Among Chicago’s corporate giants, United Airlines casts a big shadow. But as the troubled carrier begins a massive reorganization, everyone from a convention center in Rosemont to the Lincoln Park Zoo is bracing for the expected fallout.
For now, United still operates as the world’s second-largest airline with a premier worldwide network of flights that make it a desirable carrier for business and leisure travelers.
But United is almost sure to shrink in its quest to cut billions of dollars in costs, putting at risk hundreds, if not thousands, of jobs in the Chicago area, home to most of the carrier’s 18,000 Illinois employees.
The city’s cachet also could take a hit should the carrier fall from No. 2 to a lesser stature. And fewer flights may frustrate business executives and curtail the city’s ability to maintain companies that demand multiple choices of flight locations, observers said.
“In the corner offices, there’s the belief that the issue of the quality and quantity of air service in a community has a disproportionate effect on the bottom line,” said David Schulz, director of the Infrastructure Technology Institute at Northwestern University.
“The chief executives spend a lot of time in airplanes, and so do their employees,” Schulz added. “It’s part of their culture. When they go to cocktail parties, they stand around talking about how many frequent-flier miles they have.”
United filed for bankruptcy protection last week, a move that many said was inevitable, given the carrier’s massive losses and high built-in costs. Although bankruptcy attorneys disagree on whether the carrier will meet its goal of emerging from court protection within 18 months, many agree that big cuts in its payroll are likely.
United already has pared some 20,000 jobs since the Sept. 11, 2001, terrorist attacks and a soft economy caused business travel to dry up.
What’s worrisome, analysts say, is whether displaced United workers find themselves unable to find employment elsewhere in a tight job market for airline employees.
Among those who depend on United for their daily sales is Plitt Co., a Chicago seafood supplier that counts on United to bring in fish from 400 locations.
“We rely on United several times a day, almost hourly, so we are unbelievably concerned,” said Bob Sullivan, Plitt’s president.
“You always try United first because they tend to be reliable,” Sullivan said. “When your big gun that accounts for 70 to 80 percent of our shipping volume has trouble, I am scared. We hope it all works out, but we don’t know. Nobody knows.”
Trade and tourism players also are concerned.
“The trade show industry could have an impact if a number of flights are eliminated or cut back,” said Jim Freeman, executive director of the Donald E. Stephens Convention Center in Rosemont. “If some of the routes are cut back, the accessibility of the attendees who are coming from all over the world could be affected. You just have to feel that it is going to have at least some impact.”
United’s status as a corporate charitable donor also raises concern among local non-profit organizations.
At the Lincoln Park Zoo, United has been a consistent contributor for a decade, offering sponsorships and air-travel gifts that allow zoo scientists and staffers to fly free to conferences or important veterinary medical meetings.
“Obviously there is concern, but we are moving ahead,” said Kelly McGrath, director of public affairs for the zoo. “United has consistently demonstrated an extraordinary commitment. We are all optimistic that will continue.”
United’s rivals, too, are struggling to reduce labor costs to avoid a similar fate in U.S. Bankruptcy Court. US Airways, which sought bankruptcy protection in August, last month furloughed 2,500 workers, or about 7 percent of its workforce. The nation’s seventh-largest carrier, US Airways has laid off nearly 15,000 of 46,000 employees since the Sept. 11 attacks devastated the airline industry.
In United’s case, business leaders are preparing for the worst.
“It will be a factor that ripples through the economy,” said Doug Whitley, president of the Illinois Chamber of Commerce. “Every time a major employer is adversely affected and suffers a job loss, it has not only an impact on the company’s employees but a residual effect on many other companies. I could be the guy who is selling groceries, and this may have an effect on who is going to come in my store to buy groceries.”
Although United’s rivals are sure to clamor for any available slots the carrier may exit at O’Hare, it’s uncertain what kind of service other airlines would bring.
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Given the shakeout in the airline industry, business leaders are concerned that a smaller United or any replacements wouldn’t have the network the business community needs. That could put Chicago at a loss in competing with other large cities for new employers.
“These are the folks who make decisions on relocating a regional sales office to Chicago or the suburbs because they know United is here,” Schulz said. “If United leaves or shrinks into a smaller player, it may mean that ATA or Southwest or JetBlue or AirTran comes in. That would be fine. But there would be a diminishment of the psychological attractiveness of Chicago as a location city.”
A diminished United also could frustrate efforts by the business community to get the airline industry behind certain economic development initiatives. In the past, United has always had clout as a large employer that easily commanded the attention of most politicians.
“From an economic development perspective, it’s more comfortable and easier to go to the big players to get things done and get people to move,” said Whitley of the state chamber of commerce. “Instead of working with just two big airlines, United and American, you will be working with more airlines. Just because you have fewer parties at the table, things can go more quickly.”
Still, there are optimists who view United’s plight as a positive for the economy.
Taxpayers, for example, aren’t on the hook for the $1.8 billion loan guarantee that federal officials denied the carrier. Before that denial, it also was possible that United would have asked for more assistance from federal or state officials–or both.
Moreover, economists say it makes no sense for a business to continue its money-losing ways without facing repercussions.
“I am bullish on United, but I think they have had a very rude awakening,” said Joel Mokyr, a professor of economics at Northwestern University.
“It’s certainly not the end of the world,” Mokyr said. “There are lots of very nice towns who are not identified with an airline, like New York. A big vibrant economy like Chicago’s consists of thousands of employers, and if the city stays healthy, someone else will take United’s place.”
Mokyr believes United’s demise is a wake-up call that was long overdue. It could also be a wake-up call to other mismanaged businesses, he said.
“That is capitalism,” Mokyr said. “It is a creative destruction. In communist countries, companies never went out of business, and look at them now.”