Employees of bankrupt UAL Corp's (OTC BB: UALAQ) United Airlines probably already knew the news would be bad when Tuesday a recorded message from CEO Glenn Tilton told them that the airline was targeting $655 million in operating cost cuts. What he didn't say was that layoffs might be part of the process. Oops.
Citing unnamed sources, on Wednesday London's Financial Times reported that United plans to cut as many as 6,000 jobs, or roughly 10% of its workforce. The cuts would be phased in over time in an apparent attempt to boost per-employee productivity. Outsourcing could also be part of the plan.
A follow-up report at Forbes.com cites a United spokeswoman who said the business plan hasn't been formalized but that "achieving cost competitiveness will require additional job reductions over time." The bankruptcy court overseeing United's reorganization has given the carrier till the end of the month to submit a new business plan and repair relationships with its unions.
Frankly, the relationships appear irreparable. After several rounds of cost cuts and employee givebacks, last month the airline said it might cancel its pension program. According to the Forbes.com report, that move has prompted the flight attendants' union to pass a resolution of no confidence in senior management, and it has said it will take steps to replace United's leaders. With the surprise revelation of 6,000 potential job cuts, it seems likely that the other major unions will join the flight attendants in seeking the heads of management.
Human resource debacles aside, can you blame management for doing whatever it thinks is necessary to keep the airline aloft? I can't. The cuts are important, but so much more is needed to restore the airline to its former glory. That may be why yesterday United revealed in the frequent-flier newsletter it sent me a new feature to launch mid-October called premium service.
In essence, United will cater to the business traveler by converting some of its fleet of Boeing (NYSE:BA) 757 aircraft to include a snazzy new first class cabin with foldout chairs that make travel from New York to California extra comfy. Business class will also be expanded, and extra legroom will be added in economy. The move makes some sense, for upscale travelers who fly coast-to-coast regularly might rent private jets. And business travelers generally have had a little more to spend on good seats.
Will the plan work? I don't know, but at least it's a creative move to boost revenue while cost cuts continue. That's what United needs. Well, that and a whole lot fewer HR bungles such as Tuesday's fumbled disclosure to employees.
United isn't the only airline in trouble. For more Foolish coverage of the industry:
- Airfares are heading north by Northwest (NASDAQ:NWAC).
- US Airways (NASDAQ:UAIR) is experiencing turbulence and may return to bankruptcy.
- Cost cuts are no cure-all for ailing airlines.
You needn't suffer the turbulence of risky stocks like those of the airlines to earn outsized investment returns. Motley Fool Inside Value chief analyst Philip Durell scours the bargain bins for great stocks with a margin of safety each month. A free trial to his newsletter is yours for the asking.
Motley Fool contributor Tim Beyers has no ownership interest in any of the companies mentioned, but he has family who are retired from United Airlines. You can view his Fool profile here.
