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UAL: Ted Better Off Dead

CHARLOTTE, N.C -- Give Ted credit. Most likely it was doomed from the time it began flying in 2004, yet it lasted far longer than expected.

United Airlines, a unit of UAL (symbol), said Wednesday it will close Ted, a low-fare airline within an airline, in 2009 and reconfigure its 56 A320 aircraft with first-class seats. Ted serves leisure destinations from Denver and other United hubs.

Oddly, Ted started after a series of similar experiments in the airline industry had failed.

"There were many examples preceding Ted where split-personality airlines simply didn't work," says aviation consultant Scott Hamilton. "Despite this history, UAL management thought they had a better mousetrap."

Like its predecessors, Ted represented a legacy carrier's effort to mimic Southwest (LUV - Get Report) and other low-cost competitors by starting a unit with lower fares, lower costs, all-coach seating and quicker turns.

In every case, it turned out to be impossible to strip out enough of the costs from the legacy model to compete effectively with low-fare carriers. One indication of this syndrome was that the legacy carriers almost invariably refused to break out financial results for their low-fare operations.

To be sure, Ted was part of a second round of experimentation, along with Song by Delta (DAL - Get Report). The first round generally involved older aircraft and uninspired marketing, while Song and Ted focused on a hip image and occasional amenities. Ted even used relatively new A320 aircraft.

Nevertheless, the basic problem did not go away, and most experts were sour on Ted from the start. "When it started, I said that in five years it would be a footnote in the financial statement," says aviation consultant Robert Mann. "It may have taken a little longer, but the result was the same.
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LCC $0.00 0.00%
DAL $41.43 -3.47%
JBLU $19.33 -3.01%
LUV $41.66 -3.43%
UAL $45.55 -3.35%


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