United Airlines announced a new push today to win back business travelers who have been leaving the carrier in droves for the competition. United will have to do more than plead to get these corporate accounts back–
Is it going to be too little, too late?
As United Airlines officials discussed fourth quarter financial results with skeptical analysts today, they pleaded with corporate accounts to return to the fold, arguing that the airline has left its operational woes of the summer in the rear-view mirror.
That invitation occurred as the airline revealed it trimmed its senior officer ranks by 7% in December, and plans to reduce management and administrative staff by 6% starting in February.
CEO Jeff Smisek, conceding that corporate customers “took a detour,” argued that the airline has momentum, and will win back straying business travelers.
United Airlines is still disconnected from reality, even if the carrier is taking steps to improve its lot among U.S. legacy carriers.
The root of the problem is not a bloated white-collar workforce, but the attitude of the white-collar work force, an attitude that has sapped front-line morale and alienated long-term customers. United is fond of saying there is light at the end of the tunnel, but as we near the one year anniversary of Continental-United integration, the carrier is still frankly in disarray.
And that makes a difference to the business traveler.
United is welcome to start a race to the bottom by lowering prices for new corporate contracts, but it has four things working against it. First, American–now lean and mean as it readies itself to emerge from bankruptcy–is not going to go down without a fight. If United adds additional corporate incentives, chances are AA will too. And AA has done well at picking off business from United. My brother’s accounting firm switched from United to American this year as the preferred carrier and AA, it seems to me, has more room to maneuver than does United.
Second, selling more specially-discounted first class fares to get the corporate traveler up front coupled with United’s opaque policy of selling upgrades will further alienate elites. Gary has made this point numerous times and I will underscore it here–elites who are not forced by corporate travel policy to fly United but opt to by choice, even if it requires a bit more money or an extra connection, will not tolerate a program that disparages their business. While corporate travelers are “stuck” flying United, if voluntary elites are antagonized, United stands to lose more than gain.
But it is not that simple. I fly over 150K miles on United each year and I sit next to corporate travelers all the time. They are elite too and they notice what is going on. There is the myth, I think, that corporate road warriors do not even know what is going on–they just fly on the airline their company puts them on. In my experience, that is often not the case. Elite and corporate travelers are often one and the same, so when United weakens elite benefits in order to woo corporate travelers, the end result is actually a wash.
Third, United’s domestic product stinks. I’m sorry–I’ve flown the competition and the differences are stark. First, wi-fi. Delta, American, and US Airways have it, United does not, with the exception of a few aircraft. This will be changing, Jeff Smisek promises us, but it will still take at least two years for United to catch up to the competition. A five-hour plane ride is a long time to be disconnected and United does not even come close to the competition in this respect. And that’s not the only difference between United and the competition. Food is not as good, onboard service is hit or miss, and customer service at the airport can be horrendous (when a simple ticket re-issue often takes 20-30 minutes).
Fourth, punctuality matters. UA has improved its on-time performance of late, but still has a very poor record. Business travelers take note of that. Sooner or later there reaches a point in which people give up on United–I see it everyday on Flyertalk. The culmination of all the post-merger problems has pushed away many customers and corporate travel folks often do have more discretion than awarding company travel to the lowest bidder.
United can dig their way out of it, but the problem will not be solved simply through temporary discounts and a couple employee training sessions. Instead, it will come though a culture change in the company in which United re-evaluates how it thinks about customers and realigns its priorities. The goal should not be to milk the most money out of each consumer on a transactional basis but build the sort of loyalty that will pay off even more in the long run. Loyalty can be won by the investments United is making in its hard and soft products now, but must also come from the top down, pursuing an attitude that each customer matters and putting that attitude into practice through policies like booking passengers who misconnect on other airlines. I call it the Macy’s business model (from The Miracle on 34th Street) and I think United rebooking a passenger on another airline during irr/ops goes a long way to show that customer is valued…especially when it can often save them several hours of waiting.
But that’s just one example. Bottom line, the demographic United is targeting will not be suckered into staying in an abusive relationship through a temporary reprieve on prices. United must show that it truly cares about them, not just their money. The key, of course, is doing both simultaneously, which I am not confident United can find a way to figure out based on their performance over the last year.
To me, one of the most important things on international business travel when booking is certainty of upgrading. If I don’t know if I will upgrade at the time I book (and with UA I usually don’t know or have learned to expect I won’t get an upgrade), then I will book with someone else if I can get an upgrade somehow (whether using miles to upgrade or otherwise). For example, I sometimes use miles to get AF and ANA business class, paying often hefty fees (which the employer will pay up to the price of an economy ticket), in preference to purchasing an economy from UA and waitlisting, hoping to upgrade at T-24 or something with miles or status. I’d even be willing to pay more in miles or fees, if I could have that upgrade go through up front. And I’d be willing to pay double or more the economy ticket class to book in business in the first place (and have done that on UA when available), but the four-or-five times economy pricepoints are beyond my reach.
From your lips to Jeff Smisek’s ears. Quite frankly, this post is spot on, but similar grips have been made to Smisek over the past year, and what change has occurred? Sure some email went out to CSRs about handling customers in IROPs which works in the customer’s favor, but catering is abysmal, crewmembers surly, and Smisek doesn’t lead by example to squash these issues.
Wonder how much more money United will have to hemorrhage before the board of directors has a chit chat with him. Your blog post is one of numerous stating the issues with United, and I’d be remiss if I thought United didn’t read these. Yet sadly, no change is really implemented. Just some more diatribe about how they’ll win back HVFs because of the ‘route network’ and ‘on time performance.’ There’s more to an airline than those two metrics alone.
The really unfortunate thing is that the choice of inferior systems (including SHARES) is going to really handicap their ability to recover from this, even if they want to. While I suspect that SHARES could be programed to offer fewer cheap F buy ups to non-elites or stop prioritizing cheap government Y-fares over 1Ks on H/M-Fares, the system’s ability to work as desired under regular conditions is highly questionable already.
Of course even that assumes that they’ve realized it is more than operational performance which has hurt them — they just don’t realize that they’ve seriously devalued their product across the board. (Or they do, and just hope that people haven’t noticed).
If you look at the call, its still more of the same: “we have a great route network and our on-time performance isn’t as bad as it was; business travelers HAVE to come back to us”.
Good report on UAL, concur. Speaking of American: I was on a USAir flight on 25 Jan. and spoke with a flight attendant enroute; she said the USAir-AA merger is going to happen with announcement to come within two weeks. For what it’s worth.
Every business flyer may have a different viewpoint in that each of us knows what we know, while UA is looking at all of its customers, but I’d be surprised if that many companies require flights with just one carrier if available, and if they did, I’m not sure UA would be that choice for the performance reasons. In my experience, those doing international travel can fly what they want, within their travel budgets – they look first at times and direct flights, then at the cost of business class, then if that seems excessive, the ability to get upgrades or even book with miles. I don’t have a problem with UA tryng to maximize their revenues. They are a business. But I don’t think they are doing that when neither miles/pay to upgrade or elite status seem to be able to get you into UA business class with any certainty. That just drives people like me to another carrier that offers certainty. For us middle-aged business travelers, it is just too important not to be in economy on a long-haul flight.
If incidents like this continue, United will continue to lose:
http://www.flyertalk.com/forum/united-mileageplus-consolidated/1433144-another-rogue-ga-ewr-how-avoid-being-screwed.html
Just listened to the earnings call and Jeff Smisek sounds like the classic CEO of a failed enterprise. Things are really great, getting better, people love United, can’t get enough of it, onward and upward, semper fi, etc, E Pluribus Unum, etc. After 1 million miles with Continental I absolutely loathe everything about UAL- especially the claims to greatneness and perpetual improvement. The company is fundamentally sleazy, dishonest and ridiculously overpriced. It houses under one operation everything that is hateable about American business. You-the American public-hate them and they solider on hoping their trump card, no competition, will see them through. As it tries to shrink its way to growth it will soon repace its Dreamliner with Cessna’s. Also I think UAL is playing a role in squashing candid criticisms from its many haters-Notice a real censorship of on line chat sites sponsored by UAL.
FT Post of the year: http://www.flyertalk.com/forum/20147473-post80.html
That about sums it up!
Matthew,
Your post hit the nail on the head. EOD did a good job as well as Smisek sounds like the captain of a sinking ship trying to smooth over the panic that’s happening. AA poached at the right time. Given the over-entitled comments, the wounds are fairly deep and Smisek refuses to acknowledge it.
The bottom line is now showing them what they’ve done.
Will they do anything about it? we’ll see but i believe it’s too late. Once people shift loyalty, it’s hard to win it back especially after they got burned.
UA is in big trouble. The issue is that the leadership team has from the start assumed that they would be the biggest and most powerful airline in the world, therefore, the customer mattered less. And all the policies that have been implemented since have effectively communicated exactly that. Whether it is the TODs (“I bet our elites are dumb enough not to notice that we are selling upgrades out from underneath them.”), the choice of reservation system (“Who cares if an elite wants to be able to quickly get reaccommodated in case of IRROPS or changing plans…we already have their money.”) or any of the other policies that have been put in place, everything has been to the detriment of the customers.
And the customers noticed. And unlike what FLIBS and his folks thought, customers have not just been taking it in the shorts without putting up a fight. It is telling that independent business travelers have booked away from UA, as have large corporations. What that leaves UA with are the group of fliers who have to fly UA because they are the only ones to serve a particular destination, or because they have the lowest price.
Hence the vastly underperforming PRASM growth. I predicted this a long time ago on FT. From a consumer behavior point of view, this was predictable. When you remove or make harder virtually any aspect of your airline for those fliers who contribute most of the revenue, bad things will follow. Crappy upgrade rates and GPUs not clearing on intl itins? Byebye Mr Businesstraveler. Botched IRROPS and unwillingness to reaccommodate? Byebye Mr Businesstraveler. 75% RDM bonus for traveling 99k/year? You get the idea.
The problem is that not only is UA losing the immediate revenue from folks not flying them, but it is also losing the revenue from folks buying only the cheapest fares because they expect to get hosed anyway. And they are losing the ancillary travel they would have gotten in the past when elites would put spouses and kids on UA. And they are losing the revenue streams like credit cards and UC memberships that folks who jump ship n longer need.
And in todays age, bad news travels faster than it used to due to Facebook, Twitter etc. UAs disdain formits best customers was not only obvious, but it was put out into the open through social media, and everyone knows to avoid UA for certain reasons or others.
A true turnaround at this point will require a change in leadership, a change in the corporate culture, and an investment in the tools it will take to get hvfs back. Bring back Apollo (or make Shares work more like it), bring back the old MP elite tiers, requirements, and benefits, immediately cease TODs, drop the W fare requirement on GPUs, bring back old RDM bonus levels, and improve the general customer service experience. Until a large part of these changes happen, UA will continue to see its yields lag.
Lastly, there is the issue of RJ-ification. In certain markets like AUS (my home), UA is going nearly all RJ. If we need to connect in IAH, I refuse to book a flight on UA because I have to trudge from Terminal B to E/C and that is not a good or smooth experience and increases the likelihood of misconnects. They are losing tons of business in AUS for this reason alone. I am sure they will assume that cutting further is the answer.
This management team does’t get it.
Thanks for the great post. In just a few paragraphs you’ve summed up a year’s worth of all the (legit) complaints from the UA forum in Flyertalk. It amazes me how blind Jeff and his team seem to be towards their lack of respect for repeat business.
I feel that there is a cultural problem at United whereby bad news does not flow up very effectively, and management isn’t effective at listening to customers or line employees. Management only hears what they want to hear. That’s how decisions get made to remove pillows from first class cabins, and undrinkable cheap coffee becomes standard. And computer systems are selected which while they have lower (or zero) licensing fees, instead increase labor costs while driving away customers
This post is dead-on. You nailed it. Good work.
Well written.
I have flown both UA and AA and it is night and day. I flew the day before New Years Eve and the staff was very rude not only to me but to all passengers. The flight attendant on the flight stated she had been drinking the night before, had a rough night and couldn’t believe she had to work. This was out of IAD in VA. Then on the flight she preceded to snap at 3 customers for absolutely no reason except her hangover. It was horrible. We figured this was a one time occurrence. On the flight back we got the airport early and waited at the gate for about 2 hours wanted to make sure we did not miss the flight. There was a UA employee at the counter and several of the clients who were on the plane came up to ask questions and each time she said we are closed can’t you see? We open at 11:30 a.m. at which time we can help you. At approximately 11:40 a flight attendant and the UA employee are talking by the gate door and the flight attendant said, this is why I don’t like to go to the gate early because everyone starts coming up to annoy you so I just set at another gate until it is time. My husband and I were shocked wondering if we really were hearing this and people sitting around us could not believe it either. That was not all however when we got on the plane our seats were in the back of the plane and it was extremely hot. I asked the flight attendant if they were going to turn the air on and she replied that the air system on the plane was broken. That the pipe that brings the air to the back of the plane was broken in the middle and that to fix it they had to take the plane apart and that was just too costly. That it would be freezing for the front half of the plane to try to cool the back of the plane. I looked at my husband and said wow I hope that is the only thing that is broken. Needless to say I started doing research and saw all the changes that UA was making and saw posts like yours. I have to agree that the culture and plans have got to change otherwise between the horrible customer service and poor decisions with their top clients they wont make it.
Spot on! I switched to Delta. UAL management doesn’t get it. Its RJ swithch and downsizing plane sizes on long routes are a problem reducing fares will not overcome. Management acts as if it is managing a discount regional airline.