The Greater Peoria Regional Airport (GPRA) continues to exhibit strong passenger numbers as compared to 2001. As of October 2002, total passengers using the GPRA increased by 5.06 percent. However, how will Peoria fare in light of United Airlines, Inc. recent filing of a voluntary petition for Chapter 11 bankruptcy protection? Should we be concerned?
Yes. We must be vigilant to maintain our air service.
On December 5, the federal government’s air transportation stabilization board (ATSB) denied United’s application for a $1.8 billion loan guarantee. This action left United with little choice but to file for bankruptcy. United, this country’s largest airline, realizes it must develop a business plan, which will generate better revenue and will lower operating costs. For every $100 in revenue per mile, United has the highest cost in the industry—$11 per mile. In comparison, Southwest operates at $7.38 per mile, while the average cost for all of the major carriers is $9.62 per mile. This high cost structure has resulted in United loosing nearly $7 million to $22 million per day by some estimates, and more than $4 billion in last two years.
The unfortunate events of September 11th exacerbated United’s already flawed business practices that even $5.2 billion in labor concessions couldn’t correct, as evidenced by the ATSB’s action. United employees, who own 55 percent of the company, will be extremely motivated to make United profitable once again. As part of an overall cost reduction strategy, United will seek to reduce its current air service capacity.
All current indicators show United will continue to operate here in Peoria. However, United will experience pressures from the bankruptcy court to shed costs and increase revenues. Future business decisions will need to be reviewed by the court. Therefore, United’s air service decisions will be made upon the economic impact to the airline’s bottom line throughout its system—not just in Peoria. These impacts will be evaluated on profit and loss statements, not in six to nine months in the future, but more immediately.
Peoria’s knowledge-based manufacturing strengths in the global marketplace will continue to be attractive to all airlines, especially to United, whose major hub is located in Chicago. The 21st Century Workforce: Central Illinois report found 45 percent of Caterpillar’s global workforce is located outside the United States, with about 50 percent of its total sales now being made overseas. To remain competitive, Caterpillar and our other international companies need to efficiently get to the rest of the world. United still has one of the most extensive international air route structures to meet this need—especially to the Far East.
Developing a stronger and more diverse knowledge-based workforce in the tri-county region makes initiatives like Peoria Next, the Greater Peoria Vision 2020, the Heart of Peoria, and other regional planning initiatives extremely important to this region’s economic future and viability. Quality air service and the economic strength of a community are directly related.
You should continue to support United. United will work hard to maintain its customer base and loyalty. In fact, United may offer some pricing and mileage incentives to maintain its customer loyalty. The airline industry has successfully used bankruptcy protection to re-organize in recent history. For example, Continental Airlines, Inc. has successfully used bankruptcy protection to become a stronger air carrier, and US Airways is currently operating with Chapter 11 protection. The key will be the forthcoming management decisions from United and the bankruptcy court as United undergoes reorganization.
United represents 23 percent of our market, with four daily flights to Chicago and two daily flights to Denver. Our collective support will have an impact on this service level. Including service from American Airlines, we enjoy eight daily jet flights to Chicago from Peoria, giving us a competitive advantage in frequency and reliability for central Illinois travelers.
As the airline industry continues to evolve, we see more changes with all of the carriers. The high costs at United unfortunately set the benchmark for the industry. Now, the other carriers will use the United situation to reduce their own costs through labor concessions and reduction in capacity for the smaller markets. We need to continue supporting our airlines by flying out of Peoria. IBI