“Corporate apologies,” a cartoon illustrated by artist Tom Fishbourne, depicts the traditional corporate mindset where apology letters admit the company did nothing wrong, but will still emit a compensation voucher for “inconveniences,” ultimately rendering the apology to be more frustrating than the original incident. Image courtesy of tomfishbourne.com
Yesterday, the world’s largest carrier experienced yet another major computer glitch, roughly one week before the year’s busiest travel period.
Cue major groans and face-palming. This would count as lucky number 3 in terms of technical outages United Airlines has suffered since its merger integration with Continental Airlines in March. This time around, the carriers dispatch system software that communicates departure control information between the airline and the pilots on weight and balance, as well as the number of passengers and baggage on board, was what went faulty.
The disruption occurred from 7:30 to 9:30 AM on Thursday and resulted in 257 delays throughout the day, along with 10 cancellations, according to the Chicago Tribune.
This was preceded by another unrelated network outage that occurred back in August, when a piece of equipment in one of United’s data centers failed and disabled communications with airports and United-Continental Holdings, Inc. website, United.com. Data center failures are typically to blame on the vendor, as was valid in this scenario, but the carrier generally has to shoulder the flack from inconvenienced customers face-to-face.
Of course, nothing compares to the long-term affects caused by the disastrous integration back in March when United moved its passenger services system onto a single platform, known as SHARES, previously used by merger partner Continental. The resulting cutover essentially threw passenger operations into a chaotic whirl as system snarls caused flight delays, faulty kiosks, long-lines at airports and wiped-out upgrade track records, among numerous other problems.
The months thereafter have shown little signs to no signs of improvement. Summer 2012 was an operational nightmare period for the Chicago-based carrier, when on-time performance (OTP) slipped to rank the lowest among US carriers at a rate below 70% between June and August. In an effort to right-size capacity on specific aircraft deployed to fly particular route pairings, United was heavily involved in a cross-fleeting effort across its route network. Ultimately, with over 700 planes in the United fleet, the operational needs greatly outweighed what the system was capable of handling under duress, particularly with aircraft swaps and spare planes in irregular operations (IRROPs) situations. Consequently, the over-exerted SHARES platform failed to execute operations effectively during these busy travel months.
United CEO Jeff Smisek appears to be in a constant state of apologetic fluxes to Wall Street analysts, continually attempting to paint a big, rosy picture about product enhancements and emerging improvements in an effort to convince the public United is back on track, and will continue to perform well during the busy holiday season.
But is the road repaired?
United targeted an 80% on-time performance for the month of September 2012, which it exceeded at 82% without breaking much of a sweat. However, the bragging rights become slightly diluted in context given that September is shoulder season in travel cycles, where busy traffic demand tends to slough off. Moreover, despite reaching its target, United’s on-time performance for the month still ranked among the lowest of all US carriers, according to statistical data compiled by the US Department of Transportation. Only two carriers, American Airlines, which filed for Chapter 11 bankruptcy a year ago, and ExpressJet Airlines fared worse than United at 58.0% and 81.0%, respectively.
Despite this, Smisek said that the problems were behind United in an earnings call with analysts in late October, and he seemed confident that the carrier would perform well during the busy holiday season. To his credit, that has stayed fairly true as United’s OTP has not strayed from the 80% realm in light of recent weather-related curve balls such as super-storm Sandy and a snowstorm on the East Coast last week. Even inclusive of yesterday’s technical snafu, United still maintained an OTP above 80% for the day.
However, there’s no denial that United’s lackluster post-merger situation hasn’t taken its tolls in other measurable areas independently of on-time performance. Customer satisfaction continues to hover at an all-time low: as of September, United ranked dead last among all US carriers for system-wide complaints per 100,000 enplanements for the first nine months of 2012, according to calculations by the US DOT:
Furthermore, the impacts have trickled their way towards United’s bottom line, as third quarter earnings report did not have boastful figures. Passenger revenues dropped year-over-year compared to the same earnings period in 2011 in every operating region except the Pacific, and overall operating profit was down 79% for 3Q 2012.
Virtually every major US legacy carrier, including American, Delta Air Lines and US Airways, all reported unit revenue increases for the first 9 month of 2012, whereas United was the only carrier to report a negative YoY performance. During this same period, United also recorded the highest increases in operating expenses compared to its peers, and will likely continue to see some cost pressures in 2013 as it reaches joint collective bargaining agreements with the combined labor groups of United-Continental.
Without question, much of of the revenue slump can be traced directly to the departure of many of United’s high-paying corporate travelers, who have taken their loyalties to the competing legacy carriers after becoming fed up of United’s repeat operational failures. During its Q3 earnings call, United acknowledged this was indeed becoming a significant problem for the carrier, but resorted to its usual tactics of making promises to re-engage its customers by touting improved reliability and the overall value of its network.
Some industry observers, as reported in the Tribune, are saying that United is now pretty much out of excuses.
“It is flat-out unacceptable,” said Henry Harteveldt, co-founder of Atmosphere Research Group. “This makes United a laughingstock among airlines.”
The fish stinks from the head
It’s starting to become a repetitious cycle: clear divergences between promises and apologies from the United leadership and measurable lags in operational and financial performance and customer satisfaction can only point to a blatant lack of coherent strategy and execution on the carriers’ part.
Airline computer systems are undoubtedly complex, but that doesn’t make consistent failures any more understandable in the eyes of the public and any less embarrassing for United and its leadership.
Put simply, the United-Continental merger was not planned properly.
Some people believe that United is delusional in believing that it’s problems are behind it. Harteveldt believes that the repeated incidences have undermined trust in the airline and demoralized employees, which is very a slippery slope.
“There are clearly failures in the airline’s strategy and the airline’s execution, and heads need to roll,” he said. “United’s (chief information officer) should resign or be dismissed.”
Also quoted in the Tribune was Joe Brancatelli, a business travel writer at JoeSentMe.com, who agrees that the problems stem from the guys running the show, referring to United’s top executives.
“The fish stinks from the head,” he said. “Mostly what it says is that (airlines) have got to stop looking at mergers as two route maps you can mash together.”
A losing battleground
While United alluded to the loss of allegiance from several of its corporate travelers during the earnings call, skepticism looms over whether Smisek underplayed the enormous potential consequences of this fallout over the long run.
Put simply, these days, it is not difficult for legacy carriers to lower the barriers for elite status holders to jump ship from one airline loyalty program to another. This can be a very dangerous loss for a large network airline like United, who depends crucially on this type of traveling segment to pad its bottom lines.
For example, last month, American Airlines offered major incentives for customers to rack up elite-status qualifying miles as a public relations olive branch owing to its poor operating performance in September 2012. In an e-mail sent out to its AAdvantage members, American distributed a promotion code titled, “AATHX” which passengers could use to register online to receive double elite-qualifying miles and points for travel beginning November 1 through the end of the year. American even took it a level further to lure customers: passengers who earned 10,000 elite-qualifying miles (EQMs) within a 3-month period automatically received Platinum-level status valid until February 2014, a fairly easy feat for most frequent fliers.
Yesterday, USA Today reported that San Francisco-based Virgin America is offering a status match for elite members on American or United, “on the airline that makes flying good again,” according to its website. Registered frequent fliers can migrate to Virgin’s Elevate Gold or Elevate Silver statuses, depending on their current level within American or United’s respective programs, without sacrificing any of their current benefits. The status is valid between now and April 30, and if registered users earn a certain number of minimally-required status points by flying with Virgin, Virgin Atlantic or Virgin Australia within that time frame, they can extend their Elevate status until the end of 2013 and enjoy all the perks and benefits that come with it, including one complimentary pass to the highly-rated Virgin America lounge at Los Angeles International airport (LAX).
What United CAN leverage, however, more so than carriers like American and definitely Virgin America, among others, is its vast network strength, undoubtedly the primary value proposition promised to customers and shareholders in an airline merger. But, in order to do this, United needs to establish credibility in key areas, namely steady upticks in revenue performance, consistent quarterly profitability, regular punctuality and high customer satisfaction, in order to win those customers back.
As CAPA writes, Delta achieved a profit three years after its merger with Northwest in 2008, earning more than USD $800 million in 2011. United will likely be held to the same time frame in terms of expectations from Wall Street, as October 2013 will mark the 3-year anniversary of the official acquisition of Continental Airlines. If the post-merger environment over past few months serve as any indication, United has made little to no indicative progress towards achieving that goal.
With more challenges ahead pertaining to labor costs and uncertainties surrounding the fiscal cliff, each nebulous statement coming from the C-Suites on Wacker drive in downtown Chicago can only be viewed with more skepticism until better numbers start to come in. United faces a very formidable uphill battle ahead. Hopefully, 2013 will paint a drastically different picture from 2012 in order for it to call this merger a success.
Chicago Tribune: United Airlines experiences yet another major computer glitch