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Airline Economics

Financial facts and competition comparisons

by Ruth Venning and Christine Cedusky 

Our Times, December 1999

If you're wondering which airlines are earning the most money, posting the best stock performances or making their debuts, look no further than these four pages.  Here, you can find the answer to that burning question: "Who really is the largest airline?" You also can see how United compares to its peers.  In addition, this section looks at United's cost factors, growth opportunities and schedule strategies, as well as revenue from Star Alliance. (Unless otherwise noted, financial results in this section are for January through September 1999.  Full-year results will not be available until mid-January 2000.)

The Economic Environment
The state of the economy is an important factor in airline performance.  More people are willing to fly in good times than bad.  So, how's the economy doing?  It's not that simple. United operates in four major world regions, so to get a clear picture, we need to look at each region's economic scenario.

U.S. -
The U.S. economy has continued strong so far in 1999, although it's been marked by fears of interest-rate increases.  Many investors fear that signs of inflation - a common by-product of a good economy - could result in rate hikes, and this concern has resulted in some noticeable ups and downs during the year on Wall Street. In terms of travel trends, revenues in the U.S. market have slipped slightly, in part because airlines have made more seats available in the U.S. domestic market.

Pacific - 
The theme for the Pacific region in 1999 is economic recovery.  After a prolonged period of weakness, the region's economies have been slowly improving.  Although the recovery in our major markets in the Pacific - Japan, Hong Kong and Australia - has been somewhat sporadic, all three regions showed improvement in the third quarter

Atlantic - 
Competition in the Atlantic has been intense for about a year now.  In late 1998, because many carriers considered the market attractive for profitable expansion, several U.S. airlines increased the number of seats they allocated to the Atlantic market.  As a result, there are now more seats than the demand for them.  This "overcapacity" has hindered financial results in the Atlantic for many airlines, but United's performance there is improving.

Latin America - 
Latin America has suffered from political and economic unrest during the year, particularly in the southern parts of the region.  This unrest has affected results in this market.  Most airlines - including United - have reduced the number of seats they allocated to the region in response, a move which has helped profits improve as the region begins to recover economically.

Regional Diversification
In addition to providing our customers access to destinations all over the world, United's global operations give the company a strategic tool as well - regional diversification. United's operations in four major world markets give us a cushion to weather regional downturns, such as the economic turbulence the Pacific region experienced over the last two years.  By strategically reallocating our seat capacity (the total number of aircraft seats in United's fleet system) within the Pacific and to other regions, we were able to soften the effects of the weakened Pacific economies on United's profitability in 1998.
Well balanced
Compared to the rest of the airline industry United's operations are the most evenly distributed among the four regions of the world where the major U.S. airlines fly.

(Source: US.  Department of Transportation.  U.S. major carrier data does not include Southwest Airlines.  DOT data was not available for the nine-month period ending Sept 30,- therefore data  presented is for the first six months of the year)

Bumpy, but better than the rest.

Stock Matters
1999 Stock Performance
(Year to Date as of Sept. 30)

US Airways 
Percent Up / (Down)
United's stock price has hovered in the $60 to $70 range for most of the year, except during the second quarter, when it broke through $80.  The stock's nine-month performance is by far the best of the major U.S. airlines, up more than 9 percent since the start of the year The stocks of the other airlines, except for Southwest, have dropped over the same time period.

(Source WHQUH)