ABTN's distinguished contributor this month is Glenn Tilton, United Airlines chairman, chief executive officer and president, and the man behind the carrier's remarkable rehabilitation after three years of operating within the constraints of Chapter 11 bankruptcy.
With Chapter 11 behind us we have the business platform we need to compete with the strongest carriers and a clear strategy of offering the right service to the right customer at the right price.
Three years ago, my company was losing some $3 billion per year and watching some $5 million or more per day go out of the door in cash. Our cost structure was among the highest in the US industry across all segments of our business. Our collective bargaining agreements were uncompetitive with the realities of the marketplace. We had unsustainable legacy benefit obligations.
United and the other US network carriers had been unwilling or perhaps unable to deal with years of bad decisions, building bad business plans on some hoped-for industry recovery rather than the reality of the marketplace and the work that needed to be done by the companies themselves. As a result, they agreed to higher and higher wages and benefits, knowing that they were unsustainable. At the same time, the US regulatory environment consistently blocked any attempt by the airlines to consolidate constructively as in other industries. In fact, in 2001, just before my arrival at United, the proposed merger with US Airways was denied because US regulators thought at the time that it would reduce competition and service.
The US market today remains regulated. The rejection of a United?US Airways merger, two very weak carriers at the time, represents in my view an outdated perspective on competition, suitable only for a regulated industry.
The focus of our regulatory bodies has been to keep the industry fragmented and has encouraged the maximum number of competitors in the domestic markets, failing to recognise the true global nature of our business. US network carriers have also failed to respond to competitive realities. The entry of the low-cost carriers and their ever-increasing market share across the United States, and price transparency as a result of the internet, combined to force fares in the United States down some 50% lower than they were 25 years ago, adjusted for inflation.
Three years ago, United started on a path of confronting the issues that I have described and confronting our ability to attract financing, and, ultimately, to be a company with a future. United”s restructuring while in Chapter 11 has been a difficult experience, and a very different one. The opportunity to restructure a company in Chapter 11 is available to every industry in the United States. This is not an airline phenomenon. In fact, far from being a safe harbour, providing protection from competition, the facts tell a very different story. Out of the 166 airline bankruptcy filings since 1978, only two passenger and one cargo carrier have successfully restructured and exited as successful businesses. This is far from safe harbour.
Of the 15 largest US carriers in 1980, five survive today. Two, my competitors, have just entered Chapter 11. This is somewhat in contrast with Europe, where 11 of the 15 largest carriers operating in 1980 remain with us today.
There is no free ride in Chapter 11; it has proven to be a very effective tool for exiting the market.
In contrast, carriers in the EU have the opportunity for repeated infusions of state aid, with no meaningful market tested plan for restructuring. All Chapter 11 does is provide a company with the opportunity to restructure.
The work is complicated, it is distracting, and it is expensive. The cost to United in legal fees alone as of last June was over $250 million. We have lowered our unit costs, excluding fuel, by 20% across the board, which, combined with reducing the size of United Airlines, will result in a $7 billion average annual savings through 2010. We have increased our productivity by 27%, eliminating duplication, waste and inefficiencies, with much more yet to do. Fleet costs were renegotiated to achieve unprecedented savings of some $850 million per annum. Contracts with our franchise or express carriers are among the most competitive in the business in the US.
The second and more meaningful track of work, improving the day-to-day operation of the airlines and focusing on our customers, belonged to the vast majority of the employees of the company rather than the restructuring. We have made decisions, starting with our customers, to provide products and services that they want and value at prices they are willing to pay across the spectrum of our network. Our relationships with our Star Alliance partners, including bmi in the UK, are an important part of how we differentiate ourselves from our competitors. We have strengthened the domestic network for the company and our global connectivity because it is hugely valued by our worldwide customers. Today, it might surprise you to know that we serve more cities worldwide and we fly more domestic routes than we did in 2002. We have reduced capacity in the US and on international routes that no longer represented the best use of aircraft.
There is another popular myth that I understand was perpetuated recently that Chapter 11 encourages airlines to dump excess capacity across the Atlantic. To the contrary, since November 2002, when we filed for the protection of the court, United has reduced flights to Europe by some 8% compared to Continental”s growth of 30%. But, we intend to stay around a lot longer.