas destinations.

Until next week please take care and fly safe.

Robert Novell
February 18, 2011