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United CFO Rainey Implies Certain Elites were "Over Entitled".

United CFO Rainey Implies Certain Elites were "Over Entitled".

Old May 21, 2012, 9:45 pm
  #826  
 
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Why did you have to bring up coffee? No more Starbucks. Sorry i digress. I really like your analogy tho.



Well, say you always go to a deli on your way to work to buy lunch. The deli you choose always has free coffee - in fact, that's one reason why you choose that deli and not another one. One day new management comes in and says the free coffee is too expensive, now you have to start buying it. Yeah, maybe there was an "entitlement atmosphere," but in the absence of free coffee, the fact is that you'll stop going out of your way to buy your lunch at that particular deli unless there is some other very compelling reason to do so.

In my little parable, there isn't.[/QUOTE]
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Old May 21, 2012, 10:23 pm
  #827  
 
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Originally Posted by AADC10
Heavy maintenance has been farmed out to questionable facilities.
Mods - there is a lot of hyperbolic crap in this thread, but when an egregiously inflamatory comment like the above comes along, it should be deleted immediately...
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Old May 21, 2012, 10:26 pm
  #828  
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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.
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Old May 21, 2012, 10:27 pm
  #829  
 
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Second Blunder

I have not doubt that Rainey and his bean counters were behind the small ball attempt to shrink the globe.
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Old May 21, 2012, 10:30 pm
  #830  
 
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Originally Posted by snic


Well, say you always go to a deli on your way to work to buy lunch. The deli you choose always has free coffee - in fact, that's one reason why you choose that deli and not another one. One day new management comes in and says the free coffee is too expensive, now you have to start buying it. Yeah, maybe there was an "entitlement atmosphere," but in the absence of free coffee, the fact is that you'll stop going out of your way to buy your lunch at that particular deli unless there is some other very compelling reason to do so.

In my little parable, there isn't.
Exactly.
Everyone at BDL is hovering around the $400 ticket mark now. With the playing field leveled on price, and UA pissing off everyone royally, a demented computer system, zero trust in the organization.....I'm trying to think of a reason NOT to go to AA.
Sure it's all Eagle from BDL, but how is that different from the 50%+ UAX I was already doing? AA's computer system works, their staff aren't burnt out, their buy on board items look just as tasty and slightly cheaper.
Maybe when the hurricane quells I'll go back to UA.....or as AA cleans house and strengthens their network while UA's falls, maybe I'll just stay at AA?

Who knows....
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Old May 21, 2012, 10:35 pm
  #831  
 
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Originally Posted by dkc715
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.
Thanks for starting this thread and for your continued insightful analysis.

Minor point but the up to 8 people in E+ seating mystifies me. Why? Where did 8 come from? It is one of those rare seemingly excessive benefits - and i am sure it causes people like Mr Rainey to further ascribe "lost revenue" to elite program (for a benefit i would think is rarely used to that level...).
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Old May 21, 2012, 10:37 pm
  #832  
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Originally Posted by dkc715
...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.
....
it isn't hard to see how he assumes most 1Ks are "over entitled" or even unprofitable. .....
Since you were there, what makes you think it was 1Ks that were being referred to??
UA Insider and the quote in WSJ both seem to point the finger at Silvers as the "over entitled" group.

Originally Posted by johnru36
.. Minor point but the up to 8 people in E+ seating mystifies me. Why? Where did 8 come from? ....
The max number of passagners on a PNR is 9, so the elite + 8 max (for Plat/1K/GS).
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Old May 21, 2012, 10:47 pm
  #833  
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Originally Posted by WineCountryUA
Since you were there, what make you think it was 1Ks that were being referred to??
UA Insider and the quote in WSJ both seem to point the finger at Silvers as the "over entitled" group.

The max number of passagners on a PNR is 9, so the elite + 8 max (for Plat/1K/GS).
Hey -- not trying to be difficult, but I intentionally was vague as to my attendance on May 17th. These meetings are not attended by hundreds, so I'd rather be vague so I am not singled out. I will say I have attended at least a dozen of these in the past. Airlines, rails, etc. Great conference. As to if Mr. Rainey was speaking about 1k's, that is just my assumption based on everything we have both heard.
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Old May 21, 2012, 10:48 pm
  #834  
 
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I don't know if who he was referring to is actually relevant in the scheme of things. Is it appropriate to insult customers in that manner? I don't think so.

But perception is sometimes close to reality. We've all had a dilution of our benefits, with 1Ks (and yes, GS's) on upgrades and customer service specifically, Golds/Plats mileage, and Silvers bags and E+.

1K is the new silver, Silver is the new kettle, and kettle is the new GS with the ToDs.
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Old May 22, 2012, 3:04 am
  #835  
 
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Let's not make negative comments about the UAInsider folks. They have a presence here and have gone above and beyond to assist the members of the FT community.
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Old May 22, 2012, 3:25 am
  #836  
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I think it is the time to show the power of joint customers-shareholders.

For those of you who can cast a vote in the next annual shareholder meeting, I recommend you to vote against 07 for #1 and Against for #3.

Also - I urge you to write to the Board of Directors and move the Board to fire this "over-entitled" CFO.
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Old May 22, 2012, 3:52 am
  #837  
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With all of the changes recently, I am convinced that the new United has completely lost touch with the over-entitled elite business traveler.

As I see it, the frequent business traveler has a number of specific needs:
1. Compliance with corporate travel policies
2. Reduce or eliminate as much down time pre- and post-flight
3. Maximize productivity during flight
4. Minimize the disruption of business activities during irregular operations
5. Manage the physical impact of flying

There are many benefits that United provides or provided that were designed to meet those needs. A great example of this is Economy Plus. To me, the greatest advantage of E+ is the ability to work on a laptop even when the person in front of me decides to recline. In E-, this is impossible. For a four hour flight, that is the difference between four hours of productivity and four hours wasted. For this reason, I'm glad United kept E+.

Many of the changes to United work great for infrequent travelers, but they raise havoc for the business traveler. For example, let's look at the new ability to price specific seats in a seat layout. This is a nice way of upselling seats, but what happens when you have irregular operations? Or if you need to change your flight because a business meeting was cancelled?

Speaking of irrops, one of the fantastic benefits of 1K in particular is the way that the agents had the flexibility to handle challenges, especially given the weather conditions that often plagued Chicago. As a 1K, I flew with confidence that even if something were to happen, someone would take care of me and make sure that I got to my destination as smoothly as possible. A less flexible reservation system means that irrops now have a greater impact on my ability to do business. I no longer have the confidence that United will do what is necessary to get me to where I need to be. If I have a three day trip, and now I will be a day late, that has massive impact to my business meetings etc.

For upgrades to first class, this is more than just a perk. Advantages of upgrades are a) increased productivity during the flight; and b) managing the physical impact of flying. For the frequent business traveler, these are very meaningful, much moreso than for the infrequent traveler. Likewise, if practically everyone can use the priority lanes in the airport for check-in and security, then that makes pre-flight downtime longer, since priority becomes less meaningful, and once again cuts into productive work time.

Downtime at an airport and on a plane means that I have to make up the work during my personal time. Multiple that by five or more flights a month, and you have seriously cut into time with family, time with friends, work/life balance, etc., some of which are already impacted by nights spent away from home.

Thus far, virtually all changes have been designed to maximize revenues from infrequent travelers while building replicable systems and processes. And I'm certain that they will win all kinds of consumer awards for their efforts. But in doing so, I believe United underestimates how much they are alienating their business flyer base.
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Old May 22, 2012, 3:54 am
  #838  
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Originally Posted by Nicksterguy
Let's not make negative comments about the UAInsider folks. They have a presence here and have gone above and beyond to assist the members of the FT community.
I agree that they have gone above and beyond to assist, but we also must call spin what it is. And the post on this thread was the very definition of spin, unusually so.
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Old May 22, 2012, 5:42 am
  #839  
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Originally Posted by WineCountryUA
Since you were there, what makes you think it was 1Ks that were being referred to??
UA Insider and the quote in WSJ both seem to point the finger at Silvers as the "over entitled" group.
They can say it was Silvers only, but their actions to date also point the fingers at 1K (reduction in RPU earning, elimination of 1K line, loss of 1K check-in at some stations, increasing spread to W to use GPUs, etc.)
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Old May 22, 2012, 5:50 am
  #840  
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Originally Posted by dkc715
... 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...Static financial models don't always work well, even with fortress hubs!!
I would venture to say that they never work well, since the marketplace, by definition, is a dynamic arena.

The other issue, which of course is not quantifiable the way up-front static analysis is, is that all the perks of elite status also act as incentives. Remove the perks and, sure, you remove the cost. But you also remove the incentives and thus the impetus to keep purchasing the product.
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