Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: FRIDAY, December 17, 1993                   TAG: 9312170169
SECTION: BUSINESS                    PAGE: A-18   EDITION: METRO 
SOURCE: Associated Press
DATELINE: NEW YORK                                LENGTH: Medium

WORKER BUYOUT AT UNITED SHOULD TRIM ALL AIRLINE FARES

An employee-owned United would fly with lower labor costs, raising pressure on other big carriers to find cheaper ways of flying.

Even without an employee takeover, United was moving toward creating a subsidiary that would charge lower fares and still profit on routes that frequently lose money now.

Travelers would get another choice for cheaper domestic flights that could easily link with one of the world's largest airlines. Employee owners would have a greater interest in providing better service.

Many of the big airlines have been motivated by the success of Southwest Airlines, a Dallas-based carrier that has enjoyed remarkable prosperity and growth while others have foundered.

The new airlines are revolutionizing the aviation business, forcing big airlines to cut fares on routes where they compete with carriers that were unheard of even a year ago. The upstart airlines are expanding as the oldest airlines struggle to make a profit, fight with their employees and retrench.

Just looking at one route shows how Southwest has influenced the business and benefited passenger pocketbooks. Before it began flying between Baltimore-Washington International Airport and Cleveland, the prevailing fare for last-minute ticket purchases was $349 one way. Southwest said it would fly the route for $49 one way and, after bidding with rival USAir, the fare has settled at $19.

As the big airlines find ways to fly more cheaply, Southwest is keeping up the pressure and expanding. This week, for example, Southwest agreed to buy Salt Lake City-based Morris Air, giving it fast access to cities in the northwestern part of the country.

Southwest Chairman Herb Kelleher said his airline is expanding faster partly because most of the bigger airlines are trying to adopt Southwest's success strategy in some form.

The would-be employee owners of United plan to create an "airline within an airline" to fly the short domestic routes and compete with Southwest. The new airline would have lower costs and higher efficiencies that would allow it to cut fares and still be profitable - just like Southwest.

American Airlines, which has the biggest domestic network, has rejected the idea of mimicking Southwest. American Chairman Robert L. Crandall argues that the airline's extensive hub-and-spoke system enables it to connect more cities than Southwest could ever hope to do.

Passengers, while still demanding lower fares, would be willing to pay a premium over Southwest's fares for that convenience, Crandall says.

While the hub-and-spoke is more costly because it forces the airline to use more jets, Crandall argues that the costs can be made up with more productivity from workers.

The United deal would be the first to give employees control of a big airline. Workers at Northwest and Trans World Airlines recently negotiated minority stakes in return for wage and benefit givebacks.