With United Executives leading the company down a path of death by 1,000 cuts, err…$2 billion in “cost reduction” savings, it must be really tricky for them to find ways to inspire investors when United’s network is dwindling, its planes are breaking down, its competitors are enhancing their in-flight products (while United’s is a complete joke), and its quarterly earnings suck.
So, as a temporary escape, they like to think of another crafty way to sell the tanking United brand: by talking, because talk is cheap.
Corporate talk is also great because it allows one to berate their competition (at a baseless level), erroneously point fingers at regulatory practices and predecessors for piling messes onto them (usually when the bad weather excuse has run dry) and effectively, dodge every opportunity possible to remediate growing cracks in the business operation.
That is exactly what United CEO Jeff Smisek did last week, according to an article published in The Street by author Ted Reed. Speaking at a Deutsche Bank investor conference, Smisek boldly claimed that United intended to increase year-over-year earnings each quarter, and also took jabs at Delta, previous United management and then went on to criticize U.S. government policies, according to the article.
Yet, in spite of all of this, Smisek and his cronies believe that even with an aimless business improvement strategy, beleagured employee relations and scapegoating, United is on its way back to profitability.
So, let’s let Smisek talk. Talk will cost United nothing. So perhaps, talk will be offered to passengers as an ancillary upsell which will allow United to overcompensate for negligible PRASM growth. He’s managed to delude plenty of sheep so far, including plenty of people who ought to know his tactics fail to pass the sniff test.
First derivation of talk, brought to you only by United: smack-talk
This is a product Smisek introduced himself, levied against Delta, a carrier who is literally crushing United in every measurable area of its business, by implying that Delta is building up a hub in Seattle to keep pace with United’s “best gateway” in San Francisco.
For starters, the logic behind his thought process is anything but logical (or at least it appeared that way as the facts were presented in the article). At the conference, Smisek was asked about Delta’s spool-up in Seattle to build a transpacific gateway hub. Despite weakening unit revenues and yields on transpacific routes quarter after quarter, attributed largely to the weak Japanese Yen and Australian Dollar, global airlines are still adding capacity across the Pacific Ocean. Delta will serve six Asian airports from Seattle by August, up from four last summer, American will serve four markets from Dallas/Ft. Worth, up from two last summer, and even United is adding transpacific service from San Francisco to Chengdu, China, starting today, and from Los Angeles to Melbourne, Australia in October, both on its 787s.
So, for a relatively weak market at the moment, United will inevitably face competition from its largest domestic rivals between the US and Asia-Pacific region, narrowing the lead that it holds as the #1 largest carrier across the Pacific ocean, by weekly seats offered. Yet, Smisek brushed aside Delta’s build-up in Seattle by saying, “our friends in Atlanta lack a gateway to Asia…the best gateway is already taken – that’s San Francisco,” in reference to United’s SFO hub that offers service to numerous markets in Japan, China, South Korea, Taiwan and Australia.
United’s smack-talk product is also bundled separately from an additional service charge for listening to Smisek’s unsubstantiated commentary, which entails suffering through his habitual pattern of restating the obvious.
It gets worse when Smisek tried to connect the dots back to pre-merger United’s “botched” management. According to the article,
Smisek said the best way for Delta to compete is “to have a good operation,” and then added, ‘Our predecessor company in Chicago had done inadequate training (of) its employees and hadn’t invested in its employees. We’re continuing to do that and are making very significant progress.'”
Delta’s growth in Seattle really has little to no correlation with United’s inability to train its employees how to use SHARES (assuming that is what Smisek is referencing). However, smack-talk generally doesn’t come with prerequisite courses on the fundamentals of effective public speaking and how to stay on topic.
Smack talk also gives one a free pass at negligence, as the aforementioned premerger United employees were employed under Smisek’s leadership for over 18 months prior to the distastrous passenger services system (PSS) migration that occurred on March 3, 2012 from its legacy Apollo reservations system to Continental’s SHARES program.
Life is so much more exciting when you’re entitled to making hypocritical comments without considering the repercussions. You can allocate blame towards the blunders of those who stood before you, even when you’ve been at the reins for over 4 years now at the world’s largest airline. You don’t have to show anyone that you’re a capable, credible leader that can fix all of the messes you’ve allowed to unfold right underneath the tip of your nose.
I’m sure that Tom Horton led American Airlines out of Chapter 11 bankruptcy court, after inheriting one of the most poisoned labor-relations groups in the history of the airline industry, by trashing former CEO Donald Carty on a daily basis. The latter figure showcased a real example of corporate arrogance and ineptitude in 2003 when it was discovered that he had retained bonuses and pensions for AA’s executives, after asking unions to shell out $1.62 billion in concessions.
Next time you spot a plane bearing the “new American” logos, just think about them as a emblematic of Horton’s fury towards those who stood before him. The blood, sweat and tears he put into turning the airline around are all reflected in the paint scheme.
Second derivation of talk: cheap-talk
Speaking the point of Delta “having a good operation,” in the Pacific Northwest, well, one can already tell that its buildup in Seattle is doing wonders for United’s ability (inability) to compete in the region. United cancelled its Seattle to Tokyo route in January, and has axed a slew of regional routes from Los Angeles, Las Vegas and Portland within the Pacific Northwest and Mountain region over the past few weeks.
It’s also interesting how Smisek made a reference to San Francisco being “the best gateway hub” and then discussed how United’s Boeing 747-400 fleet had “had problems” with the aircraft, and temporarily based them all in San Francisco where they could undergo a “preventive maintenance program.”
I had to double check to make sure that Ted Reed was writing about an Investor Day conference and not a Circus Day.
So, the “best gateway” city across also houses the fleet that has been maintained adequately in terms of safety, “but not reliability” (Smisek’s words, quoted directly from the article)?
If there is any comforting feeling for a United employee, or just general United fan, reading this post, it’s that there are some people out there who are less competent than its head honcho, and they are the analysts and media personnel who failed to catch this paradox and call Smisek out on it.
Then again, maybe these people are just waiting to let the numbers speak for themselves. A year from now, we’ll revisit how United’s use of aging 747-400s on its routes to Beijing, Hong Kong, Seoul, Shanghai and Tokyo from the “best gateway city” compare to Delta’s use of 767s and Airbus A330s on the same routes from Seattle, which offer a far more palatable in-flight experience, using lower-cost, more operationally reliable aircraft.
Even on the domestic front, from a product perspective, Delta just announced this week that customers traveling on its services from New York JFK to Los Angeles, Seattle and San Francisco in Economy Comfort would receive upgraded amenities, including priority boarding, complimentary alcoholic beverages, amenity kits, and snacks.
I don’t see United doing anything of the sort on their transcontinental flights for customers seated in EconomyPlus.
It amazes me that Jeff Smisek hailed from the Continental side of the merger, where he inherited former CEO Gordon Bethune’s legacy of, “you can make a pizza so cheap, nobody will want to eat it.”
Sell that to Smisek, who is clearly content charging passengers $7 per bottle of boxed wine on transpacific flights. I’m sure that’s the best way to provide a winning customer experience on long-haul segments relative to Delta, who serves complimentary alcoholic beverages across all cabins across the border. Your “best gateway hub” is also a dry one, as well, unless you cough up more.
Third derivation of talk: nonsense talk
Nonsense talk, another product brought to you by United, is a means of insulting the intelligence of the public with statements such as, “United intends to increase quarterly earnings each quarter going forward, and that you’re confident in [your] ability to do so,” when you recently posted a $400 million+ loss for the first quarter alone in 2014.
That was nearly a $1 billion swing from American and Delta. American recorded $480 million in profits, while Delta recorded roughly $440 million over the same period.
United had expected to lose $300 million in Q1, but bad weather widened the loss by an additional $200 million, according to Wolfe Research analyst Hunter Keay. In another article published in The Street the other week, titled, “What’s wrong with United Airlines? A little bit of everything,” also written by Ted Reed, Mr. Keay hosted a dinner with United CFO John Rainey, and had some pretty head-scratching takeaways. Keay wrote in a report the following day, “the tone [of the dinner] was generally negative (but) management handled it well.”
However, this did not last, as Keay reported that he was, “increasingly optimistic that the current management can turn things around.”
His reasoning? United’s business is “more seasonal than its competitors.” That explained for the Q1 loss.
Nothing speaks of greater nonsense than deluding a CFA, like Keay, to believe in statements such as the excerpt published below:
“No one wants to go to United hubs like Denver or Chicago in February. Strong Florida traffic benefited Delta more than it benefited United.” -Wolfe Research Analyst Hunter Keay
So, as such, nonsense talk permits the Chief Financial Officer of the world’s largest airline to misrepresent facts in the form of complete, utter lies and see through that they are published in prominent media sources.
Nonsense talk equates cities such as Denver, Colorado with Buffalo, New York. You can fantasize about a world where there is no such thing as skiing in the Rocky Mountains during the winter months. Not to mention, forgetting that a mid-sized, economically robust city exists where one can connect one to virtually all parts within the lower 48 states under 4-hours.
To say that nobody wants to travel to Denver in the winter months is literally one of the most asinine comments they could ever make.
Now, it could be fair and valid IF United’s yields and marketshare were suffering in Denver due to competition from low-cost carriers Southwest and Frontier, which possess sizable hubs in Denver. However, to that point, numerous studies have been conducting which have proven that United actually walks away with the highest yields of the three.
Nonsense talk doesn’t end there. It allows you to underscore the importance of the third largest city in the United States, among the top 25 in the world, with a GDP higher than that of Mexico City, Shanghai, Toronto, Hong Kong and Sao Paulo.
It is also the location your global headquarters. Can nonsense talk also be considered self-deprecating?
Sure, tourism traffic may drop significantly in Chicago over the winter months, but business traffic does not.
Not to mention (and this applied to Denver as well), it’s one of United’s largest connecting mid-continent hubs.
So, someone traveling from Boise, Idaho to Orlando will likely travel through Chicago, even though it is the winter months. Their itinerary will still involve a leg that connects through ORD.
But in all reality, they probably opted instead to fly Delta through Minneapolis, or Detroit, or maybe even Chicago, but on American. Wait – shouldn’t Minneapolis and Detroit be equally impacted by the weather factor?
No, it’s probably because the customer opted to go with an airline that isn’t as operationally unreliable as United, and with a product that has become the lousiest of the domestic airline industry.
As far as Florida flights go, and how “strong traffic” benefitted Delta more than United, it doesn’t come off as surprising considering that United is basically an all-regional jet operation into Miami International Airport. Furthermore, if the traffic is going to Delta, clearly, that says something about the superiority of the Delta brand into Florida (a market that is literally saturated with low-cost carrier competition that should cause the legacies to be on the retreat), over that of United.
However, nonsense talk, in the manner it is written above, loses its nonsense if you’re referring to Cleveland. That would actually be a progressive step for United to explain why it is no longer #CLEFriendly.
So, let them talk, while the bull$*&t walks
The fact that United executives believe it can improve its earnings outlook quarter after quarter after listening to the above commentary is an utter joke.
It’s about as credible as United’s ability to stick to its deadline of rolling out its new website (was supposed to originally occur in Q3 2013), the Wi-Fi installation on its aircraft, the fleet repainting, the list goes on. Just yesterday, I saw a United regional jet in tulip livery.
In the interim, let’s see how Smisek and his team can ride out this wave with the cheap talk. However saddening it may be to watch him ruin what was once a great airline, there are at least ways to poke fun at it.