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Show 12F The Salt Lake Tribune Sunday, November United Flying High in Unfriendly Skies 27, 1983 By Carol Jouzaitis Chicago Tribune Writer United Airlines has flown the unfriendly skies of recession and deregulation and still managed to land on top of the ccmpetitive heap. The largest U.S. airline and dominant carrier at OHare International Airport has weathered the onslaught of new competition by hustling new routes and aggressively building hubs in Denver and San Francisco. UAL Inc., Uniteds Chicago-base- d parent company, expects its first operating profit this year since 1980, while the airline seems to be reversing an erosion of its U.S. market share. Thats certainly good news in the face of the financial strife plaguing the industry. But United still faces the uphill battle of winning substantially more in cost concessions from three of its unions in order to remain competiairlines croptive with lower-coping up around it. $74 Million Net Profit The companys airline operations, which showed a net profit of $74 mil-lir- a in the first nine months of this y. v r, would have been $47 million in the red without $173 million realized from the sale of tax benefits. Those benefits wont be available after st 1983. Uniteds future remains clouded by three crucial issues: Continental Airlines attempt to establish itself caras the nations largest low-corier, United's inability to grow at OHare because of landing slot restrictions and a federal investigation into possible abuses of computer reservation systems within the industry, which could result in United having to divest its most powerful marketing tool. However, Richard J. Ferris, UAL chairman and chief executive officer, is optimistic the company can stay in the black. Even without the tax benefits that staved off net losses the last two years, 1984 will be a good year. We will do better at an operating level, Ferris said in an interview. $250 Million Needed Weve got to earn $250 million net after taxes next year, Ferris said. Otherwise, over time, well start to shrink. Despite this years financial turmoil, there are positive signs for the airlines. Some analysts are predicting record airline profits in 1984 if the economic recovery continues, and that bodes especially well for United. Referred to by industry watchers as the bear and the gorilla, the huge airline is ambitiously expanding its Western hubs and has managed in the last two years to hold on to a 21 percent share of the st Trioune Stofr Photo Dy Don Miner Construction barricade in front of Lambs Restaurant permits customers to enter the restaurant while workers renovate the upper four floors. A platform will be constructed across the sidewalk to allow restoration work to continue. Main Street Passersby Are Curious About Barricade By Joe Rolando Tribune Staff Writer When Weyher Brothers Co., a Salt Lake-base- d construction management firm, worked in front of Lambs Restaurant recently, the superintendent received so many questions from passerbys about the work he decided to have some fun with it. He simply told everyone that the multi-side- d wooden structure on the sidewalk was Santa's downtown workshop. Lambs Ted J. Speros hasnt got off that easy. Passerbys have been so curious about the structure that theyve asked him to step outside to explain, even during extremely busy times in the restaurant. Set Record Straight Mr. Speros, William C. Weyher, who owns Weyher Brothers with his brother Robert F. Weyher Jr., and Charles D. Peterson, an architect who works for the Weyhers, got together the other day in Lambs to officially set the record straight. Its just a sidewalk construction barricade plain and simple, observed Mr. Peterson. But he added its probably the first of its kind in the city to not only protect pedestrians on Main Street while work on the upper levels of a building is underway but also to permit them to enter the front door of a business on the ground level. The men said most barricades constructed downtown route pedestrians through a tunnel in front of the building under construction preventing them from entering the front doors of businesses. Renovate Upper Floors Mr. Speros and the barricade is needed because he and his family have leased the top four floors above Lamb's, formerly the Hotel Little, to The Circle Co., an investment firm, which the Weyher brothers also own. The Weyhers plan to rennovate the building into office space, which they will sublease. Mr. Speros explained, When they decided to do the remodeling, what I was concerned about was first the pedestrians. As youve seen on the other remodeling that has been done downtown here, all the pedestrians are forced around these barricades. You run into all those planter boxers and it makes it very difficult for people to pass. The restauranteur added he was also concerned that if the typical barricade was erected there would no way for customers to enter his cafe. New Ideas So I told the Weyher boys I was concerned and I also talked with Mr. Peterson about it. I said, Lets come up with some idea that would be beneficial to everyone. So then I took it over to them and they came over one day and they were all excited. They said, Heres what we got. Mr. Weyher said they will build a work platform bridging the barricade and the building so work can continue above without objects falling on pedestrians. The barricade also has gates so that workers can drive in a hydraulic crane to lift new steel support beams for the building into place. Mr. Weyher said he will begin the work, estimated to cost about $1.2 million, in a couple of weeks. He said he expects the work to be completed in May of next year. Restore Inside and Outside Basically, were going to be tearing out all the old partitions . . . We also plan to restore the outside to classic revival architecture, said Mr. Weyher. He said they have even salvaged the buildings original doors and will also restore the inside wherever possible. Mr. Weyher said he and his brother opted for restoration rather than constructing a new office building principally because they can receive a 25 percent tax credit through the U.S. Department of Interior for the work. He said they qualify for the credit because the Speros building, constructed in 1905 to house the Salt Lake Herald newspaper, is listed on the National Historic Register. The Weyher brothers feel small businesses will particularly benefit when the the building is restored. "Weve got fairly small floors there and a fairly small firm could come in and take a whole floor where in other places they'd become lori, Mr. Weyher added. The shop space on the ground level of the Speros buildling, formerly occupied by the mens clothier, The Rafter Shop, is still empty. Messrs. Weyher and Speros said there is a possibility The Circle Co. may decide to lease that space for subleasing once work on the upper floors is completed. 700-pou- U.S. market. The No. 2 airline, Dallas-base- d American, has a 16 percent share. With new competition brought on by deregulation, Uniteds market share is down from 24 percent in 1978. But Julius Maldutis, analyst with Salomon Brothers Inc. in New York, said he believes United, American, Delta and Northwest Orient will be the big winners in the competitive race now under way. A Significant Recovery The four airlines have staged a significant and sharp recovery, Maldutis said, and are set to increase market share and produce bottom-lin- e earnings improvements in 1984 and 1985. Uniteds passenger traffic is up 11 percent this year. Thats well ahead of the industry average of about 7 percent but not as strong as rider-shi- p improvements at American (13 percent) and Northwest Orient (15 percent). Were bullish on traffic for next year, said John Zeeman, United vice president of marketing. Thats partly because of increases in our capacity but also because load factors (percentage of seats filled) are up. United raised most fares $20 last fall and will boost discount fares by $10 to $20 on Dec. 15. Higher fares are the main reason its yields have improved. The airlines revenue per passenger mile in the crucial third quarter was 11 cents, up from 10.7 cents a year earlier. Two weeks ago. United announced it would increase system-wid- e capacity (measured in available seat miles) by nearly 17 percent, adding four flights from Chicago to Florida on Dec. 15 and 28 flights at Denvers Stapleton International Airport, its second-largehub, on Jan. 4. The expansion follows a major boost in its operations at San Francisco International Airport in September. To establish a north-sout- h hub in that city and gain a bigger foothold in the lucrative West Coast market, United added 27 daily flights there, including a 60 percent boost in its San Francisco-Loi- s Angeles trips. A bloody fare war was predicted in California but never materialized, Zeeman said. Passenger traffic from San Francisco exceeded United expectations by 6 percent in October, he said. Our load factors best tween Los Angeles and San Francisco have been in the 70 and 80 percent ranges. Fewer Employees Uniteds employment is 44,600, down from a peak of 54,900 four years ago. We re running the same size airline with 23 percent fewer people and doing it as well, Ferris said. With its system expansion, the carrier has recalled 1,650 pilots and flight attendants and in October began training several hundred new attendants. But United hasnt done as well as some major carriers in paring labor costs. United has a good balance sheet, and it doesnt have tremendous equipment needs, but its still a relatively inefficient carrier," said John Pincavage, analyst with Paine Webber in New York. By comparison, American, which earlier this month won hefty pay concessions from piand work-rul- e has lots and flight attendants, made tremendous progress in getting costs down, he said. Continentals fare slashing and 50 percent cutback in salaries have put additional pressure on United to take a tough stance in labor negotiations, Pincavage said. United has to achieve similar cost reductions, or it will absolutely lose its momentum, he said. Relations Strained Contract negotiations have torn relations at employee-managemeand as Eastern such competitors Continental And in recent weeks there have been signs of strains in the reasonably harmonious relationships United has maintained with its unions. United and its flight attendants nt are far apart in contract talks that began 11 months ago. The union, being pressed for $45 million in wage and benefit cutbacks, is in the process of taking a strike vote. Its contract expired in April. The union has accused United of exploiting the misfortunes of other carriers to gain more concessions than it needs. United has got a case of concessionitis, said Nancy chairwoman of the master executive council of the Association of Flight Attendants. Ferris declined to comment on the negotiations. United also is seeking substantial work-rul- e concessions from its machinists. And bargaining with its pilots union, whose contract expires in April, may be rocky. Cautiously Optimistic h, Insurance for Insurance Firms Is Specialty of New Subsidiary The Baltimore Sun BALTIMORE United States Fidelity and Guaranty Co., the diversified Baltimore insurance firm, has formed a new subsidiary that specializes in protecting other insurance companies against potential property and casualty losses, the company said recently. F&G Reinsurance, Inc. will operate from headquarters in Morristown, N.J., as a reinsurance management corporation, soliciting and servicing groups of insurance companies, Kathye Thomas, a USF&G spokeswoman said. Thomas said the wholly owned subsidiary will specialize in treaty reinsurance, in which a group of firms agree to underwrite the potential losses of another insurance company on an equal basis. For example, she said, three insurance firms may each agree to sell $1 million in insurance coverage to another insurer that has written a $3 million policy. - She said USF&Gs decision to enof insurance was a decison on the part of the company ter this area to provide a fuller line of services. Paul Scheel, president and chief operating officer at USF&G, said in a prepared statement announcing the formation of the subsidiary that it would enlarge and solidify the companys presence in the domestic nd international insurance marketplace. We believe one of the keys to our future growth and profitability is developing the capacity to profitably underwrite any risk no matter how exotic and sophiscated. Paul B. Ingrey, former senior vice president of underwriting and marketing at Prudential Reinsurance Co. and president of its subsidiary, Gibraltar Casualty C:, has been named president of F&G Reinsurance. USF&G is the principal company of USF&G Corp., which has about 2,600 property and casualty insurance agencies across the nation and assets exceeding $5 billion. Were cautiously optimistic, said John Ferg, a United pilot, of the negotiations. But he added: I suspect theyll want further concessions. Pilots want to hold on to what theyve got. Uniteds cost per available seat mile is about 8 cents, in line vrith most other major airlines but well above the 5 cents of newer carriers such as People Express and Southwest Airlines. Ferris declined to say how much United plans to cut costs. But Pincavage estimated that United must shave expenses to about 6 or 6.5 cents per available seat mile over the next several years. That means cutting costs by at least $1.2 billion to $1.6 billion, he said. (The airlines operating expenses last year totaled $5.3 billion.) 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