How United Airlines Got To Its Sorry State

How United Airlines Got To Its Sorry State, And Why It Can't Take Off Again

More than five years after the everyone-but-the-media-saw-it-coming disaster that is the merger of United and Continental airlines, big business media is switching gears.

Source: Biz Journals
Author: Joe Brancatelli

More than five years after the everyone-but-the-media-saw-it-coming disaster that is the merger of United and Continental airlines, big business media is switching gears.

Instead of the fawning pieces about merging coffee service, swapping planes around the network and phantom billions in synergies that United executives conjured up on fantasy spreadsheets, now the media is focusing on the mystic power of an inexperienced (and seriously ill) new boss and the renewed commitment of the bureaucracy to somehow get right what it's fouled up year after year.

 

Back in 2008, before the merger, I wrote a column that dubbed United the "Worst. Airline. Ever." Four years later, I revisited the topic and didn't find a better picture. My editor took the earlier headline and added the word "Again" to the end. It was fitting. Now, Bloomberg Businessweek has gotten in the act with a story that's gotten plenty of attention in the last week that carries the headline "United's Quest to Be Less Awful."

But the media still has it wrong about United Airlines, which has just been passed by Delta Air Lines as the nation's second-largest carrier. What ails the current United Airlines is what ailed the pre-merger United and the pre-merger Continental. The cultures stank. There was little or no commitment from the top to do good work. And customer-facing employees at both airlines were burned out, overwhelmed or distracted as they absorbed the brunt of flyer dissatisfaction. Combining two wrongs can not and did not make anything right. It just made things worse.

Consider this astounding statement last week from Jim Compton, who was crowing about United's exceedingly modest improvement in anannual numbers-crunching exercise conducted by The Wall Street Journal.

"We've come to recognize that completion factor — getting people from point A to B — is the most important metric."

Compton, in case you don't know, is United's vice chairman and chief revenue officer. In other words, the Number 2 man. He was also the Number 2 man at Continental Airlines before the merger.

Astonishing, ain't it? It's taken more than five years for the United C-suiters to figure out that customers will hate an airline if it doesn't get you from here to there. Say what you will about Delta Air Lines — andwe did last week— but at least Delta understands that getting you there is its existential purpose. United, both before and after the merger, never has.

The carrier called United had grappled with a contentious culture for years before newly hired oil executive Glenn Tilton in 2002 put it into the longest and most expensive airline bankruptcy in history. Rather than use Chapter 11 to create a new culture and quality customer service, Tilton used the 38-month stay to concoct an executive money grab that The New York Times called "insanity squared."

The United Airlines that emerged in 2006 was a mess. Its planes were old, its employees humiliated and embittered, and its in-flight product archaic. United's only response: Skykits, a literal bribe to individual flyers dissatisfied with some airline foul-up or another.

For its part, Continental Airlines had managed a remarkable turnaround in the late 1990s under chief executive Gordon Bethune. It had mostly new planes, a can-do culture and was staffed by employees who knew Bethune had their back. One example: Several employees won fully loaded Jeeps as a prize for perfect attendance. When one winner couldn't afford the taxes on the prize, Bethune made arrangements to pay them so she could keep the vehicle.

But Bethune eventually started believing his own publicity — his preening book was called "From Worst to First"— and went haywire after the terrorist attacks of September 11, 2001. At one point he even told passengers that they should pay him whatever he demanded for flights. "If you have to be in San Francisco for a presentation tomorrow, you are going. If I say it's $1,200 or it's $800, you are still going," he bellowed in 2003.

Bethune was eventually ousted and his replacement quickly dispatched, too. Continental's lawyer, a frosty autocrat named Jeff Smisek, ended up with the top job. He quickly dismantled Bethune's somewhat-better mousetrap, irritated employees with his aloofness and disdain and infuriated customers who began noticing Continental's operational decline.

As the surviving CEO of the United-Continental merger, Smisek seemed to do everything wrong. When he couldn't produce the promised financial benefits of the merger, he slashed service. Everything from the in-flight coffee to the business-class ramekins of cocktail nuts were cheapened.

 

The mismatched fleet — some with United's aging international first-class product and a better-than-coach Economy Plus, others with only Continental's business class — was flung around the globe without notice or concern for passenger expectations. Fares rose. Upgrades were sold to low-fare customers rather than awarded to elite flyers. On-time operations plunged, cancellations spiked and computers constantly crashed.

Employees at both carriers found reason to despise Smisek. Since no post-merger contracts were ever forged, United employees couldn't work former Continental flights and vice versa. Layoffs were common and Smisek outsourced work to lowest-bidder third-party operations. Disgruntled, disheartened cabin crews and gate agents often took out their frustrations on bewildered passengers.

Flyers didn't find anything good in the merger, either, even while they were taunted by in-flight videos featuring Smisek and non-existent improvements. Pre-merger United customers and pre-merger Continental flyers both found reasons to hate the merged airline's penny-pinching policies, its slovenly service and its unreliable operations.

This crumbled, bifurcated culture greeted Oscar Munoz, the railroad executive plucked from the United board late last summer to replace Smisek after a scandal involving United's hub at Newark Airport. But Munoz suffered a heart attack after only a month on the job and two weeks ago underwent a heart transplant. If he ever returns, it won't be until the second quarter and he still must do substantial spade work to learn about the airline before he can build a new culture and repair the carrier.

During Munoz's absence, United has fiddled around the edges of its frayed operations, dumping its commodity coffee supplier and bringing in Illy of Italy. United also is restoring in-flight snacks for coach flyers, choosing stroopwafel, a Dutch speciality rarely seen on this side of the Atlantic.

Also back: the policy of paying for its service failures. A new version of the Skykit — this time in the form of electronic certificate worth as much as $200 — can now be distributed by line employees when bags go missing, flights are cancelled or other mishaps occur. United has even upped the amount it will dole out to passengers for a meal voucher when flights are delayed. The payments used to be capped at $7. Now an unhappy flyer may be given $10 and elites may receive as much as $20 to grab a meal while United cleans up its act.

Will any of these little "perks" help United build a new culture or improve passenger attitudes toward the troubled airline? Of course not. But United can't even look much past tomorrow's flights anyway.

"It's all a bandage, a tourniquet on a gushing wound," one mid-level United executive told me via email last week. "We're just trying to hang on until we see who's captain of the ship and how he'll run the place going forward."

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