BearX220

It'll take another few quarters of laggard performance. UA is going to post a big Q1 loss while its competitors made good money. The Street's ears will prick up for sure at that. If the results gap persists through 2014, THEN management is in trouble. In the meantime look for additional degeneration in service levels, reliability, etc. as management focuses on nothing but the $2B-in-cuts metric and employees get more rebellious / resentful / etc.

Southwest does it, for the most part (despite some customer grumbling over RR's declining value prop). I think DL is doing it. Throwing customers and employees under the bus to drive short-term value for shareholders hardly ever works out. Employees, especially, need to feel they are part of something big and exciting that is going somewhere. That impression isn't bad for customers to have, either. Everybody wants to be on a winning team.

hockey7711

It's not just the PAX that notice the decline in services. I was talking to a PMUA fight attendant recently...he could not believe the cut backs. "I feel like I am working for a low cost carrier now"

spin88

I don't blame line employees, they are people, and people react to the environment created by management. When the merger was announced in 2011, the UAL crews were pleased, the CO crews less so, but wanted to make it work. In 2012 the FA/GAs took it on the chin as things went FUBAR.

Employees are the one that can't help people, have to "sell" the new lower service levels, get to deal with people upset in IRROPS that UAL can't fix.

Then 2013, more service cuts. 2014, more service cuts. Its all demoralizing, and it comes from the top.

99% of employees want to do a good job. When management incentives people to fix problems, empowers them to do so, and gives them the tools to provide good service they do. Jeff and Co. have disincentivized people to fix problems (by writing them up for overriding rigid policies), taken away the ability to be flexible (the new CS training was to "always follow the book, no exceptions), and taken away the tools they need to provide good service.

The failure is of management, not employees.


Yes, it will get worse. United will lose about $500M this quarter, while both AAL and DAL will make substantial profits. The markets expect - or its going to get really ugly, really quick - that UAL will rebound and grow its profits substantially in 2Q and 3Q, and finished the year with profits that are more than 50% higher than they had last year. Yet, United's loss this quarter is far worse than it was last year, so they are now in a big hole.

Not rebounding will - IMHO - get Jeff and Co fired. So how can UAL rebound? Well passenger revenue takes time. No way that United can rebound in yield (how DAL and AAL have upped their profits) quickly, it takes too long to gain back passengers. All United can do at this point is quick fixes -and hope they work. So what quick fixes are there?

(1) cost cutting (more of it) on things that can simply be axed. Since Labor and Fuel are not short term issues, expect a tightening of the screws on compensation for issues that arise, staff to be told to not make exceptions on fees, and some further soft product cuts (where United can do so upon contract renewal)

(2) cut back on award availability, hope you can sell those seats.

(3) sell more upgrades and look for the short term revenue. Expect TOD offers to get cheaper, more H-up fares, efforts to monetize anything they can.

(4) play with the RM software, hope (ok pray) that you can get more for seats later on by holding them back. However, if, as happened to DAL in 2Q 2013, the demand does not materialize, United has really hurt itself.



Ah, but that they cut back on complementary upgrades and went to a TOD model is part of the reason upper (non-GS) elites are leaving for AAL or DAL, both of which don't upsell like United does.

Airline stocks have all gone up, its sector movement. What is more interesting is what UAL has done compaired to DAL and AAL.

on 2/27/14 UAL announced in an 8K that its results would be worse than prior projections, with PRASM down (.5 to 2.5%) it blamed weather.

Then on 4/8/14 UAL told the markets that its PRASM would be in the Bottom end of its projections down (1.5 to 2.5%)

United did not get hit bad by weather in March, so further falling estimates indicate something else going on.

So what has happened since UAL changed its forecast so dramatically on 2/27/14?

UAL is down 11%
AAL is down 7.88%
DAL is down 2%

The stocks are only as close as they are because their is lots of sector buying and momentum selling going on. As the actual P/Ls come out over the next few weeks, UAL will fall further behind, and absent guidance in line with DAL/AAL, UAL will take a further hit.

I agree, but I think we are at an inflection point with analyists. The trust is just not there. Jeff has been playing the game, talking up cost cuts, reduced capacity, more and higher fees, pricing power from consolidation, firing "over entitled" customers, and the Street has been eating it up.

But when a huge and long time cheerleader for Jeff's approach like Hunter Keay has this to say:

"UAL: No pressure… But It’s Now ALL About the 2Q Guide...Poor guidance from UAL with its investor update filed today wasn’t terribly surprising given weather and spring break/Easter shifts but PRASM did come in slightly worse than we expected. This wasn’t a shock either, as Asia remains a tough place to do business and UAL’s yield re-capture strategy isn’t supposed to really show much benefit until, well, about now, actually"

Jeff has run out of time. If UAL underperforms substantially (and perhaps if it does not match DAL and AAL) in 2Q and 3Q I would expect the calls for new management to get strong enough that Jeff will get pushed out, probably in 4Q 2014.

Jeff has been blessed to be doing a really really bad job at the time when industry trends are most favorable and and the entire industry, but UAL in particular has strong tail winds from macro events, that will no longer protect him after he has been running UAL for 3 full years.

DaviddesJ

Yes. Here's the actual exchange:

YOU: UA should not sell upgraded seats too cheaply, should reserve some for premier members.
ME: Why should they do what you say?
YOU: Because their customers think that's what they should do.
ME: I don't agree that this is an essential element of how to run their business. They should only use complimentary upgrades for those seats they can't sell without cannibalizing their own business.
YOU: (sarcastically) Oh, they are in decline because they are doing everything right.
ME: Those aren't the only two possibilities (i.e., maybe they aren't "doing everything right" and yet selling some upgrades is still sensible).
YOU: I must be right, otherwise they wouldn't have so many late flights.
ME: That doesn't make sense, selling upgrades can't lead to late flights.

It would be fine if I said it, but it's not a 'fact' because I said nothing remotely like that.

DaviddesJ

It's possible, but I'm skeptical. What is your evidence? How do you know? What we mostly have in this forum is some angry rants based on a few anecdotes, usually even those are inconclusive (i.e., someone told someone about something they once saw, or someone made an observation and came to a highly debatable conclusion). On major domestic routes, UA is certainly selling a lot of B and M fares with instant upgrades. This is a big attraction to those "upper (non-GS) elites", who are getting guaranteed F seats for their refundable/last-minute fares. But it does reduce availability of F seats for CPUs, as UA sells more of those seats for actual $$. It also gives UA somewhat of an incentive to offer fewer CPUs, as when the cost difference is small it's pretty easy to convince people to just go for the B/M fare, but not if they are expecting to get a CPU.

I would definitely agree that the changes in UAs fare structure and upgrades over the past few years are good for some people and bad for others. And a half-dozen of the latter hang out on FT and rant about it 20 times a day. But bad for their business? Not so clear to me. And, as I keep saying, every 1K member gets around $10k in benefits just for being 1K, even with zero CPUs (GPU/RPUs, bonus RDM, free E+, status for friends and family). There may still be people who are pissed off because they used to get even more, particularly those who used to expect lots of CPUs, but it's not clear that is the most valuable group for UA or that this is the thing most affecting their bottom line in a negative way.

unavaca

The 70% number is trollbait. It's 70% by number of flights, but represents only 22% of ASM out of ORD.

70% of flights: http://www.flyertalk.com/forum/22380718-post105.html
22% of ASM: http://www.flyertalk.com/forum/22374919-post60.html

The first link also shows that AA isn't much better.
AA ORD: 65% of flights are express, 39% of seats, 18% of ASM.
UA ORD: 70% of flights are express, 46% of seats, 22% of ASM.

Data :-:

CO_Nonrev_elite

Well, when the 747/777/767 take off out of ORD they have 5-7x the passengers that the RJ145 etc has on board. I'm sure the ASM case is true, but the fact remains that when you are booking a flight on UA out of ORD, 70% of those flights are on RJ's. Take International and Hub to Hub out of it and I think you'll find there are very low % of flights on anything other than RJ

CO_Nonrev_elite

Of course, but if UA are losing money, and getting trounced by their competitors, despite having some advantages over them, then apparently the customers as a whole don't agree with what they are doing.I don't personally mind the buy up fares, I buy them too, but to suggest that it's only a handful of 20 odd people on flyertalk complaining is just head in the sand mentality. If that were true, UA would not be in last place among it's competitors month in and month out and trailing the industry month in month out.

unavaca

Given that AA isn't much better at 65%, I'm not sure why it's a UA-specific complaint. Furthermore, it was shown that it's roughly the same percentage as it was in 2010, so it's not like this is something new.

flyingnosh

Perhaps UA is trying to become a different kind of company. Now that they're so large, they may want to spin off each common function to a contractor. In the end, what's left is a small company that makes its money by selling tickets. Others will provide the ground crew, manage the planes, fly the planes, etc. Especially if the contractors are left with most of the financial risk (for WX, MX, etc), then the end game could be a company that has a predictable revenue stream. Judging by the quarterly reports, they're obviously not there yet, but I think that's the play they're making.

I'm not saying that I think this is a good thing. Just trying to connect the dots.

CO_Nonrev_elite

Point noted although as this is the UA board, it's my I was focusing on it. AA and DL as a general rule have a much better RJ experience.

DaviddesJ

No, when you''re booking a flight on UA out of ORD there's a 78% chance you're booking a mainline flight.

The logic is still faulty. Even if there is a clear trend of UA trailing (which imho is too early to tell), it could be for reasons that have absolutely nothing to do with how they sell upgrades or F seats.

It's not realistic to think that the contractors have "most of the financial risk". If you want a provider to bear risk then you are going to have to compensate them for that, that's why hourly consultants bill at higher rates than salaried staff. There are two reasons for outsourcing: to defeat unions/increase management's bargaining power/reduce legacy wages and benefits that are above current market, or to consolidate services between airlines where no one airline has enough work that people aren't left idle between flights (OGG would be a generic example of this, for example). A lot of it is being driven by the former, you have an upside-down compensation structure where longtime employees get paid more than they could ever get in current market conditions (where there is a surplus of people wanting those jobs and a shortfall of employment demand), yet directly cutting wages is harder than changing the whole system. That's going to continue for as long as current shortfall in labor demand continues (i.e., forever or for the foreseeable future) and the airlines also have legacy compensation structures that don't match the current market (also likely to remain true for a long time).

spin88

All I can say is that the 2012 melt down is over, and since January 2013 Jeff has repeatedly said that United is meeting its operational goals (true or false I'm not commenting). Yet, yield premium keeps falling (UAL lost about .8% on DAL/AAL last year), and it took a real hit his quarter. So HVFers keep leaving.

There has to be an explanation for why they are leaving. Not "20" but more like 200 GS/1Ks have posted on this forum in the last year saying they have mostly/completely left UAL. Putting aside job changes, the three most common reasons are (1) lack of operational reliability, (2) better service quality on other airlines, and (3) upgrades, primarily domestic. Its fairly constant.

A survey of GS/1Ks about a year ago showed 60% said they were flying UAL less do to all of the change, and the above 3 causes were the main reasons for almost all of them.

Do I have inside information, not now. United just did a rolling survey of some of those who quit flying UAL, so they have the data. But I am fairly certain that lack of CPUs is high on the list of those who gave their business to other airlines.

United will lose about $480M this quarter (at current estimates, I think it will be slightly higher). United lost $325 in 1Q 2013 (excluding special items)

DAL will make $244M this quarter (at current estimates). DAL made $80M in 1Q 2013 (excluding special items).

Other airlines (AS, AAL, SWA) will also make money. The trends are going the wrong way at UAL, must be the weather.



thanks for posting, very interesting. ^

Actually, No. If you are "booking a flight on UA out of ORD" there is a 46% change you are in a RJ. Miles flow on that flight is irrelevant.

Given that UAL was a much bigger carrier than AA was, and had a bigger total traffic ex-ORD, the figures are even more embarrassing. Its more of a draw down for UAL than I thought.

Also, the RJ percentage will fall much faster at AAL than at UAL, which since its cutting (for now, unless they reverse course on some of the 757 retirements, which may happen) mainline and only getting 27 larger RJs, will continue to have outsize lift with RJs.

Baze

I think operational goals are much different than revenue goals. And even operationally their goals must be pretty low as things like on time percentage is decreasing.

DaviddesJ

That's not my impression. I thought the spread (yield difference between UA and DL/AA) was decreasing, although still positive. Where are the historical numbers most easily found? There are a whole lot of factors that go into this that have to do with a lot of things other than fare pricing.

This sure isn't what I see. What I see is the same half-dozen people posting these claims 200 times. Are you sure that's not what you're counting?

The people who are dissatisfied obviously post a lot more than the people who are happy. So you're much more likely to see the posting from someone who's unhappy that they are losing CPUs on deep discount advance fares, than one from someone who's happy that they are getting refundable M fares with instant upgrades. It's obvious if you look at the bookings and upgrade lists that UA is selling a whole lot of these, and yet they hardly post here at all. So I think that the correlation between FT membership and high value to UA is pretty low. But even among those who do post, the actual distribution (by poster, not by frequency) is much different than you claim.

OK, thanks for that correction, I misread the reference. The length of trips is not completely irrelevant to experience, though; obviously if you're connecting through ORD then being on a more comfortable mainline plane for the longer leg and a less comfortable regional jet for the shorter leg, is better than the reverse.