A United 787-9 touching down at Paine Field - Photo: Bernie Leighton | AirlineReporter

A United 787-9 touching down at Paine Field – Photo: Bernie Leighton | AirlineReporter

We’ve all seen the statistic; Airlines For America (a U.S. airline trade organization) is predicting 2.4 million passengers per day this summer in the 91-day period between June 1st of this year and August 31st. 332,000 of those enplanements are going to be international.  Obscene!

Great for the industry. Yes. But be careful what you wish for.

At least, if you happen to be United Airlines. Things do not seem to be matching up with their peers over there? What’s going wrong?

Let’s start with the most recent on-time statistics for United for the month of June. 42% of flights in the United system departed without any delay. Amazing! Especially when their internal goal was 52%. Again, all this is fine in a vacuum- there are things like bad weather, known unknowns, and the like; except it trails its two largest competitors by a large margin.

Delta’s on-time performance for June was 66%, American’s was ~60%, and even Southwest was 53%. This is, of course, last month’s data. This month’s will have the blip of United’s router failure that knocked every flight into at least a two-hour delay on July 8.

United has had a rough summer in terms of operations, and summer is not even half over - Photo: Bernie Leighton | AirlineReporter

United has had a rough summer in terms of operations, and summer is not even half over – Photo: Bernie Leighton | AirlineReporter

It gets worse, though. Read any frequent flyer forum – even when people are trying to be objective and mention on-time departures, it paints a grim picture of the airline’s reliability in favor of the competition.

So, why should United care? They’re making record profits. Except, again, so are its two largest competitors. In terms of actual profit-to-earnings ratios, margin, and yield, United is at the back of the pack. Obviously, not everyone can be Delta, but in times of record profitability- it is time for investors to focus on whether or not they are getting the truly maximal return. In United’s case, Wall Street is starting to notice. Market analysts are downgrading United’s stock.

Let’s dig a bit deeper.

United faces headwinds relative to its competition- Photo: Bernie Leighton | AirlineReporter

United faces headwinds relative to its competition – Photo: Bernie Leighton | AirlineReporter

Recently Delta’s CEO, Richard Anderson, stated that they were very pleased to see a gain in treasured “high-value frequent flyers” defecting to Delta from airports such as Chicago’s O’Hare and San Francisco. When Delta inquired as to why this revenue-critical market segment was flocking to them from traditionally non-Delta strongholds, they cited on-time performance as a major factor. Good for Delta, too. If you look around, Delta managed to keep at least a 43-day streak without a single mainline cancellation since the summer timetable began.

Okay, that’s fine. United can replace these lost high-value flyers with someone, right? Less capacity means there are less seats in the market. Except, the American air travel market is not shrinking. I mean, after all, part of United’s woes come entirely from cutting actual flying but either raising or maintaining ASMs (available seat miles) by adding seats or up-gauging aircraft .

To the average non-AvGeek, a full flight should generate more profit than two 75% full flights on smaller aircraft, leaving in a similar time frame. Not so; yield (revenue/ASM) is king. Now, for future and current reference, United’s yield is about 16 cents per mile. Statistically, higher-value frequent flyers are flying for reasons of necessity and time-sensitivity. They haven’t been planning a vacation to visit the Wigsphere in Knoxville for two years and absolutely have to leave on February 28 (and booked a ticket online the day they got leave approved accordingly).

These flyers are booking premium cabin fares at the highest booking classes (or at least economy at the Y/M/B end of the fare classes). They have to be there for a meeting. They can’t be there for a meeting “that night.” Even worse, they can’t be at that meeting by sitting in Houston as it happened a day before.

A classing United Airlines Boeing 747-400. Photo by Blaine Nickeson.

United Boeing 747-400 in Hong Kong – Photo: Blaine Nickeson | AirlineReporter

If, as a high value customer, you have been burned by United to the point it effected your productivity, you are going to leave for the competition that prides itself on timeliness.

The seats are still going out full. Just, you know, not with the highest yield United was once capturing. I admit, you cannot make a whole flight full of high-value frequent flyers, but get enough per flight and you can change the breakeven seat factor quite quickly. Thing is, you can’t create these whales of a customer out of thin air. If they defect, their replacement might not be willing to pay such a premium for their transport.

This puts United in a pinch. They need to stay on track with Wall Street targets, remain competitive with their two large peers, and also maintain a customer base that is often a key revenue driver.

Something they’ve already been demonstrating through their philosophy on passenger experience is that they need to adjust their customer value proposition and price/product ratio.

Pre-merger U.S. Airways found itself in a similar bind to what United may be in - Photo: Bernie Leighton | AirlineReporter

Pre-merger US Airways found itself in a similar bind to what United may be in – Photo: Bernie Leighton | AirlineReporter

Some argue that pre-merger US Airways was caught in a similar bind. Lacking the capital and agility to quickly rise to the standards of the competition, they became obsessed with lower costs to match their lower yields. That said, that was always their vision and they did a great job as a mixed carrier.

United, on the other hand, has been forced to react to losing its mystique.

Global First is not commanding the yield premium compared to other airlines, even when other airlines have refreshed and updated (including revamping the seat count to match demand)? Solution: rip it out! It is easier than having dedicated sub-fleets with first class, with a product and price to match, to serve specific destinations. 

United's Business First product on the 787 Dreamliner.

United’s BusinessFirst product on the 787 Dreamliner – Photo: David Parker Brown

After all, United’s “BusinessFirst” product is totally competitive with other airlines’ business class products, but also first! Except, well, United is the only airline in the United States that is neither working towards or in possession of a product that offers all passengers direct aisle access? Is there a new “BusinessFirst” product coming in 2016? Well, maybe? The most recent Jeff Smisek interview was a little ambiguous as to what will be installed on the soon-to-be-firstless 767-322ERs. We do know that it’s “really something!”

It gets stranger. Again, in the same interview Smisek mentioned the first 777-300ER (customer code unknown) will be arriving December of next year. Great, but why didn’t he mention the fact the A350-1000 will be joining the fleet two years later? There’s no evidence to support my tinfoil hat-level theory, except for the fact that United is focused entirely on lowering costs. So, which is cheaper to purchase (not operate)? The 777 at the moment, especially with the pricing Boeing is offering for customers who wish to bridge the gap between the end of 777-300ER production and the start of the 777X -8 and -9. Could Smisek have hinted at a desire to provide Airbus with more choice as to where those delivery slots for A350-1000s will head? I don’t know. I just find it an odd omission.

No matter what, though, United’s operational headaches, legacy product, legacy IT infrastructure, and labor issues are going to cause it further headaches. It’s fine to be making record profits when fuel is low, but United is not using this time of record-low oil and record-high revenues to really make visionary, long-term, changes.

This is going to cost them.

CONTRIBUTOR - SEATTLE, WA. Bernie has traveled around the world to learn about, experience, and photograph different types of planes. He will go anywhere to fly on anything. He spent four years in Australia learning about how to run an airline, while putting his learning into practice by mileage running around the world. You can usually find Bernie in his natural habitat: an airport. Email: [email protected].

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22 Comments

The problem with United is that they trashed their best components which they paid dearly for. As an example, they bought the route authority for both Pacific and Latin America from Pan Am. I don’t know if they still have the route authority for Seattle Hong Kong or for Seattle London. Those are just two destinations that I would prefer non stops on United.

They used to be a dominant carrier out of SeaTac with great service to Hawaii and the East Coast and down the West Coast and now they are relegated to an also ran out of SeaTac which totally diminishes most of the value to use them out of Seattle.

In contrast Delta has built up their Seattle base.

As far as equipment configurations go, they made a mistake by buying the A350 1000 and should have stuck with the 787. I am looking forward to my next flight to Australia on their 787-9 out of LAX.

exTWAer

1
UA117 JUL 17 EWR HKG over 6 hours delay including almost 2 hours on tarmac. No information but 7$ voucher which does not buy a newspaper at Liberty.
2
recently LIS-NYC aver 5 hours delay not even the whisper of excuse or compensation.
Passengers must be happy to be served by UA.
3

UAL purchased Airbus, biggest mistake!

syvjeff

Here’s the problem with United.

CULTURE

As an airline obsever (not an expert) of the airline industry since 1987, United has yet to ever have their labor issues put to bed enough to really run an airline that could ever be called consistent and a good experience for the paying passengers. Let’s face it, the airline’s unions hate each other dating back to when this was an “employee owned” airline and with the merger with Continental, now you add another mix of workgroups which don’t really work together.

CEOs, upper management and board of directors have come and gone, but the product and operations was always hampered by a bad culture. In fact I saw some piece online in the recent weeks describing the chaos when computers went down while at LAX. The person writing about this experience saw a leaderless mess with the exception of only 1 or 2 employees cool under fire.

I’m not an airline loyalist, but the reason why Delta is getting the current results is that they give incentives to their employees to meet operations objectives. Also I’m impressed with how even in their own press releases and earnings calls for investors it is brought up that the employees are the ones that make it happen to get results. This sounds familiar, like Southwest Airlines of 25+ years ago.

On another note, I do get really tired when I see shallow posts that say an airline is or is not successful because they purchase brand “A” or brand “B” aircraft. The one thing that the jet age has done is bring the world and it’s economies closer to each other. Delta and United fly both brands and it’s all about how they use them, the people who get them going and the passenger experience.

edinburgh078

United from my own eyes definitely has lost its mystique, especially after merging with CO. They’ve tuned me out with their sterile marketing geared towards business passengers and their seeming disregard for United’s history and premium disposition it once carried. Maybe it would have been better for United to end its storied run on a more dignified note than to have grasped onto the coattails of a once-rival airline just to keep its name alive.

Jimmy Samaniego

My United Airlines was May 19 2015 from DCA Reagan to Edinburgh, Scotland. United connecting flight to Newark was delayed missing our connection. United arranged a shuttle bus to IAD and reserved seats on British Airways through Heathrow London to Edinburgh, Scotland. Before, we left United sent my suitcase on an earlier flight to Newark. They promised my bag would be in Edinburgh when I arrived. However, this did not happen. I spent 3 days in Scotland without my clothes and 3 days trying to work with United to get my bag sent to Scotland. They made me feel it was my fault that I left without my bag, however they sent it on an earlier flight. Not to mention, I spend $666 dollars on upgraded seats, I bought a pair a pants I wore for 3 days and two shirts. I called United, and they said I had to go online and send in a refund. They refunded my golf clubs that they did not send to Scotland, however they have yet to refund the rest. I’m so frustrated with United, and I used to be a Premier Customer. United’s Customer service is so poor, I can only complain now.

Jack Smoe

United may have always had issues, but it was still one of the renowned US carriers for decades. People who write these articles as if the legacy issues are tied to the name fail to recognize that United has now been run by CO management for over 5 years and long ago purged all United Mgmt from senior level positions.The drop in the first class level experience to the now two class mush was wholely a CO philosphy that United is paying dearly for now. (All aisle access for first class was a no brainer if you want to compete)
It is also the case with American as it is almost wholey run by ex US air execs who did not exactly have a stellar reputaion ass well.

Lets just get the facts right before presenting the argument!

JL Johnson

Another excellent piece, Bernie. Sorry to see a once great company stuck in the shadow of what it once was. I hope they are able to turn it around, and quickly. Also, I want to thank you for doing the heavy lifting and putting together a solid piece that I can now use to justify my multi-year criticism of UA’s serious operational/cultural/customer satisfaction/IT challenges.

JL Johnson | AirlineReporter

I agree with JL, another great article, you hit a lot of pain points with United. I hope United mgt reads this, cause this is free consulting for them.

From the outside, it appears mgt isn’t focusing on what matters most, heck, they still don’t have a single FA contract. Just think of the extra costs of running the airline with 2 FA contracts. For example, UA down graded Denver based FAs (even furloughed them), while hiring CO FAs to build a new CO base in Denver. This doesn’t make any sense, just think of how much this costs logistically.

There is no way I would fly UA period. It’s a horrible airline.

I used to enjoy United, even in Economy. It was simple things, like playing the “Guess the halfway mark” game on flights to Hawaii and listening to channel 9 audio from the cockpit. They also had a whimsical advertising/marketing scheme. Now they just feel generic. They have no personality. They need to bring back the Tulip and embrace the heritage of United.

edinburgh078

My sentiments exactly! They were great for Pacific and Hawaii flights. Even in economy, you knew you were in for a good ride. The livery and Channel 9 made it stand out from other airlines. Now, it really isn’t the same ol’ UA… just a shell of its former self.

Great article. We’ll written and interesting angle on an airline with no clear direction apparently.

Jack Smoe

The Tulip is gone and the Globe is running this once great airline into the ground.

Sorry, I know United had a great heritage and all, but they were failing financially, thus the merger with Continental. Actually it was CO who bought UA and installed their Management to run the combined company which has become more profitable, in fact see this:

http://finance.yahoo.com/news/united-announces-highest-ever-quarterly-113000362.html

There are other factors not mentioned about their lack of service and how the unions are performing a possible slowdown to make a point.

http://crankyflier.com/2015/06/29/is-a-labor-slowdown-the-reason-uniteds-operation-has-been-terrible/

I read your piece, but I think you need to continue doing research to see the whole picture.

Its you that needs to do research. United was the one who bought CO and was doing better financially. Lest you forget, Jeff Smisek in trying to get the merger approved told Congress CO had a bleak future without United.

Very little of United’s top and middle management is legacy Continental. United is being run out of Chicago by United people.

John O.

Long-time United flier. I don’t see UA as being any worse than AA or Delta these days. Perhaps statistically this summer has been tough on UA but they continue to work on improvements.

Jack Smoe

There are only three Legacy UA people in the top 5 tiers of upper management left and they have been relegated to bit roles for pension considerations. The takeover by CO started as a 50/50 handshake deal by Tilton and Smisek as Tilton never had an inclination to run an airline as an ex oil man. The deal was only to keep the UA name and HQ located in Chicago. Once Tilton was gone, Smisek did not take long to run the UA people out and replace with his Houston cronies.

That’s what happens when you sell your soul…

SYVJEFF

Despite my earlier post, I’m going to put my money where my mouth is and fly United & UX/Skywest in about 3 weeks based on price and schedule for my needs. I’m expecting an OK experience flying from Santa Maria/SMX to SFO to EWR and back for business. If good, I’ll report. If bad, I’ll report.

Normally I drive to fly out of LAX just because of price, but in this situation I get to fly out of an airport close to home with free parking and a quick TSA experience for less than LAX on this trip.

The last time I flew United it was the week the merger was announced to Maui and back. The flights were just OK. Over sold, grumpy flight attendants, and not on time. As I posted in my earlier comment, I’m expecting the same experience based on a long culture of that at United.

As a 15 year United business flyer living on the west coast, they’re the best choice i have, knowing whatever happens I can find a way home to one of 5 So cal airports they serve. Not to mention several small airports thru out California, and the massive SFO to anywhere in the world (most directly)
I’ve seen a complete turn around in service in the last year, and United Express (Skywest)
has changed dramatically. The new EM175’s are the best regional jets on the planet.
I may not like the lumbering to altitude 900’s as a replacement for the 57’s but the international configured 57’s with Lie flats are fantastic. THE ONLY reason the name United was kept over Continental was it’s wider international name recognition. Hence CO’s livery and United’s name. CO DID NOT buy United, Tilton was leaving anyhow and the banks wanted A MERGER ! to be run by SMISIEK. United’s sheer size still dominated the streemlined and well run CO. In fact the merger was attemped years earlier but UNITED”S customer service was so bad they left the table. And Airbuses BTW (the single aisle ones)
are far more comfortable up front than any 37 is. Delta is making great improvements in service, and United is having to follow them, but US Scareways and AA have a long way to go with the Doug Parker at the helm. But, … my main point is that where you’re based is what drives your airline choice if you fly weekly, not a name or brand – convenience is King for any constant traveler.

Just wanted to pop back on this topic again. Did do my trip from Santa Maria, CA (SMX) to Nrewark and back using United. Everything went well. Service was friendly, smooth, etc. Planes were clean and modern. I did get a little nervous while flying through my connection in SFO that there were 2 mainline flights delayed around my gate for a mechanical and another being short a flight attendant.

My only two complaints are they do so many boarding groups, the space around the gates tend to get bunched up by being placed side by side and off loaded our baggage at the wrong carrousaile at Newark.

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