OK, so this isn't the weirdest news ever from the business world. But you have to admit that it's at least a little bit strange. United Airlines, the globe's second-largest airline, is spinning off a new carrier. Its name? Ted. Yes, you read that right.
What is United thinking? Well, several things. For starters, the firm happens to be operating under bankruptcy protection at the moment -- so it's clearly not at its healthiest. The company is looking for ways to generate more moolah and compete more effectively in the air.
Meanwhile, it faces major competition from low-cost rivals, such as Southwest Airlines (NYSE:LUV), JetBlueAirways (NASDAQ:JBLU), and Delta's (NYSE:DAL) Song. Ted is designed to compete nose-to-nose with these inexpensive carriers.
Executive Vice President John Tague explained that "Ted isn't just a low-cost initiative, it also creates more revenue opportunity in leisure-focused markets... Although Ted will be a United branded product, it has been designed with a unique name and personality all its own." Oh, and the name comes from the last three letters of the word "United."
By the end of 2004, United expects that some 45 planes, about 10% of its fleet, will bear the Ted moniker.
This should be promising, if not yet good, news for those interested in investing in United. But think twice or thrice before investing in the airlines at all. For decades, the sector has been notoriously unprofitable and problematic. It's just a tough business, what with fuel price volatility, the cost of flying empty seats, complicated logistics, occasional fare wars, weather, and more.
If you must own some shares of the sky, perhaps seek out the rare airline with a track record of profitability -- such as Southwest.
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