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

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

Old Jun 13, 2012, 12:00 am
  #1351  
 
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Originally Posted by LarkSFO
why do you think they need to generate a premium?

I don't know that they do - but that was the implication of the post I was responding to - namely, that the route network would do that. But more than that, I just did a quick survey of a few of the international destinations that I have flown to in the last year or so. In every case I checked it was cheaper to buy a business class ticket on multiple of UA's competitors - and these included folks like Cathay, Thai, Delta, BA, JAL, ANA, Korean and others who have very competitive service. So if UA isn't going to compete with loyalty hooks, and they aren't going to woo us with service (which they aren't compared to at least some of those competitors) and they aren't going to be cheapest - then you tell me, what is their winning formula. If they can make this business model work to be a profit leader in the industry then more power to them - I just don't yet see what it is that makes them win competitively. With a decent MP program they had that edge - now it would seem not so much. Remember I am the guy who actually buys premium international and transcon tickets (I actually looked at transcon first class the other day and there were cheaper options on AA and Delta at the least there also) - but I have to think what I am getting overall is the best deal for my money.
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Old Jun 13, 2012, 4:55 am
  #1352  
 
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Originally Posted by pdx1M
cheaper to buy a business class ticket on multiple of UA's competitors - and these included folks like Cathay, Thai, Delta, BA, JAL, ANA, Korean and others who have very competitive service. So if UA isn't going to compete with loyalty hooks, and they aren't going to woo us with service (which they aren't compared to at least some of those competitors) and they aren't going to be cheapest - then you tell me, what is their winning formula.
Well put. To extend this logic, then UA should be benchmarking its hard product and pricing against the likes of SQ and CX. I will say UA has improved somewhat recently, but against the consensus gold standard? No way, no how. So in terms of service, hard product and pricing altogether? Not yet, not today.

Originally Posted by pdx1M
Remember I am the guy who actually buys premium international and transcon tickets (I actually looked at transcon first class the other day and there were cheaper options on AA and Delta at the least there also) - but I have to think what I am getting overall is the best deal for my money.
Absolutely.
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Old Jun 13, 2012, 5:10 am
  #1353  
 
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Originally Posted by LarkSFO
I think the term 'peso' is trademarked and fully associated to DL...How about the MileageDong? (no offense to Vietnam, of course...)
Why not compound the two currencies? MileageMedallion and we could be printing this stuff with our home printers. So how many coupons for a drink would you say?
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Old Jun 13, 2012, 8:46 am
  #1354  
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Originally Posted by pdx1M
Not sure I understand why you think this. If you simply mean that if an airline flies to a lot of places with sensible connections that it becomes more likely that people will book them to fly someplace then sure they become a candidate for being used for a lot of trips - but not necessarily at a premium.
I think that because history demonstrates it to be true. The carrier with the largest network out of a specific city will always command a revenue premium. This is because business and corporate customers - who are higher yielding - generally prefer to concentrate their business on as few carriers as possible, namely the ones that offer the most options.

Originally Posted by wildblueyonder
And without loyal customers who pay (or a business model that looks past day-to-day cashflow) you won't find your investors happy to provide cheap sources of capital.

Then again, in a nod to Mr. Rainey, I don't suppose you want customers (or investors) who are "over-entitled"...
And the network is the single best way to attract customers...

Originally Posted by DCEsquire
It's funny...because you are contradicting yourself.. You first said that" Actually, the fabulous route network is what generates the revenue premium for any airline..."

So is it the route or the type of pax. You can't have it both ways.
The type of passengers you attract is dependent on your route network. With few exceptions (mostly found on FlyerTalk), corporate and business travelers will be loyal to the airline that can take them to as many destinations with as few stops as possible. With these travelers comes higher yields.

Originally Posted by DCEsquire
I've been in too many organizations where there are lots of MBAs with Excell. They are the wiz. Let's do this on a pivot table. You just need everyone to bill 5000 hr a year or turn your rate up to this. The same folks at UA are saying lets charge more and give less. The problem is that the bean counters are first level idiots when it comes to understanding human behavior. Charge someone more for less and they go away.

Lots of smart people teach. There is a reason why you don't find them in business.

One of us will be right. For the sake of all of us who fly UA, I hope it's me.
If you understand human behavior so well, make the business case for why would you give your customers more when they're not willing to pay for it?

Originally Posted by ualp
Particularly in an industry that seems to attract "business guys" that can make a quick buck and move on.
If anyone thinks executives work at airlines to make money, you're sadly mistaken. Compared to other industries, you have to deal with incredible amount of stress with very little reward. People work at airlines because they're passionate about airlines. If you're an "airline guy" without business skills, you probably worked at a defunct airline.

Last edited by iluv2fly; Jun 13, 2012 at 11:23 am Reason: unnecessary
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Old Jun 13, 2012, 9:13 am
  #1355  
 
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Originally Posted by sxf24
I think that because history demonstrates it to be true. The carrier with the largest network out of a specific city will always command a revenue premium. This is because business and corporate customers - who are higher yielding - generally prefer to concentrate their business on as few carriers as possible, namely the ones that offer the most options.
This is the hub argument - and I agree with it. But it isn't really the route network argument. I am PDX based - while UA is a large carrier for that airport with lots of options, with few exceptions I will always find myself connecting. When I look at travel to Asia, for example, I will always have a first leg to either SFO (UA or foreign), LAX, SEA, YVR, or in the case of DL - NRT. So for those of us in the out stations the size of the network out of our city greatly diminishes in direct value. Also - in many corporate structures the high level folks can generally find enough flexibility to choose their carrier in a lot of cases. That is particularly true if you are in a corporate situation that permits actually buying premium cabin travel. Perhaps I am only reflecting my own situation but my reality is that I can usually choose my carrier. In the past I would always choose UA precisely because of the total service/benefit package they gave me. I now find less reason to do that - and that translates to less business from me to UA in the long run. (Full disclosure - UA is still getting my business because I am really close to 3MM and it seems that 1K might have future value with a different UA customer service philosophy so in the short term I am still biasing travel to them. That will change, however, shortly.)

As I said - perhaps UA can make this approach work, but it seems to me that they are making their own competitive life more difficult by removing the one tool in their competitive arsenal that actually influences a traveler paying for premium service where their actual service is price/performance poorer than their competitors. I have going on 40 years of buying air travel so I have had to make a lot of choices about where a trip gets purchased, and I have switched primary carriers in the past. I don't think I am the only one with a premium travel wallet who will look at things this way.
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Old Jun 13, 2012, 9:20 am
  #1356  
 
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Originally Posted by sxf24

If anyone thinks executives work at airlines to make money, you're sadly mistaken. Compared to other industries, you have to deal with incredible amount of stress with very little reward. People work at airlines because they're passionate about airlines. If you're an "airline guy" without business skills, you probably worked at a defunct airline.
I was reading the last handful of posts until coming to this one. It's public knowledge, but have you seen the compensation of these guys?!? Tens of millions of dollars for a small select group, lifetime flying benefits, and other lifetime benefits.

I think you mean those mid-tier executives that have to work very hard for little reward...if you mean Smisek, et. al., they are laughing all the way to the bank.

"Compared to other industries..." in this highly competitive marketplace I think everyone is stressed, sure there may be a few kicking back, but I think it's tough all around. Maybe healthcare is a little cushy...

UG
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Old Jun 13, 2012, 9:53 am
  #1357  
 
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Originally Posted by sxf24
If anyone thinks executives work at airlines to make money, you're sadly mistaken. Compared to other industries, you have to deal with incredible amount of stress with very little reward. People work at airlines because they're passionate about airlines. If you're an "airline guy" without business skills, you probably worked at a defunct airline.
Not sure which "level" of employee you are referring to, but in the "C" Suites and higher, it's all about money. Plenty of historical examples to prove that.

So to your last sentence, Smi/J is not an airline guy. Airline guys know something about how the company/business operates. More than just reading a Balance Sheet, Cash Flow Analysis or Income Statement. Thats not him. Had he spent some time in Operations, Customer Loyalty, IT, etc, etc, before he assumed the role of President/CEO, then we might be on to something, but he didn't.

So again, your last sentence scares me, because left unattended, thats where this is going. A lot of damage has been done and now it will take a Herculean effort to set it right. And I personally think it will take a change to a strong Airline/Customer Service oriented Leader to get it on the right track.

The BOD is meeting this week or next. Let's see what they are thinking.
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Old Jun 13, 2012, 10:04 am
  #1358  
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Originally Posted by ibuyyoufly
So again, your last sentence scares me, because left unattended, thats where this is going. A lot of damage has been done and now it will take a Herculean effort to set it right. And I personally think it will take a change to a strong Airline/Customer Service oriented Leader to get it on the right track.
I spent a lot of time feeling exactly as you've described. I no longer believe that there is a "right track" onto which the BOD, the CEO, or any other high level execs WANT it to be. I believe that they are quite content with the metrics they've assumed will always be there.

We can - sadly - only wait and see if they're right.


Dave
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Old Jun 13, 2012, 10:12 am
  #1359  
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Originally Posted by pdx1M
This is the hub argument - and I agree with it. But it isn't really the route network argument. I am PDX based - while UA is a large carrier for that airport with lots of options, with few exceptions I will always find myself connecting...So for those of us in the out stations the size of the network out of our city greatly diminishes in direct value.
It is impossible for any airline to have a network that effectively competes for all non-hub customers. However, having hubs in 6 of the top domestic O&D markets gives UA a significant advantage over someone like US, which has a single hub with strong O&D.

Originally Posted by pdx1M
As I said - perhaps UA can make this approach work, but it seems to me that they are making their own competitive life more difficult by removing the one tool in their competitive arsenal that actually influences a traveler paying for premium service where their actual service is price/performance poorer than their competitors. I have going on 40 years of buying air travel so I have had to make a lot of choices about where a trip gets purchased, and I have switched primary carriers in the past. I don't think I am the only one with a premium travel wallet who will look at things this way.
I would agree that the elimination of elite benefits would be a competitive discriminator. However, I would disagree that UA has made program changes that will put them at a long-term structural disadvantage vis-a-vis AA or DL.

Originally Posted by UrbaneGent
I was reading the last handful of posts until coming to this one. It's public knowledge, but have you seen the compensation of these guys?!? Tens of millions of dollars for a small select group, lifetime flying benefits, and other lifetime benefits.
Perhaps ~$1M in cash compensation seems a lot to you, but all of the named executive officers could make substantially more working for different companies in other industries.

Last edited by iluv2fly; Jun 13, 2012 at 11:24 am Reason: response to deleted post
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Old Jun 13, 2012, 10:25 am
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Originally Posted by bseller
I spent a lot of time feeling exactly as you've described. I no longer believe that there is a "right track" onto which the BOD, the CEO, or any other high level execs WANT it to be. I believe that they are quite content with the metrics they've assumed will always be there.

We can - sadly - only wait and see if they're right.


Dave
Agreed ^ (regretfully) .
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Old Jun 13, 2012, 11:02 am
  #1361  
 
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Originally Posted by sxf24
Perhaps ~$1M in cash compensation seems a lot to you, but all of the named executive officers could make substantially more working for different companies in other industries.
I think it's silly to debate this point and is the least interesting aspect of the whole debate, but just for the record you're off by many of millions. I think actual comp is much higher than the millions listed here.

http://finance.yahoo.com/q/pr?s=UAL+Profile

In searching for the answer, I found something more interesting than his actual salary. Note the conditions for him getting paid about 4 million bucks.


(snip)

CEO Jeff Smisek saw his compensation soar to $14.7 million last year from $4.4 million in 2010 as United Continental Holdings Inc. completed its first full year as a merged airline. Most of Mr. Smisek's compensation increase came from a restricted stock grant valued at $7.5 million that will vest over three years, according to the company's proxy statement.

About $4 million of that restricted stock requires that the airline meet certain goals related to the merger, such as reaching joint labor contracts with unions and achieving revenue and cost-savings targets.

He also received $4.4 million in long-term cash incentive compensation largely based on performance of Continental Airlines prior to the merger with United. His salary was $975,000. (snip)

http://www.chicagobusiness.com/artic...eo-smiseks-pay

So there you have it. May need to pull the SEC filings to see what the revenue targets are for his bonus.

(as an aside..it looks like Tilton got paid 40 million at one point! http://www.chicagobusiness.com/artic...WS01/200024373)
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Old Jun 13, 2012, 11:09 am
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The point that some seem to be missing, which has been proven time and again over many industries is that so called "bean counters", that cost/benefit becomes overreaching, which is obviously necessary in business, but there is corresponding drop in new concepts/innovation for revenue generation.

Time will tell on whether UA manages to innovate and create new revenue or not.
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Old Jun 13, 2012, 11:23 am
  #1363  
 
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If it's bean-counting, why refund Global Entry?

I think it's misleading to suggest everything bad is due to bean-counting. They do use their beans. They just don't use them very wisely. For example, does United really get any return on investment for refunding Global Entry fees for Plats & above? I just took advantage of it because it's there, but I wouldn't have seen it as a reason to go to one program or the other, nor is it a benefit I'd likely have paid for on my own. I guess the latter part is significant, because ideally, you want to provide the unexpected, because that's what people will remember. But is this really the best way to spend $100 on me?

I'm thinking the average Plat would make better use of 3 club passes, and see them as having more tangible value.

This thinking is entirely subject to change if/when it turns out that the Global Entry program does in fact become a stepping stone to a substantially-improved TSA experience. And if I were United, that's where I would be placing emphasis (spending money). And could very well be that this (Global Entry) is part of that plan.
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Old Jun 13, 2012, 12:56 pm
  #1364  
 
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Originally Posted by sxf24
Business travelers are what drive revenue.
Agreed.

I find it laughable that everyone likes to attack the "bean counters.". Usually it is because your advocating a business strategy that doesn't make sense and that is the only justification you can think of.
Nope. Attacking the bean counters usually means attacking short term thinking that values easy revenue today vs. building a brand that can attract longer term revenue. Ritz Carlton, Four Seasons, Hyatt, Apple, Zingerman's and others are able to charge a premium for their products because they provide a consistently high level of service. COdbaUA and its bean counters have been consistently looking for ways to cut service to maximize profit in the short term. What they seem to miss is that building a brand is expensive and destroying it is easy. Many of my friends and I were willing to pay a premium (25% or more) to United because of the service we received.


Th airline business does not work if you chase what's sexy or interesting. This is a business about cash. You not only have bring enough in every day to pay the bills, you have to keep your investors happy because without new, cheap sources of capital the airline will fail.
There is no "airline business" just as there is no "hotel business" or "restaurant business". UA, AA, DL are not trying to compete with Spirit (or at least they were not), just as Four Seasons does not try to compete with Motel 6. COdbaUA seems to want to charge Four Seasons prices but provide service that is even worse than Motel 6. That is not a model for success.

While it is great to gain incremental revenue from price sensitive travelers, doing so at the expense of one's high revenue customers is a bad strategy.
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Old Jun 13, 2012, 12:59 pm
  #1365  
 
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Originally Posted by majortom
Agreed.



Nope. Attacking the bean counters usually means attacking short term thinking that values easy revenue today vs. building a brand that can attract longer term revenue. Ritz Carlton, Four Seasons, Hyatt, Apple, Zingerman's and others are able to charge a premium for their products because they provide a consistently high level of service. COdbaUA and its bean counters have been consistently looking for ways to cut service to maximize profit in the short term. What they seem to miss is that building a brand is expensive and destroying it is easy. Many of my friends and I were willing to pay a premium (25% or more) to United because of the service we received.




There is no "airline business" just as there is no "hotel business" or "restaurant business". UA, AA, DL are not trying to compete with Spirit (or at least they were not), just as Four Seasons does not try to compete with Motel 6. COdbaUA seems to want to charge Four Seasons prices but provide service that is even worse than Motel 6. That is not a model for success.

While it is great to gain incremental revenue from price sensitive travelers, doing so at the expense of one's high revenue customers is a bad strategy.

+1 Good Post!
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