UAL: Ted Better Off Dead

United Airlines will cease its low-fare 'airline within an airline' in 2009.
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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



, 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


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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


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. 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.

"Ted never had a significantly different cost structure, and it was probably a drag on the markets where it was deployed," Mann says. "Other than a quirky branding campaign, United never really did anything with it."

In the 1990s, legacy carriers were intensely battling the impact of low-fare carriers and conceived the idea of trying to match them.

First came Continental Lite, which began flying in 1993, outfitted with airplanes from


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closed Denver hub.

Cal Lite had an impressive list of underserved airports, including Jacksonville, Fla., later claimed by Southwest, and Greensboro, N.C., later claimed by



. But plagued by dreadful operations, it down shut down in 1995, soon after Gordon Bethune became CEO. He pegged its losses at $140 million.

In 1994, United started Shuttle by United, flying 737s on short-haul West Coast routes. "U2," as it was called, kept its first class and had some success in reducing labor rates but lost some of its advantage to delays at congested airports. It shut down in 2001.

In 1996, Delta started Delta Express, flying leisure routes out of Orlando, Fla. It mimicked Southwest, flying 737-200s with all-coach seating, no entertainment and no meals. In 2003, Delta Express ceased, as Delta started Song, which flew 757s.

This time, the model was


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, with leather seats, free personal entertainment systems at every seat and a hip attitude that included designer uniforms for flight crews. But Song folded in 2006.

US Airways


, meanwhile, started MetroJet in 1998, flying 737-200s with no frills on point-to-point routes. The operation lacked focus in its route selection and used inefficient aircraft; the only labor-cost concessions came from pilots. US Airways closed MetroJet shortly after the Sept. 11 attacks.

Perhaps, in the end, the key question should be: Did American Airlines know something that others did not? The



unit never joined the pack to create a separate, low-cost operating unit, periodically expressing the view that the model didn't make sense, because it diluted revenue while providing little in the way of savings.