Originally Posted by
5khours
UA has a lot of different kinds of customers: employees working for companies with generous travel policies, ones at companies with miserly travel policies, government employees, people like me flying on their own nickel, business travelers, leisure travelers, kettles, etc. plus those who fly mostly domestic versus those who fly international.
The trick to running an airline successfully is maximizing revenue and profitability out of each of those groups. Loyalty and customer satisfaction is a big part of the formula, and clearly there are some tradeoffs between these groups and between profitability and customer satisfaction.
This much I think management understands. Execution is the difficult part and it requires a strong understanding of the different customer segments. It also requires intelligence to figure out good solutions where you keep your customers happy and also get them to spend more money. This is difficult but by no means impossible. The problem is that you need smart and competent management to do it. The fact that the CFO could make such a dumb statement suggests that management's competence/IQ is more in the area of pissing off customers and getting them to spend less money.
I also don't think management understands the impact of social media. In the old days you could sell off an asset (customer loyalty) and get a short term boost in profitability. Good for bonuses and stock prices. These days the investment analysts are likely to figure out this kind of scam and go sour on the company before your options vest.
Amen.
I must confess: the guy who started this post didn't just stumble on the UA webcast. I am an institutional investor (though I only dabble in airline stocks), and have attended the BofA/ML conference in the past (it has been an annual event for decades). I was stunned by the honesty and candor of Mr. Rainey's remarks, though he obviously didn't think his investor audience also consisted of 1Ks/GS. Sure investors are interested in ROIC and earnings & cash flow growth, but the key is on sustainability of those metrics. I have no doubt Mr. Rainey was speaking what he truely believes(/ed) about all Elite levels with his entitlement comment, with the possible exception of GS. As a numbers guy, it isn't hard to see why he feels that way. He looks at the world in static manner, assuming little change in customer behavior. If the average 1K spends $25K per year on 100K miles (just a SWAG), his/her 25 cents per mile is reduced pretty rapidly by CASM (fuel, labor, taxes, equipment depreciation, etc). Throw in the 10 GPU/RPUs of a 1K, which Mr. Rainey probably looks at as a huge "opportunity cost" of anywhere from $5,000 to $40,000 and it isn't hard to see how he assumes most 1Ks are "over entitled" or even unprofitable. Then, add in E+ for up to 8 people, dedicated phone lines, double miles, spouse benefits, etc. and we are costing the airline dearly! Only one problem. Static financial models don't always work well, even with fortress hubs!!
As a PMUA MM'er it is somehow comforting to see so many people who feel as duped as I do, unfortunately at the expense of showing the inexperience of Mr. Rainey who I'm sure is a great guy. 55,000 views in two days won't matter, even as the WSJ and USA Today take notice. Management will only react if they see that we live in a dynamic world, where you can't alway predict defection rates. If the financial crisis of the last few years proved anything, it showed that smart people that rely too much on historical data make very bad management decisions.
For me, if UA wants to move to a reverse auction model for upgrades, just say so and let me bid! However, loyalty that lasts exactly the length of one flight segment does not build a strong brand without an exceptional experience. Until something happens, I think I'll video conference a bit more.