dgcpaphd

You have accurately described typical behavior with respect to pricing/purchasing/loyalty along with human nature.

How is it that the new UA management does not see this?

Considering UA's financial and customer loyalty disintegration since the arrival of the new UA management, it is akin to the new UA management watching a building burn and doing nothing to help put out the fire (that they started).

The negative financial numbers will continue unless the new UA management puts its ego aside and realizes the current approach to running the airline is misguided.

On a somewhat sad note, even if the new UA management were to attempt to undo the damage already done, many customers who left UA will not return as long as the same management remains in place.
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TWA Fan 1

Again, I'm not trying to defend CO here, but there are legitimately two measures:

1. Total spend
2. Whether that spend is high or low yield

Even if a 1K spends $10k a year, it does not necessarily make him/her a high-yield customer. You can spend $10k a year on cheap tickets.

And...

Along with the 1K status comes a lot of freebies that potentially represent lost revenue, such as free upgrades, discounts or exemptions from unbundled fees, discounts on club membership, etc.

When this policy decision was made, CO was literally choking with elites and flying LF's at about 90%. They must have calculated that for every $10k lost from a disgruntled 1K, they could replace it with the same $10k flown by kettles, who, in addition, would pay for checked bags, change fees, and at least ToD upgrades to FC.

channa

While I agree with you, we can't be sure whether or not they see it.

Practically speaking, how do they fix it? They can't come out and just say they completely screwed this up. There's already doubt brewing about CO management's abilities. Plus many of them are relatively young for their levels. Jeff is what, less than 50. He can't exactly have a botched merger of the world's largest airline under his belt at this point in his career. He's still got 20 years to go. If Tilton or Gordon had done it, then it could have been their last gig, they can afford to take the fall.

Everything they say or do at this point needs to be a minor hiccup, trivialized, and/or explained off in some way (e.g., how the "old United planes" caused them problems with more aggressive scheduling, despite the fact that CO planes too were having reliability issues with the aggressive schedule).

The truth is they underestimated the mobility of their customer base, and now they're paying dearly for it. But they can't say that.

Now if DL or AA offered some new benefit, they could match it and then some as a competitive response. But they have made visible cuts with visible impacts. Everything they restore will be noticed, and possibly covered by the media.

Plus from a technical angle, they've degraded their computer system so badly, they simply don't have the infrastructure or ability to provide the same level of service they used to. Fixing these issues is going to take significant time. It's been 7 months since the 3/3 SHARES debacle, and just now GA's are getting some semblance of a GUI with significant functionality limitations and usability issues. And that's just the GA's. This stuff can't be fixed overnight.

spin88

I think their entire model is "upsell" its what they wanted to so, and what they said SHARES allowed them to do. And a cut off for TOD would only piss off folks worse. See the complaints of folks not getting TODs (which appears to me to be that the system cuts them off when you have applied a GPU to the reservation).

If you are the only game in town then this system if great, and worked well for CO recently with a fairly flat fare structure. It does not translate well into passengers who are flying you for the benefits of elite status. Most UA folks stuck with UA for the benefits, once those go then there is no incentive to stay with UA.

I understand the model (give upgrades to those on higher value tickets (M,B,Y upgrades) but this combined with aggressive upsell really effects fliers in the middle (those flying E,U,H) as they now only get an upgrade when on a M (or for Plats a B) fare. Its just not an a good selling point with the poor service otherwise.

And as others have noted these folks are paying more than the $15K per year max break even point for a 1K, so they are profitable. But they are the one most able to move.

And the true F/J/Y/B traffic, well those folks have lots of options and can go with a carrier who treats them better.

I did a calculation off PRASM + cost of bonus miles, and even being very conservative (assuming every flight you bump another passenger, don't just add to load, valuing miles at 1c/mile cost to UA) the "break even" point were a 1K is additive to revenue is $15K. The actual number is less.

And ancillary revenue? No way your average leisure traveler runs many change fees, those are for business travelers. And to get bag fees, you really have to replace the passenger with a leisure travelers, most business travelers avoid bag fees.

dgcpaphd

Several years ago, UA screwed up with the SWUs by requiring some outlandish requirements. As a result, many 1K's complained and most of the SWUs were not used. About half-way through the year, Graham Atkinson wrote to each 1K and sent new SWUs called "sweet spots" which were accompanied by an apology and an acknowledgment that UA had miscalculated the SWUs.

Although the above does not compare with the severe damage that the new UA management has done to UA, it does show that some management can acknowledge an error and will make a correction.

Smisek is going on 58 - http://articles.chicagotribune.com/2...ental-airlines

I agree that he has a viable future ahead of him. However, his ego seems to be a problem.

Not long ago, I was aboard a UA aircraft and knew one of the flight attendants. The flight attendant told me that Smisek had been aboard the aircraft and did not speak with the employees. He spoke only with the particular flight attendant in first who served him and ignored all other employees and passengers. If the facts were reported accurately, an ego issue was certainly present at that time.
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Truer words were never written. If we could only get Smisek to realize that obvious fact, things at UA might improve over time.
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channa

Right, but was the UA management team being scrutinized for degrading financial performance at the time right after substantial changes across the board?

They can certainly eat crow, but I don't think the Board would take too kindly to that when they're already starting to question their competence. They may be out the door if they did that, and all their careers are at stake.

dgcpaphd

No they were not.

Ordinarily I agree with you. However, in this instance, I do not.

Do you honestly believe that UA's current Board questions what Smisek is doing?

Take a look at the composition of the Board and then ask yourself the above question:

http://ir.unitedcontinentalholdings....=irol-govboard

There isn't even an executive Chairman of the Board. The "non" executive chairman is also a chairman on the Board of Chase Bank. Chase buys billions of miles from UA each year. What kind of independence exists within UA with the type of structure in place with Chase Bank. Chase Bank is a major creditor of UA and UA wags the bank's tail because of this close relationship of selling miles to Chase.

Essentially, everything evolves around Smisek. He is the top guy. Who on the Board is going to question him? And, yes, Smisek, besides being chief executive officer of UA, he is also a Board member of UA. In such a role, he is accountable to himself.

Why do you think he is allowed so much freedom in his decisions despite a vocally unhappy, run-a-way customer base and poor financial performance since he announced the demotions of the elites and service?

If UA was making money and was doing well financially, Smisek's performance would be condoned and applauded. However, UA is not doing well and the numbers confirm this fact.

No one from the Board or elsewhere makes any effort to change course on this misguided management.

The financial numbers will continue to deteriorate. Will it take a future trip to the bankruptcy court for any changes to take place?
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entropy

Customers aren't stupid, even the couple-trip a year types. Especially the can't be fooled again Texans. After a family of 4 drops $200 RT on their bag, they're going to be clogging the boarding process with their 4 rollerboards next time.

The couple taking that $59 upgrade from a 1K on the one trip they take that year are going to guzzle down a bunch of alcohol (its FREE UP FRONT!) instead of paying for it in Y.

The 1K who was #1 for an upgrade on the last 3 flights but saw the seats disappear before his eyes decides that, rather than do totally unnecessary mileage run for $500 in december to keep his 1K, he's going to do a status match with AA to see how he'd do as EXP.

TWA Fan 1

Your analysis sounds reasonable enough.

Then again, airlines report that unbundled fee have become a huge part of their bottom line, including baggage and change fees.

I'm certainly not saying that CO's approach is correct, but they were no doubt focusing on this highly profitable marginal revenue than anything else when they started to make these changes.

In the end, I would have to agree with the others on this board that they almost certainly assumed their elites were locked into CO and had no other reasonable choice.

That might have been a reasonable assumption at IAH, and CLE, and to a lesser extent at EWR, but it clearly is not the case in some of the traditional UA hubs.

FlyingNut724

Agreed. Two weeks ago I had to book a one-way last minute flight from DEN to SJC.

The UA price on the Barbie jet was $1450. It was a direct flight.

DL offered a connecting flight through SLC. The price for the DL flight (first class) was $550.

I booked the DL flight even though the DL flight was longer flying time and at a less convenient time (but it was more comfortable). I never would have even thought of doing that last year.

spin88

The structure of the board is not unusual, and the board is split between former UA and former CO directors. And yes, it is true, customer complaints will not effect things unless the numbers are impacted. That said, I'm sure that the board was well prepared for turmoil, NW/DL generated issues too.

I say this not to apologize for UA or the board, but boards only get involved after it is very clear things are amiss. And then what are they supposed to do? They have neither the experience nor the institutional role to run the company day to day. All they can really do is raises issues, discuss their possible cause, and (if they are a good board) propose solutions. However, their ultimate power is to fire the CEO. UAL is a long way from that. Now if the poor financial performance is still ongoing once the 787 has arrived AND immediate merger issues have died down (say 1Q and 2Q 2013) then expect the board to began to get involved. But what can they do at that point. If they wanted to fire Jeff, who are they hiring to replace him? The top execs are all ex-CO folks, Tilton is not taking over again, who can they get to step in?

And talk of BRK is off the mark. They have a very health balance sheet and are a big company. The issue is not BKR, it is under performing the market, which dramatically effects PL. What the board will likely be asking is "what do you plan to do to improve our revenue preformance".

dgcpaphd

Based on my reading of many of your posts, you are very bright and analytical. Therefore, I hesitate to contradict you. However, the Board of UA is unusual, although not unlawful, to my knowledge. I conclude this fact based on my experience in the business world.

I agree, Tilton is not taking over again. But, Tilton did not have a lot of experience prior to taking over UA. Tilton came from thirty years working for Texaco, a completely unrelated industry. In other words, there are many competent people who could run UA without transforming it into an airline whose former happy customer base is largely demoralized simply because of decisions made by the present management. Demoralized customers seek other companies for their needs. Hence, the low dismal financial numbers for UA.

When I mentioned bankruptcy, I stated " Will it take a future trip to the bankruptcy court for any changes to take place?" which is not to say that bankruptcy for UA is looming in the near future.

I merely meant that over time, UA could continue to decline and years later could end up back in bankruptcy like they were in the past.

I realize there is no simple solution for the present issues. I was a loyal UA 1K customer for many years. When I had my million-mile lifetime promises yanked away, I, like many other loyal UA customers, began using other air carriers for most of my travel. Customers leaving UA has to have an impact on UA's financial numbers.

UA's traffic and other numbers confirm that the exodus of passengers has not been kind to UA. Unless a rescission and adjustment is made to UA's treatment of elites, UA's numbers will continue to deteriorate. There is no getting around this fact.
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UA-NYC

I can't wait til the inevitable poor October numbers come out

emcsweeney

[QUOTE=dgcpaphd;19479972...Demoralized customers seek other companies for their needs....[/QUOTE]

I'm thinking this is exactly what management has in mind...[off-topic references edited by Moderator] make room for a new brand of loyal customers who have a bit more reasonable expectations during a merger process....I for one can't wait to see what's coming in the future...

According to all the reports around here, it seems to have worked for AA...but I highly doubt it will be necessary for UA after a little housecleaning is done...

I believe this was anticipated...

Until they find some "replacement" elites...which I doubt will take too long...in the meantime I'll just keep enjoying the great service I continue to get...until I actually have to worry about UGs again...

This appears to be a common theme these days....like it will almost bring back yesterday...

Mee too! It will undoubtedly lead to more entertaining threads like this one...

UA-NYC

That's the plan! They're well on their way to succeeding with it - of course, they're sending loyal & profitable flyers away in droves, and the PRASM is tanking with it, so YMMV if you consider it to be successful...