Armchair CEO: Your plan to fix UA

[bhmlurker]

WN makes money because:

1. fuel hedged at much lower price. that will go away in time.
2. fleet commonality by using only 737s. if legacies execute properly and do not go bankrupt, WN's ability to expand its business is capped within North and Central America.
3. no interline or alliance agreements. lower overhead.
4. no lounges, ticketing office, or foreign site/employees.

Back to the topic of how UA can be fixed. Since there are plenty of customers who do not fly WN, it's clear that market is segmented and legacies currently hold those customers. Re-making UA in the image of WN will only alter the business model to target a different market segment, and abandon what it has right now. It is questionable whether this approach will be more profitable than current strategy.

[aluminumdriver]

Originally Posted by SFOtoORD

So, after reading for weeks about the potential CO merger and then this idiotic US merger idea, I started to think about what my own standalone plan for UA would be (since that doesn't seem to be on Tilton's list). What would your plan for UA be? How would you help this airline increase revenue, reduce costs, and improve cash flow and unrestricted cash?

Here are a few of my ideas:

• Offer assets and ownership to LH at firesale prices. Get them to take a 25% stake. Put their leadership into key operational roles.
• Get rid of the maintenance facility ASAP.
• Get more aggressive with route reductions. Get rid of at least 45 737s. Consolidate regional flying on to bigger UX aircraft.
• Plead with Gordon Bethune to take the CEO role or even the Chairman role.
• Do an end around on AA, and get CO into *A. Drop US as a partner ASAP. I did see a quote from an unnamed CO exec saying they were enthused about the potential route map, but weren't sure there was enough cash to survive the next 18 months. Maybe an alliance makes a future agreement possible.

Thoughts?

1) MANAGEMENT MANAGEMENT MANAGEMENT is the key. Dump Tilton and all managers above mid-level. We dump the CEO but keep the same bad managers that make all the horrible decisions. You have to clean the whole house to start over. No golden parachutes.

2) Try and bring in a visionary manager such as Gordon Bethune who believes in taking care of employees and they will in turn take care of passengers. It's not about paying tons more money, but in treating them well and giving the employees the tools to succeed.

3) Reduce the reliance on UX, and bring the RJ's into the United mainline product with United pilots flying it. That way you have a seamless product with the professional EXPERIENCED pilots you desire. If you dump all the 737's, you are losing pilots with thousands of hours and years of experience to gain more MESA jets with 300 hour wonders. Not a good thing.

4) I don't think having a foreign carrier own 25% of United is the answer. United is well funded as it is right now, it just is run poorly. It's labor costs are the lowest in the industy among the major carriers, but it's non-labor costs are the highest. That is management. Correct that, you correct a lot of the problems.

5) TED is a good product for competing in the low fare markets with SWA and ATA. Sorry some of you don't like it, but if you want United to fly into these low fare markets they have to be competitive. At least on TED you have a movie, boxed snacks, and E+ versus SWA, ATA, or any other low fare carrier out there.

6) Spend money on United infrastructure. Our tugs are old, our planes are old, our offices, computers, etc...are all old and not being upgraded. Our computer system is like 1950's era software.

7) Spend money on reservations agents again IN THE USA!! There is nothing more irritating than calling United, having to get around the computer voice recognition system that can't tell the difference between Orlando and Honolulu, then you end up in India talking to "Bob" who you can't understand. How many customers does United lose just hanging up. Go back to using US CSR's working from home using their computers to do the reservations. I think the costs would be comparable when you look at the customers you save.

8) Have customer Service class that all front-line employees have to attend at least once. If someone is written up by customers more than 3 times, they have to attend another course. If they are written up 3 times more within the year, they could have some sort of recourse within the company to discipline this person. This would have to be worked with the union, not over the union.

9) Have Company wide station picnics once a year so that all employees get to know each other a little, break down the barriers between jobs, and start to work as a team again. United has fostered animosity between unions so as to keep them from working together against management. Thus, you don't have all the parts working together pulling on the same end of the rope. It is really amazing anything gets done at all.

10) I would set up a meeting with all the airline execs in DC with the TSA, FAA, and Congress to go over the inefficiencies of the system. How the TSA lacks in it's duties and the lack of a CREWPASS system. How the FAA is years behind in modernization and getting the air system ready for the next century. Congress involved in reducing the taxes airlines pay that equate to .45 of every dollar taken in. Name another industry that loses almost 50% of its revenue in taxes? If this country wants a successful airline system, it needs to fix the issues. De-regulation was good, but we are not de-regulated. The govt plays favorites with some, and lets others fall by the wayside. It lets airlines charge unrealistic fares so that they can drive competitors out of business before they go out (GO in Hawaii). I could go on but you get the point.

[GadgetFreak]

Its pretty simple really, at least in theory. Have better, more consistent customer service than your competitors. Read the threads on FT for any carrier. What do people complain about? I was just at a market research focus group for another carrier (yea I know I owe that forum a "focus group report" - working on it) and the biggest issues were inconsistent and or poor customer service. WN and JetBlue not only are cheaper than legacy carriers, they have better customer service.

Change the contracts for everyone who interact with customers but pilots to be performance based, rather then tenure based. Do random inspections with anonymous CS evaluation personnel, pay attention to customer comments, good an bad, and encourage them. Get rid of employees who refuse to understand that they are in a CS business and for the most part the only way they are different from their competitors is in CS. Possibly, although I have misgivings about this, rate all employees each year, with a heavy component of CS quality in the evaluation, and fire the bottom 5% or 10% every year. Add similar performance metrics to the contracts of non-CS personnel.

[chitownflyer]

Firstly, the CEO needs to focus on running and improving the airline NOT simply trying to merge the airline to exercise his stock options. Order some new and more fuel efficient planes like the 787 and the 747-800. United has already taken some steps to improve corporate managment and leadership by hiring Mr. Atkinson and Ms. Higgins(coming from a Disney background) to run the customer experience division, and Disney's reputation for good customer service from Mickey is highly regarded.

[DogHead]

Originally Posted by chitownflyer

... United has already taken some steps to improve corporate managment and leadership by hiring Mr. Atkinson ...

Mr Atkinson is with United since UA came to Europe in 1990's.
He was responsible for running UK and later involved with TATL operations, and I have nothing but praise for his skills and vision.
UA then used to be a great international airline, with understanding of foreign markets. Its UK team was just superb and from what I know from friends in other EU countries, it was the case there too.
I think he later joined WHQ and was responsible for all international operations and alliances.
Now UA is just a shadow of itself and international operations are not up to other carriers standards. MP also became very unfriendly towards international members, in very sharp contrast to what I remember from pre-BK and even BK times.
I don't know what happened and why Mr Atkinson's skills and experience are no longer utilised where they should be - in international operations.
Maybe he became disillusioned and disinterested and just "doing his time" until collecting pension or pay-off? Maybe he became marginalized and his voice is no longer heard? Or maybe he's just a right man at the wrong job and he should get back to international operations? I don't know, but I know that nowadays I'm just not able to praise Mr Atkinson as I used to.

[spin88]

Originally Posted by bhmlurker

WN makes money because:

1. fuel hedged at much lower price. that will go away in time.
2. fleet commonality by using only 737s. if legacies execute properly and do not go bankrupt, WN's ability to expand its business is capped within North and Central America.
3. no interline or alliance agreements. lower overhead.
4. no lounges, ticketing office, or foreign site/employees.

Back to the topic of how UA can be fixed. Since there are plenty of customers who do not fly WN, it's clear that market is segmented and legacies currently hold those customers. Re-making UA in the image of WN will only alter the business model to target a different market segment, and abandon what it has right now. It is questionable whether this approach will be more profitable than current strategy.

I totally agree with this, and would only add that WN does not run a hub and spoke system or fly major city pairs. As such its model - which keeps down costs - will always have a limit to it, most FFers will not fly them unless they live in a secondary market or have a company which requires it. If WN tied to become a more full service airline they loose their advantage, which is a great one, but ultimately a nitch. Note for e.g. that they "bought" 25% of ATA, but did not want to take over them entirely due to fleet issues, and rather than absorbing the 757s they had (useful for Hawaii/longer routes) gave it all up.

As to "fixing" UA, I actually think Tilton for the hand he was given has significantly improved the product. E+, new routes, new F and C product, etc. What UA does not have is lots of money or good credit, and short of the DUMB DUMB 250M hand out, I think Tilton has done about as well as he could. They lacked the balance sheet to hedge even if they wanted to.

What UA needs long term (next two years) is new midrange midsized aircraft to replace the aging 752 and 763, and to replace (or give up the capacity) on the 733 and 735s. The problem is credit and UA just may have to run the risk and order new planes unsure how to pay for them, the OP issues are getting out of hand, and we all know it. THIS IS EXPENSIVE. The problem is the 787 is delayed, not sure if UA can get slots, and perhaps they need to look at buying some used 752 or 753, if they can find them (not many without high hours on them). Altnerative is to buy A332 or A333, but thats a short term move that will not help with long term fuel prices, and introduces costs. NW did this out of absolute need, and UA may be there as well. UA is in a really bad way, and they had better beat AA to the 787, Boeing only has some many slots they can add which are early.

Short Term UA needs to use better yeild management re Refundable and Non-refundable and F fares. I hated what CO does with upgrades - which is price a comp upgrade Y about 200 to 300 over a refundable fare, and a F about 150 more than the Y - as it made comp upgrades a joke (and returned me to UA), but UA needs the same. I change my flights a lot, and would buy refundable tickets but the spread is rediculous. E.g. I bought a ticket to PHX from SFO three days before the flight, $420 non-refundable, $1120 refundable. Get real. No amount of increase in the change fee will get me to buy refundable tickets. Better to simplify the fare structures to get more people to just buy refundable fares, and make it so that elites like me will buy a full Y to get a complementary upgrade (which we are promised but a full Y really does not exits, at least out of SFO). CO does this, and I am sure they found they get more revenue from it.

The truth is that most travelers have a policy to buy Coach, but inside coach its hard for anyone to check, so there is a lot of discression which can result in higher yields when e.g. it avoids the hastle of change fees and or a possible upgrade. UAs crazy fare structure makes this non rewarding, and the result is that I just buy whatever is cheapest on UA, something I don't do on CO and CO gets more revenue from me as a result.

[seagar]

Originally Posted by aluminumdriver

1) MANAGEMENT MANAGEMENT MANAGEMENT is the key.... 5) TED is a good product for competing in the low fare markets with SWA and ATA. Sorry some of you don't like it, but if you want United to fly into these low fare markets they have to be competitive. At least on TED you have a movie, boxed snacks, and E+ versus SWA, ATA, or any other low fare carrier out there.

Good post and appreciate the perspective you offer. Today UAL has no management, they might as well have hired M&A execs.

I must disagree with the TED point. Many of us do fly these markets for business. How is Ted competing with WN or ATA out of ORD-I won't drive to Midway for WN. If UAL really believes this then I challenge your company to fly a TED and mainline 30 minutes apart and even charge a minimum of 20% more for mainline. I would bet you a segment with channel 9 on that the mainlines out of ORD will sellout first whether to TPA, ORD, LAS, PHX....

[tagandrelease3]

I would be happy to lead the firm / consolidated company into the next millennium. Have plenty of experience as a passenger. Give me a call. Always happy to help

[aluminumdriver]

Originally Posted by seagar

Good post and appreciate the perspective you offer. Today UAL has no management, they might as well have hired M&A execs.

I must disagree with the TED point. Many of us do fly these markets for business. How is Ted competing with WN or ATA out of ORD-I won't drive to Midway for WN. If UAL really believes this then I challenge your company to fly a TED and mainline 30 minutes apart and even charge a minimum of 20% more for mainline. I would bet you a segment with channel 9 on that the mainlines out of ORD will sellout first whether to TPA, ORD, LAS, PHX....

Unfortunately, I have no way of making this happen since I'm not management and trying out your bet. Just realize that TED came about so that we could fill our planes to leisure destinations and make a profit compared to before.

I remember before TED, we were almost ceading Orlando, Tampa, Jacksonville, Vegas, and other low fare destinations. At least with TED we are flying more mainline aircraft into those markets. I have heard rumor they might put FC seats back into TED, but until I see it, nothing matters are United.

[DHAST]

Originally Posted by aluminumdriver

Unfortunately, I have no way of making this happen since I'm not management and trying out your bet. Just realize that TED came about so that we could fill our planes to leisure destinations and make a profit compared to before.

Ok, but who was that dumb ____ at WHQ who opted to put 156 seats in TED A320's? Mike Boyd calculating that for the fourth FA to be worth it, TED has to fly at 97% LF. I have no idea what he used for his baseline assumptions, but I tend to agree.... that TED ain't flyin' full enough to make that extra FA worth it. Put some F seats in there, and cap that thing at 150 seats.

[aluminumdriver]

Originally Posted by DHAST

Ok, but who was that dumb ____ at WHQ who opted to put 156 seats in TED A320's? Mike Boyd calculating that for the fourth FA to be worth it, TED has to fly at 97% LF. I have no idea what he used for his baseline assumptions, but I tend to agree.... that TED ain't flyin' full enough to make that extra FA worth it. Put some F seats in there, and cap that thing at 150 seats.

Could be something worth looking at, it United could get a FC fare out of the route. I just finished a trip with 6 TED legs and not one open seat on my flights, so I think they fly pretty full.

[FCfree]

Sorry, I still do not believe that raising prices and fees necessarily results in higher revenues. This is the same concept as the federal government raising taxes to increase revenue.

If the federal gov't sets the tax rate at 100%, taxes collected is zero, as there will be no economic activity to tax, since people won't work if they don't profit from it. If the federal gov't sets the tax rate at 0%, there will be lots of economic activity but taxes collected are also zero. So the magic is to find the tax rate which generates the most revenue. That value is NOT necessarily 50%.

The same is true with an airline. Charge as much as possible, but there are limits where charging more reduces revenue. I believe that United is at that point.

United having higher prices and change fees chases business away from United. United used to fly 14 flights per day each way between Denver and Las Vegas. Now they only fly 8. Southwest flies the other 8. A lot of those people on Southwest would have flown United if Southwest wasn't there. Yet, they have a choice. Why do they choose Southwest? Better prices and no change fees. And, there are certainly more people that me where the change fee is such an annoying fact that it pushes me and others away from United. Sure, to some people it doesn't matter much.

As I write this, United wants $272.50 for June 15-20 DEN-LAS-DEN, United 1617 and 1478. Yet, comparable flight times on Southwest 537 and 3480 is only $198. Further, because of the lack of change fees, Southwest flights can be booked further out, rebooked if the prices go down and rebooked again if plans change. A person can "take the chance" booking with Southwest, knowing that they won't lose money if the plan doesn't work out. That can result in still lower real costs for flying Southwest. A person has to "wait-and-see" with United, trying to balance the time when purchase occurs against the ever rising price. It is this "before the flight" experience that makes doing business with United so unpleasant.

Now, for the true business traveler, who books on short notice, that may not be as much of a factor. And, in theory, those should be the high revenue passengers, the prized sales. Yet, apparently based on profits, some of those prized sales are going to Southwest. And, maybe it is those less prized vacation travelers, who are more price sensitive, who actually are the bread-and-butter of the airline? The concept of keeping the prized business passengers sounds so good in theory, yet the profits at Southwest speak for themselves.

Let's face it. People are not flying Southwest for the in-flight entertainment system (although they may be soon, if Southwest gets the wireless internet connection). Price is a driving factor for some people. If United can only eek out a profit by charging $272 when Southwest can profit at $198, therein lies the problem.

I don't see how United can be paying their A-320 TED pilots that much more than Southwest is paying their 737 pilots. Even if United is paying them $50 per pilot hour more than Southwest, on a 2 hour flight, that is $400 more in expense (round trip). Divide that by 156 seats and that is only $2.56 more per round trip ticket. Where is the other $71.44 per ticket going? (272 - 198 - 2.56).

Maybe you could argue that it is better to fly only 8 flights per day and charge $272 or more for each ticket than it is to fly 14-16 and have to charge $198 per ticket. The argument would be to give the "crumbs" to Southwest and keep those that will pay more over at United. That would be a great idea, but in practice, we see it doesn't work. Southwest made money, United lost money. And remember, in addition to the extra $74 per ticket, United picked up some change fees that Southwest did not. Although, Southwest picked up some fare differences that United did not, because they got the customer in the first place by offering a ticket without change fees. Remember, if Southwest sells a ticket for $80 one way and later the person changes his mind and has to upgrade to a $200 ticket, there is an extra $120 -- almost as good as the change fee. And, Southwest actually gets the revenue because they made the sale in the first place. Sure, if the same happens on United, they *might* get the $120 fare difference AND the $150 change fee. But, you've got to get the customer before you get the chance at the added fees.

Sure, United has made money in some quarters since coming out of bankruptcy. But, Southwest has made more money. And, Southwest's profit stream is more stable (over 34 years of making a profit every quarter). Is it better to make $400 million in profits a year by making $100 million per quarter or by making $300 million for three quarters and then lose $500 million in one quarter? Both are the same annual profits, but I'd rather make a stable profit.

Now, maybe I'm wrong and the change fees really do generate more business than they chase away. One way that United could test this is to drop the change fees for TED only, since TED is supposed to be designed to compete with the LCC's. Try that for a year and see if it wins back any business from Southwest. Because, before United can try to nickel-and-dime people (with the $25 fee for the second bag, for example) they first have to actually sell a ticket to the person.

United has let the business slip away by not acting fast when Southwest came to Denver. People, like myself, that have gone over to Southwest are not going to be easily brought back. Southwest's A-list is a strong competitor to United's Premier. They would probably have to comp me Premier in addition to dropping the change fees at this point to get me back.

Both frequent flyer programs have their advantages. Mileage Plus promises to take you to far away lands (although seat availability at the saver rate to Europe and Australia is very limited). Rapid Rewards, on the other hand, will give you a free domestic ticket that has been proven easy to use for as little as 5,000 BIS miles with car rentals. (DEN-LAS is 629 miles each way. Do that 4 round trips and that is 629 x 2 x 4 = 5,032 miles). Four round trips is 8 RR credits. Rent a car at Hertz and get QUAD credit or 2 RR credits per rental. Rent a car along with each round trip and that is 8 more RR credits. 8 + 8 = 16 = one domestic RR reward.

The snacks are better over on Southwest compared to United (for a short 2 hour flight) You can have a full can of soda, without the dirty look from the FA's over at Southwest. Southwest gives away a lot of drink coupons. About the only thing I miss from United is Channel 9 -- but that is not worth $74 per round trip, just to hear from the control tower what I already know (United 1617, you are number 2 [in so many ways] behind a Southwest 737).

Cerrtainly, it is a dangerous thing to tinker with a business model. Increasing prices logically should result in more revenue. But, that simply isn't true. Increasing prices may chase away business. Having that flexibility of no change fees certainly has for me, caused me to shift my business from United to Southwest. I can't be the only one.

[ksandness]

1. Get rid of the ICC. The irritation factor outweighs any cost-cutting advantage.

2. Since all U.S. legacies offer crummy service in coach, how about trying to compete on quality? Charge more but offer more as well. Yes, the conventional wisdom is that passengers care only about price, but that's because no one is willing to pay more than necessary to sit in a child-sized seat and get 1/4 of a can of Coke and three pretzels from an FA who is in a bad mood. For example, make E+ the standard, provide real meals at mealtime (even good-quality deli sandwiches), give a whole can of soda, and charge accordingly. Elite seating would provide free booze and power outlets in addition. Publicize this like crazy. It may not attract the "let's go visit grandma" flyers, but I bet it would attract frequent flyers.

3. I've priced transoceanic C, and it costs as much as or more than C on other airlines, but from what I've seen walking through the cabin, it's not up to the quality of C on other airlines. If UA wants more paid C and F, as opposed to upgraders, then it should either lower the prices or raise the quality.

4. No golden parachutes for executives, no bonuses for executives unless the airline has been profitable for five years running (i.e. on a long-term sound footing) AND the employees have been given raises. Giving bonuses to the top executives while nickel and diming the frontline employees is a recipe for poor morale and resentment.

[SFOtoORD]

Originally Posted by aluminumdriver

1) MANAGEMENT MANAGEMENT MANAGEMENT is the key. Dump Tilton and all managers above mid-level. We dump the CEO but keep the same bad managers that make all the horrible decisions. You have to clean the whole house to start over. No golden parachutes.

I hate to say it, but every time UA has had issues over the last 15-20 years the first answer always seems to be to dump management. I know Tilton is an unpopular guy, but who is to say that the next guy will be any better. I could see another labor refrain to dump management again in 3-4 years. Seems like an easy solution every time.

4) I don't think having a foreign carrier own 25% of United is the answer. United is well funded as it is right now, it just is run poorly. It's labor costs are the lowest in the industy among the major carriers, but it's non-labor costs are the highest. That is management. Correct that, you correct a lot of the problems.

Then why did UA need to amend their loan agreements? I think UA needs significant new influxes of capital given the loses they are about to sustain in the next couple quarters.

6) Spend money on United infrastructure. Our tugs are old, our planes are old, our offices, computers, etc...are all old and not being upgraded. Our computer system is like 1950's era software.

I'm sure they do need updating, but what are the revenue enhancements or cost savings associated with those things? Doesn't seem like it would help w/the current crunch.

7) Spend money on reservations agents again IN THE USA!! There is nothing more irritating than calling United, having to get around the computer voice recognition system that can't tell the difference between Orlando and Honolulu, then you end up in India talking to "Bob" who you can't understand. How many customers does United lose just hanging up. Go back to using US CSR's working from home using their computers to do the reservations. I think the costs would be comparable when you look at the customers you save.

Same as above.

10) I would set up a meeting with all the airline execs in DC with the TSA, FAA, and Congress to go over the inefficiencies of the system. How the TSA lacks in it's duties and the lack of a CREWPASS system. How the FAA is years behind in modernization and getting the air system ready for the next century. Congress involved in reducing the taxes airlines pay that equate to .45 of every dollar taken in. Name another industry that loses almost 50% of its revenue in taxes? If this country wants a successful airline system, it needs to fix the issues. De-regulation was good, but we are not de-regulated. The govt plays favorites with some, and lets others fall by the wayside. It lets airlines charge unrealistic fares so that they can drive competitors out of business before they go out (GO in Hawaii). I could go on but you get the point.

Agree that progress needs to happen on this front, but other than getting aggressive with tax situation all of this is long-term industry wide stuff. I would imagine the airlines have a lobbying group who would handle most of it.

[nsx]

Originally Posted by FCfree

Now, maybe I'm wrong and the change fees really do generate more business than they chase away. One way that United could test this is to drop the change fees for TED only, since TED is supposed to be designed to compete with the LCC's. Try that for a year and see if it wins back any business from Southwest.

Shuttle by United tried this on routes where they competed with Southwest.

United has let the business slip away by not acting fast when Southwest came to Denver. People, like myself, that have gone over to Southwest are not going to be easily brought back.

Southwest is a bit of an acquired taste: You have to learn a new system, and it takes time to appreciate its advantages. For example, open seating gets me an empty middle seat 90% of the time because I know how to work the system, e.g. which middles tend to fill last (rows 13-17) and how to adjust seat selection based on load shown on the boarding screen.