Be predictable - Be gracious - Be the solution - Be the Brand .....Part 1

United calls these four directives their "Service Principles."  For the last year or so, when United employees log in to the company's intranet, they have been greeted with this message.  The intent of the message is not only to motivate United's employees to do their best, but it is also intended to unify them and get them to rally around a common idea.  That idea being the "Brand" that is United Airlines.

All big corporations have their catch phrases and jargon that is put out there to encourage and inspire.  Young MBA's coming out of their A-school programs land jobs in the executive office or with a consulting firm; and leap over those on the front line with the customers. While in school they have read, discussed and come up with their own theories from numerous case studies of actual missteps made by major corporations.  At the same time, you have academics shaping those young minds with their own theories of what should have happened, even though many of these academics would not last a month in the corporate world.  This is where concepts such as "Service Principles," as well catch phrases and jargon are bred.  

Some of the missteps studied include the introduction of a new product to replace something that was tried and true (new Coke); leveraged buyouts and how they overvalued companies at the expense of shareholders and employees (KKR and Nabisco); and one that I studied, how the delay in upgrading computer reservation systems was critical to the demise of a highly respected and profitable airline (the original Frontier).  I suspect that if they are not already being written, in a few years business schools are going to be studying the merger of United and Continental and the mistakes made in trying to unify two disparate corporate cultures.  

I suspect there is some highly paid MBA, most likely a consultant, who came up with these four service principles for United Airlines.  Had he or she spent any time on the front line beforehand, they would have realized that the dedicated employees at both United and Continental had already embraced these service principles on their own from the very first day they reported for duty.   The suits in the Willis Tower need to show they too are contributing to ensure the success of this airline, and that is why you see crap like this coming down to the line.  Yet some hard working flight attendant, who did not get any sleep the night before in their glamorous layover hotel near the airport, is supposed to check-in for what could end up being a 13 or 14 hour duty day, read these service principles, and then all is right with the world.  This merger has cost hundreds of millions of dollars more than originally projected, much of that cost coming from overpriced consultants with ivy league MBA's and PhD's; all of whom are so arrogant to think they know for certain that their solution is the right solution.  Buried in this is probably a cost that ran at least seven figures for someone to come up with these four service principles.

Like a lot of corporate jargon and feel good catch phrases that get pushed down the line from management - many of United's front line employees just think of the four service principles as a load of bullsh*t. It is obvious they are not being embraced sincerely.   Here is the proof - since the merger was completed five years ago, United has consistently placed last or near last in many national customer service surveys (e.g. J.D. Power).  Add to that the number of complaints registered with the DOT by passengers in just 2014 alone, where United was second only to Skywest.  Ironically, Skywest is United's largest Express partner.   

Further evidence that confirms that the service principles have not been working are the significant changes in how United Airlines has been operating in the last few months. There are hints of some of the old United Airlines coming back, although much of it is too little and too late to woo back many premium customers who have already defected to other carriers.  To make my point here it is best to compare what what was happening a year ago, the mistakes that were made to that point, and then look at what is happening today.

Summer of 2014
As you know, most of the senior management ranks at United are made up of those who came from Continental Airlines, and they all brought with them an attitude that they were certain that what had worked at Continental was going to work for what was now the world's largest airline.  Starting in 2010 through to the summer of 2014, United's new management implemented changes that they certain would make this airline better then the rest.  This is a picture of where United was a year ago:

• With delivery of the new ERJ-175 jets, for which United committed hundreds of millions of dollars, many domestic routes were being switched to United Express carriers, and stations in mid-sized cities became entirely outsourced. Long-time United and Continental employees either had to transfer out of those stations, accept lower paying positions with the Express partner, or retire.  These new jets were also being put into service on flights between hubs, such as Denver to Washington-Dulles, replacing mainline service, taking away jobs from mainline Pilots, Flight Attendants, Mechanics, etc..
• 757's were being retired or put into service on shorter Atlantic routes, and then replaced by the newer 737-900's.  Most legacy United flights to the Hawaiian islands were now flying pmCO 737-700 or 737-800's because they used less fuel, and pmCO crews could be scheduled for longer duty days and work more turns rather than having to layover.    
• Expensive and heavy In-flight entertainment systems were being pulled off and far cheaper broadband internet wi-fi installed so that customers could use their own devices to stream movies and TV shows.  This became known as BYOD, or bring your own device, flying. 
• A new thin-line economy seat was introduced that would reduce weight and allow for an extra row or two on the planes.  Passenger comfort was not a concern.    
• There were very few wide body aircraft on domestic flights, all of these planes had been repositioned to be put into service solely on international routes.  The new 787 was flying, but it had been grounded for awhile because of the battery problem, and Boeing was still experiencing delivery delays.  The 787's being delivered were planes that had been ordered by Continental and are configured with only two classes of service.  These did not fit with United's, 3-cabin, International Premium Travel Experience product that long-time United customers were accustomed to.
• Across the system food service was being cut.  Meals were only going to be served on flights over two hours.  There would be no meal service on the United Express flights.
• Bag fees were increasing, and United was adding everything in that was possible that could be purchased for an an extra charge.  You no longer had to be a frequent flyer to have "Premier Access," you could buy that for a nominal charge.  Long-time loyal premium flyers were being pushed aside.

All of this was done so that each and every flight segment was profitable.  That was the Continental way of doing things.  

Something happened with all these changes though - the customers were not embracing them, and there were operational glitches that led to costly delays and even more customer service problems -

• Global Services and other premium frequent flyers in those mid-sized cities that were now outsourced took their business to American and Delta.  Why endure a long-trip across the Atlantic in a cramped narrow-body 757 only to be crammed into a smaller regional jet for another 3 to 4 hour flight from IAD, ORD or EWR to their home airport.  
• The wi-fi roll-out was a clusterf**k and for most of last year many domestic flights flew "dark," being without wi-fi or any inflight entertainment system.  If you did not bring your own already downloaded entertainment or a good book, trans-continental flights got pretty long.  Another problem is that management did not see the need to install additional power outlets on these planes, even in the First class seats. Customers now have make sure they are "charged-up" before getting on one of these flights.   Even so, the charge is not going to hold on a five hour trans-continental flight.
• Any problems with headwinds and the trans-Atlantic 757 flights had to stop for refueling causing delays.  The same for the 737's now flying to Hawaii.  Flights from LAX to Hawaii were being diverted to SFO to top off the fuel before heading out over the Pacific.
• The new generation 737's with their longer fuselage and being closer to the ground require longer runways for takeoffs.  Where a 757 may be able to take off at 140 knots, a 737-900 requires 180 knots before being able to lift off.  United won a coveted transcontinental route from San Francisco to Reagan National Airport in Washington.  Other than the 757, the only other planes United can use are the A-320 and A-319, plus the smaller, cramped older 737-700 or 737-800.  I think United chose to use the older 737's because they can schedule the pmCO flight attendants to work the return flight the same day rather than having to pay a crew to layover.  These older 737's have have fewer seats to sell, and transcontinental routes to DCA are premium and business flyers will pay the higher fare for the convenience of landing at this airport closer in to Washington, D.C.  I don't think the cost savings exceeds the lost potential revenue had the 757 been put into service on this flight, and now there are not enough 757's available.  Some of the Hawaiian island airports previously served with 757's and 767's are also not able to accommodate the 737-900.  
• Premium frequent flyers are defecting at far greater rates than anyone could have expected. Loyalty no longer mattered - status could be purchased for a price.  This is all evidenced by the losses in market share in cities where United faces competition.  

Summer of 2015

This summer there is a much different picture at United; however, it does not mean that flying United is a better experience.  It is just interesting to watch how schizophrenic this management seems to be as they make change after change after change.  Most notable of these changes is the reintroduction of mainline flights to many domestic mid-size cities.  United's premium customers were put off by the down gauging of service and they defected to Delta and American who still had or increased mainline service either to their home airport or destination cities.  Looking at market share statistics for 2014, it actually looks like Delta increased their mainline flying to accommodate the customers that were defecting from United.  In addition, the regional carriers are notoriously bad when handling irregular operations.  The bad winter of early 2014 is a good example - United lost hundreds of millions of dollars because of canceled flights, the majority of them being on Express carriers.  

But to show that this short-sighted management can't get their eye off of every nickel, even though mainline jets are back in many cities, staffing at those stations is still outsourced.  I don't think these agents have been trained in the four service principles - case in point being my most recent experience in Albuquerque a few weeks ago.  I don't think it can be called First Class service when the agent working that line suddenly walks away leaving premium customers to wonder how they can get checked in and their bags checked.

United has also committed a lot to upgrading the United Clubs.  They are a big profit center now where anyone can buy a day pass.  Membership is no longer limited or exclusive to those willing to commit to a full year, and another reason why they can no longer call it a "Red Carpet Club."  Some of the upgrades are nice and long overdue.  With new furnishings, there is not much fighting over an electrical outlet to charge up your device so that it will last long enough for a movie on the next flight. On the down side, they are testing new food offerings in some clubs which are kind of a joke.  I am not sure what was wrong with what they had before - long time members were not expecting a meal when they went into the club, but I suspect the single day users want a lot for their $50.  So the new offerings include hot soup - even in the summer - which languishes all day in a tureen, hummus that is uncovered and left under hot lights, pita chips, "artisan" breads that are at least a day old, olives (which I am highly allergic to) left uncovered under hot lights, salami left uncovered, chunks of cheese on a wood cutting board uncovered under hot lights, and disgusting hard brownie chips (they taste like something you would scrape off of the pan from a burnt batch of brownies).  Gone are the sanitary individually wrapped cheeses, fresh crudite, little packages of fresh carrots, and fresh cookies.  Again, some highly paid bozo came up with something that would appear as an upgrade, but is really kind of a mess and appears more difficult to maintain.  Why do they keep trying to fix things that were not broken?
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While United began cutting back on service, the competition stepped things up, and premium customers began defecting at a rate that this management did not expect. This is all evidenced by the loss of market share across the board, and most critically, United's long held dominance across the Pacific is eroding.  What is apparent about this "Continental" management is that they do not know how to compete.  Case in point, the pulling out of JFK.  Granted, United only has service to and from LAX and San Francisco, but they were the first to come up with Premium Service flights, and for a time, well-heeled bi-coastal frequent fliers were left with a feeling that flying United's Premium Service was something special.  Slowly, the niceties on these flights were taken away, and then the down gauging from three cabin to two cabin service.  Seats that went for $6,000 round-trip were taken out - saving a nickel only to lose a hundred dollars.  Those who flew United P.S. flights for prestige are now flying American or Delta, both of whom upgraded service on these routes.  I don't think Mr. Smisek and his buddies do not fully understand what it means to "Be the Brand"  and thus they themselves are not embracing all of the service principles that they push on to their front line.  Mr. Smisek, if you want to cut costs and make this airline run better, do some house cleaning there in the Willis Tower first.  In the safety videos you keep talking about making United a world class airline, well to do so, you have to know how to compete, not know how to run away from a challenge.

There is so much more that I want to write about, but time is limited and you are probably already bored at this point.  I just do not have the desire to fly like I used to, but I do stay loyal to United Airlines.  I hear that I can get a better experience for my dollars at other carriers, but it is nice to see my friends, who through all of this, show up and, like they have been doing since the first day they started at United - thank me for flying the Friendly Skies

September 11, 2014 - 13 Years - Always Remembering

Always remembering - what does that mean?  Certainly you all remember where you were and how you felt on that day 2001.   The horror, the fear, the anger, the sadness - we cannot just put that in the back of our mind.  However, what do we do with those feelings?  Do we retreat, or do we learn from what happened, make ourselves more secure, and get on with our lives?  We move on, but we cannot live as if 9/11 never happened.  It was an attack on freedom, it was an attack on capitalism, it was an attack on Christianity and Judaism; all aspects of our lives that we can easily take for granted.  As the years pass, those of us who do remember now have the job of teaching those who were born after 9/11/2001, or those who were too young to remember, that there are reasons for honoring each anniversary.  It is our responsibility to teach them that the very basic parts of our lives; family, religion, occupation, and education, are freedoms that are constantly being challenged, and we have to respect and honor those who have sacrificed to give us what we sometimes take for granted.

I find myself caught up in a new show on HBO called "The Leftovers."  For those of you who do not know the story, the show begins on the third anniversary of an event that happened on October 14.  Two percent of the world's population just vanished in an instant, and the world is left to wonder if this event is "The Rapture" as is written in the Bible.  To clarify, I am not bringing this up to get biblical.  One of the story lines in the show involves a cult group that has formed across the world and they call themselves the "Guilty Remnant" or GR.  This group's works are all focused on making sure everyone remembers what happened on October 14.  They want everyone to understand that moving on as if it never happened is a fallacy.  Members of the GR go to extremes, including violence and sacrificing their own lives, to get their message out.  To the GR, October 14 was not just a wake-up call from God to get our act together, it was an event that, according to the Bible, signals the rise of evil and the end of our civilization in the very near future.  For them, there is no moving on.

The first season finale episode just aired this last Sunday and I was glued to my seat to find out what was to happen next.  Would we find out that the event on October 14 was indeed "The Rapture?"  In the episode, the GR carries out a plan that, while not violent, is cruel, and it incites a riot by the townspeople who rise up and retaliate with their own physical attacks against GR members and end up burning down their compound. The main character in the show is a policeman who comes to the aid of a GR member that has been severely beaten.  The GR members have taken a vow of silence and any communication is done through facial expressions or by writing out what they want to say on a pad of paper.  The policeman gives this injured GR member a pad to answer his question of why did they carry out this plan that has resulted in so much violence.  On this pad of paper she writes "WE MADE THEM REMEMBER!"  I am not bringing this all up to suggest that 9/11 was a sign from God, and moving on with our lives is a fallacy.  I just found the airing of this particular episode to be very timely coming just a few days before September 11, because the common message we are all going to see and hear this week is to "Never Forget!"

Tomorrow, as I have done for the last twelve years, I will be flying United Airlines, again this time to New York and back.  I do so to remind myself and others that, in spite of what happened in 2001,we still have the freedom to get on a plane and go where ever we want across the globe.  More importantly, I want to honor the hard working crew members and other employees on the front lines of United and other airlines.  The first people to lose their lives on 9/11 were flight attendants, and sadly airline management and the traveling public seem to take for granted their importance and contributions.  They are highly trained, put in long hours, and deal with those of us who have one complaint or another about service.  For the flight attendants, and for all airline employees, 9/11 is a reminder of the friends and family they lost on that day, and that they carry the burden of making us feel safe.  Customer Service Agents, Baggage Handlers, Mechanics and Technicians, Dispatch, Reservations, Flight Attendants, Pilots - all of the employees of an airline have to remain vigilant every  time they go to work.  When they clock-in tomorrow, they will remember what it was like for them on September 11, 2001.  It is a day they cannot forget.  None of us should forget, and it is up to us to make sure the day is not only used as a reminder of what was lost, but as a reminder of what we still have.  

If you could only ask one question...

Thank you all, once again, for your support of “Musings from the Friendly Skies.”  Your kind words keep me driven, and with each post readership keeps going up.  Today, as I write this, the blog has been seen by over 40,000 unique readers.  The suits at WHQ know of this blog, and now thanks to Crain's Chicago Business and reporter Meribah Knight, the message is getting out and it is getting heard.   Please keep reading and sharing because with each post, readership increases and that means there are more people out there that read about what is going on and agree that changes are needed.

Some of the responses I received to the last post, "Dear Mr. Smisek, It is about the Starbucks Coffee," have included a lot of inside information that sheds so much light on how Jeff and his “Team” operate.  I have so much to write about now it was hard to decide on a theme for this article.  For this post I will keep the focus on the Shareholders meeting last week,  right of couple of wrongs on my part, and briefly talk about some of the inside information that has been leaked to me.  I hope to be able to convey a comprehensive message that you all can take with you to keep putting pressure on UAL’s Board of Directors, the Institutional Shareholders, Mr. Smisek and his “Team,” and for United Airlines employees, your local MEC. 

I am not leaving you

The first order of business to clear up is to let you all know that I am still loyal to United Airlines and you all.  I have not defected, even though I did find out why other GS and 1K customers have defected.  My decision to fly American Airlines to Chicago for the Shareholders meeting was solely to experience for myself what it is like to be a Priority Customer on another carrier. I could not go to the Shareholders to tell myopic Board of Directors that Jeff is letting United become a lousy product without having something to compare.  It also did not help that the flights I would have taken on United were on planes that still do not have working entertainment systems.  The one thing American and Delta cannot offer is the same personal connections I now have at United.

This was the first time in 20+ years that I have flown another airline, and sadly I have to report that American Airlines is the better travel experience.  This trip reminded me of how good United used to be.  There was a class and professionalism at American that over the last three years has been going away at United.  At check-in, I was greeted by an American agent, not by an employee of an outside company.  In fact, if American is outsourcing any part passenger check-in and baggage handling, I did not see it. Boarding seemed so much more efficient and we did not have to line up under numbered lanes like horses at a race track.  It was also so very nice to actually have a red carpet for red-carpet service to Priority Access customers.  United used to do that.   

I went non-stop to Chicago on a 737-800, and for my return I wanted to see what it was like to connect through DFW.  The ORD to DFW leg was on one of their old MD-80's and from DFW to LAX we were on a 757.  The MD-80 was a blast from the past, but it was uncomfortable with less legroom and no entertainment system.  On the 737-800 and 757, the domestic First Class seats are amazingly comfortable and the added 3 inches of leg room makes a huge difference.  I was able to pre-order my meals, including the Snack on the ORD to DFW flight.  As the flight attendants came through the cabin to take meal orders, when they reached my seat, with so much class they would say "Mr. Anderson, I see you have pre-ordered you meal, thank you."  They use the overhead video systems to make automated pre-departure announcements, and while in-flight when the seat belt sign comes on, the movie was interrupted by an automated announcement asking us to return to our seats and fasten our seat belts.   That little touch allowed the flight attendants to keep their attention on the passengers without missing a beat. I could even see how with automating that part of the job for flight attendants does allow American to staff some flights with one less crew member.  I do not like to see anyone out of a job because of "automation," but if American has to make cuts, they sure are trying to make it less noticeable to the customer.  It was also so very nice to be back on a 757.  

The Shareholders Meeting

Meribah Knight at Crain's did a fantastic job of describing what a joke the meeting was.  If you have not read the article, you can find a re-print here - 

How United turned its biggest fan into a shareholder activist

Ms. Knight was so very kind and genuinely interested in what is going on.  She follows this blog and what everyone is saying on Facebook, Twitter, Flyertalk and other social media forums.  She also follows news coming out from the AFA, ALPA, IAM and other unions.  She truly understands what we our fight is about.  

Because the meeting was held at the Willis Tower, getting through building security up to the tenth floor had to be carefully choreographed.  They set up a staging area in the First Floor lobby and then in small groups we were escorted to the security desk to obtain building passes, and then up the elevator to the meeting room.  It was a small room, with a small podium set up in front of a whiteboard.  All ten Directors were seated in the first row.  Mr. Smisek, Brett Hart, Corporate Counsel and Secretary, and John Rainey, United's Chief Financial Officer were all seating on the podium facing the audience.  

There were very few mangerial level employees in attendance.  Surprising since they all worked in the same building.  Mr. Compton was there, as well as Doug McKeen.  I do not think there was more than 30 or 40 people in the room.  I sat with someone I knew from Customer Service at O'Hare and an ORD based flight attendant.  I did not see anyone there from the AFA.  

Mr. Hart raced through the proposals on the agenda and then opened the meeting up for voting.  I do not think it was even 30 seconds after the voting period was closed before Mr. Hart announced that all Board members had been re-elected and all the other proposals had passed.  I asked Mr. Hart for the numbers, and his response was that they would be made available when the 8-K was filed with the SEC on Thursday.  I was heartbroken when it was filed and found out that Mr. Smisek had received 90% of the vote to keep him as a Director and Chairman of the Board.  That number was down from the 93% from the year before, but it just left me this feeling that there is nothing that can be done to get him out.  Somehow he has locked in the vote from Institutional Shareholders, and I would sure like to find out how he managed to do so.  For Shareholders that do not vote, those proxies automatically transfer to management, but I cannot believe that these funds that own huge blocks of shares do not concern themselves in these matters.  There was something that came out of the Investor meeting held last November that influenced the big shareholders and Board of Directors enough to keep throwing their support behind Mr. Smisek.

Mr. Smisek then adjourned that portion of the meeting and then opened it up for questions.  I raised my hand and was the first selected.  This was my chance to ask my one and only question allowed.  I held up a copy of the article that appeared last Monday in the Wall Street Journal, written by Susan Carey, the Journal's Aviation Reported based in Chicago. With my question and Ms. Carey's article in hand, I pointed out the fact that since the first quarter earnings announcement, all of the bad press that came from it and analyst opinions all came back to Mr. Smisek and his "Team" and their mismanagement.  I asked the Board how they could still stand behind Mr. Smisek and his "Team."  I sat down and looked up at Mr. Smisek.  It may be wishful thinking and I was still pumping adrenalin, but I thinked he looked a little ashen.  Mr. Hart appeared to give me a dirty look, and Mr. Rainey just held his head down.  Mr. McKeen was just across the aisle and he would not even look at me.  I could only see the back of Mr. Compton's head.  Of course, Mr. Smisek's response was the same boilerplate answer he has been giving since the first quarter earnings announcement.

When the meeting was adjourned I met up with both Ms. Knight and Susan Carey from the Wall Street Journal.  We were hurriedly shown the elevator and asked to take our discussion down to the lobby.  Even though the meeting itself was fruitless and a joke, I will have to say I felt so very validated when both Ms. Knight and Ms. Carey took their time to ask me questions and actually understand my concerns.  They both were in agreement with me that this new United does not have the right leadership and this product is only becoming worse. 

I went back to my hotel and Ms. Knight called to confirm some background facts and told me she was going to be posting an article on-line that afternoon.  She also said she she wanted to submit it to the New York Times and see if they would publish a personal profile piece.  I was so thrilled to get her e-mail with the link and when I read the article I started to cry.  I could not believe how much she had researched my efforts over the last six years and my personal background which shed some light on why I am fighting so hard.  I then posted the link on my Facebook page, and the sharing began.  By the time I landed in Dallas to change planes, I looked up the stats for my blog and there had been nearly a thousand referrals from Ms. Knight's article.  By the time I landed at LAX that evening, the AFA had posted the article on their web site, and there was another thousand referrals to this blog.  The message was getting out and Mr. Smisek was powerless to stop it.  Going to this meeting was not a waste of time and money.

Going behind the scenes - Mechanics/Technicians

I said there were a couple of wrongs I needed to right.  I have written so much about what is going on with the Flight Attendants, Pilots and Passenger Service, and have overlooked two very important parts of the airline, the Technicians and Flight Operations.  Even though they are not on in direct contact with the passengers, they are very much on the front-line in the day to day workings of the airline.

The Technicians are the mechanics and others who make sure the planes are safe to fly and that everything is working properly.  Customers do not get to see these highly skilled hard-working professionals in action other than an occasional minor on-board fix needed before a plane can push back from the gate. This group, from all three working divisions (pre-merger United, Continental and Continental Micronesia), is represented by the International Brotherhood of Teamsters.  As with the Flight Attendants, negotiations to reach a Joint Agreement have been bogged down, and appear to be going nowhere.  In the interim, management with their stubborn focus on cost-cutting, keeps pushing the limits of the three separate working Collective Bargaining Agreements.  They too are dealing with forced cross-overs, furloughs and transfers.  Yet, through all of this without hesitation, they do all they can to make sure every plane is safe.

The Technicians are highly skilled and have decades of experience.  I have a lot of respect for them.  From feedback I have received, the Technicians tell me that the Continental way of doings things is inefficient, and the penny pinching keeps the Technicians frustrated and lacking some of the tools they need to do their best work.  For both pre-merger United and pre-merger Continental the focus was and still is on outsourcing as much as possible.  So much so that management has lost sight of the real value of the assets they have on hand.  In other words, they seem to think that the fewer higher paid company technicians on the payroll, the better it is for the company.  The thing is though, is that the company has a need for fixed number of these technicians to be on duty every day to be available in the event a problem arises.  There is a point where additional outsourcing cannot reduce the headcount.  To do so means bringing down the standard of the product.  If Technicians are not available to take care of these minor fixes, a flight can be delayed or canceled.  That is a fixed cost that is not going away, so why doesn't United management give them the tools they need to do those same jobs that are being outsourced?

Additionally, with Jeff and his “Team” constantly looking for a way to cut costs, middle managers are being squeezed into choosing the lowest cost provider of services without thinking of costs that can creep up later and bite them in the a**.  This does not mean that the planes are less safe, the FAA makes sure of that, but it answers a lot of questions as to why customers are seeing more minor issues with some flights going out with overhead reading lights that do not work, broken seats, inoperable lavatories or potable water supply systems.  These are things will have to be fixed by a United Technician at the next available stop, which puts the plane out of service.  That is an added cost that the middle managers do not concern themselves with; they just have to follow a mandate from above to keep costs in their department down.     

When I met with with management back in April, they did point out that cuts that were made at pre-merger United did lead to a decreasing focus on regular, preventive maintenance programs which are now back in place.  In particular they talked about the 747 fleet with its age and the countless number of parts and systems that have to be maintained.  Ideally, an increased focus on preventive maintenance would mean fewer costly repairs later.  However, I would guess that these preventive maintenance programs are outsourced off-shore where it can be done cheaper.  I do know that jumbo jets undergo heavy maintenance with a contractor in Beijing, and the same goes for the Airbuses in Mexico City.  I don't know though, by all appearances, I do not see where this purported increased focus on preventive maintenance programs is paying off.  More and more I see posts on Facebook from Flight Attendants where one thing or another is not working.  I have to laugh because the first two times I flew on Continental metal after the merger,  the First Class lavatory was out of order.  They did not even bother to have a technician look at them, they were only focused on an on-time departure. 

Going behind the scenes - Dispatch and Flight Operations

When I visited World Headquarters back in April, I was given a tour of the new Operations Center in the Willis Tower.  It was something I will never forget.  The company has invested millions in moving these departments from Elk Grove to downtown Chicago.  Not only Dispatch, but on this floor are the departments that monitor weather and airport conditions world wide.  If a storm front is moving into the Washington DC area, these are the people that are charged with first of all forecasting the storm, and then making decisions on re-routing planes in flight and holding planes on the ground that have not left their destinations.  The Dispatch operators then receive these new instructions and pass those on to the pilots. 

Also on this floor are the Crew Desks.  If a flight is canceled, or a delay causes a crew to mis-connect, then the Crew Desk gets involved.  Pilots and Flight Attendants will then be reassigned, layover at a hotel, or be put on another flight to “deadhead” to their domicile or next destination in their trip.  It would be fascinating to be able to watch them in action for a day.  You would be surprised how few people are manning these stations given the thousand of flights United has every day.  Helping the Crew Desks are the Hotel Desks. These employees are tasked with making sure hotel rooms are available for layovers whether scheduled or unscheduled, and those hotels have to meet minimum standards that are spelled out in the Collective Bargaining Agreements for the Pilots and Flight Attendants.  An unscheduled layover can have the Hotel Desk scrambling to find rooms at the last minute which is not always an easy task.

After finishing this tour, I realized that I also overlooked writing about this part of the airline.  The biggest payoff from the merger was going to be the cost savings by consolidating these back office operations.   The headquarters for the merged companies would remain in Chicago which means a lot of good people in Houston were faced with a transfer they did not want, or lost their job altogether.  I have not given enough time to these hard-working professionals and if any of them are reading this, all I can say is Thank You.  I know a big part of every trip I take involves what you are doing behind the scenes. 

Recently, management came out with a Press Release announcing that a tentative Joint Collective Bargaining Agreement had been reached for the Dispatchers.  There are two different unions involved with the sUA Dispatchers represented by the Professional Airline Flight Control Association (PAFCA) and the sUA Dispatchers represented by the Transport Workers Union (TWU).  The agreement still has to be ratified on the sUA side, but it is a positive step forward.  

Looking Ahead

In response to the last post, I received some very valuable information that has helped me to understand how this new United looks at costs vs. how it was done at pre-merger United, as wells as Delta and American.   It explains why this management is so keen on the use of Regional Carriers domestically, and it also points out why Delta is migrating away from Regionals.  I learned so much that I do want to share, but this article is already long enough, so I will write more about this later.  I don't want to put the name out there, but I do have to thank the source that contacted me.  As a finance person myself I found it all very fascinating.

I was also sent an internal report with the projected fleet scheduling for this summer.  It was shocking to see that the number of Regional Carrier flights going through the Houston and Chicago hubs is almost double the number of Mainline flights.  It is only at Los Angeles and San Francisco where the number of Mainline departures exceeds Regional.  I think this management is finding out the hard way that the Regional Carriers are not as reliable as hoped, especially when weather plays havoc.  Regional Carriers have their own internal Flight Operations and Dispatch, and they are not always in sync with United's operations. This answers the question of why there were 30,000 Regional Flight cancellations this last winter, and how it so severely impacted United's Mainline and International operations. It just gives rise to another questions, why are there still so many Regional Carrier flights in the schedule when it all went so wrong in the first quarter.  God forbid that a hurricane hits Houston this summer that shuts down IAH for an extended period of time.

I also see that there are still some weaknesses in the SHARES system that have not been fixed.  The biggest weakness appears to be in Yield Management.  It was just something that Mr. Compton said in our meeting about how they were making adjustments so that more seats open up for availability closer to the departure date.  The way he put made it sound like the system could not automatically make those adjustments based on real-time demand as it is done in SABRE and Apollo.  I have also noticed that SHARES cannot sell Global First seats on the some domestic flights that have them.  It appears that a flight with the same number that rotates from 3-cabin to 2-cabin depending on the day of the week, SHARES cannot sell Global First.  It is not as if there are many of us out there willing to pay the fare for a Global First seat, it just appears SHARES does not have the flexibility of Apollo when it comes to Yield Management. Finally, It also telling that it was just announced that Delta is seizing an opportunity and is going to make the switch to Apollo, and that until now, Economy Plus seats could not be purchased through sites using the SABRE system.  

Epilogue

You are all probably thinking this post was never going to end.  This last week was again filled with highs and lows for me.  I never expected that my story would be published by a newspaper as large as Crain's, which is based right there in Chicago where Jeff and his "Team" can see it.  I would also never have expected that so many respected analysts and reporters would echo the message I have been trying to get out.  Even though we might delight in seeing Jeff get negative press, we certainly do not want it to get so bad where he takes the airline down with him.  

As far as the low point, no matter how many negative articles come out, or that analysts at CNBC and Bloomberg say that Jeff and this "Team" should go, there are some people out there that keep them employed.  I pointed out in a post on Flyertalk that our efforts should now be directed at this incompetent Board of Directors that appears to be blind to what is happening, as well as the Institutional Shareholders that appear to have no long-term commitment to United.  It is time to bombard each Board Member and the Institutional Fund Managers with letters that tell stories of what is going on every day.  

For the AFA members, I thank you for your support and I encourage you to do what you can to support your flying partners that have been furloughed or forced to cross over.  Management has been caught off guard and operations have been disrupted because there has not been enough reserve Flight Attendants.  I want to feel sorry for Sam Risoli as he is caught in the middle; however, a good leader needs to unify his forces not divide them. 

The same thought goes for Mr. McKeen and the rest of middle management.  When will you decide to grow a set and concede that trying to Continentalize this new United is not working?  This merger was meant to forge a new airline that was the best part of both United and Continental. This merger needed innovative leadership from the outset; leadership that truly understood the value of the United Airlines brand.  This company needs a leader that gives his middle managers the freedom to manage and encourages them to think outside the box.  The stubborn arrogance of Jeff and his "Team" only fosters ineffective leadership.  Jeff's arrogance only instills fear in his direct reports and the managers that report to them; that fear being that if they do not "tow the line" they will lose their high paying jobs.  That fear is like a cancer that spreads down to the front-line employees that have given up so much to keep both airlines going.  It is a cancer that makes their job so very difficult; it is a cancer that has them heartbroken over what has happened to their beloved United.  Jeff, you cannot force the "Friendly Skies," you have to foster them.

Dear Mr. Smisek - It is about the Starbucks Coffee....

Dear Readers -

Thank you all for your support and growing interest in what I write for this blog.  As of yesterday, this blog has been read over 30,000 times.  Please keep sharing and get the word out.  It has been nice seeing analysts and those in the media calling for a change in management at United.  I will again ask all of you that have shares to please make sure to vote "Against" the re-election of the Board Members, including Jeff Smisek, and vote "Against" approving the executive compensation plan.

Your Proxy notices will be arriving in the next week either my mail or e-mail. I urge you all to cast your vote on line or by phone.  If you request the Proxy that allows you to vote at the annual meeting, you must be in attendance or you forfeit your chance to vote.  Even if you vote on-line or by phone in advance of the meeting, that does not keep you from being able to attend the meeting in Chicago.  Rally together your flying partners and friends who own shares and urge them to be there.  There has never been a better time to make a very public stand that will put pressure on this Board of Directors.

I hope you enjoy this new post.  Thank you so very much for keeping the Skies Friendly!

                                                                                                                                  

On Thursday of this last week, April 24, United Continental Holdings, Inc. released their earnings statement for the first quarter ending March 31, 2014.  They reported a loss of $609 million which includes one-time and special charges.  Much of the blame for the poor showing was placed on the severe winter weather that gripped the Midwest, Northeast and Atlantic states.  United canceled over 35,000 flights in February, all but 5,000 of those flights were with regional carriers operating under the United Express name.

I was not going to listen to the webcast on Thursday morning.  After I read the earnings release, I figured that the excuses that would be offered in the webcast would be the same excuses I heard at the meeting I had with United management the week before.  I did listen though, and I am so very glad I did.  How do the young people put it now? - oh, I know, Jeff and his "Team" got schooled.

It was only the day before that Delta, American and Southwest all reported record earnings for what is a normally slow quarter for the airlines.  They too were affected by the winter weather, yet they somehow managed to keep it together.  Jeff told us that United was more at risk because of airport closures in Chicago, Cleveland, Newark and Washington D.C..  Come on Jeff, Delta has hubs in Minneapolis, Detroit and New York, but they were able to plan and respond in a better fashion. 

Revenue is where Jeff and his "Team" really felt the pressure.  Placing all the blame on the cancellations, United's year over year passenger revenue number went down 2.3%.  Yield and PRASM numbers went down 2%.  There was no real change in capacity, so what all this tells us is that United does not have a good product to sell.  United could not get their revenues up because there was no demand to push an increase.  United flew 455,000 few passengers than they did in the first quarter of 2013.  All of this supports what so many of us have been saying, Jeff and his "Team" are managing to chase customers away.

I took a look at Delta's performance, despite having 17,000 cancellations during the quarter, they managed to show a year over year revenue increase of 5%.  They increased capacity by 2% (customers defecting from United were going to need seats), yet managed to get their PRASM rate up 3%.  Average Load factor was up to almost 83%.  Revenue Passenger Miles, this is the number of miles flown per paying passenger, went up 4%.  

Comparing the two carriers - here is how key unit revenue and expense numbers measures look:

                                         United          Delta                % Difference     

      (1)  PRASM (cents)          12.91          14.24           (9.34%) unfavorable  

      (2)  Yield (cents)            15.92          17.21           (7.50%) unfavorable

      (3)  CASM (cents)            15.81         15.39            2.73%   unfavorable

      (1) - PRASM = Passenger Revenue per Available Seat Mile.

      (2) - Yield = Passenger Revenue per actual Revenue Passenger Miles flow.

      (3) -  CASM = Operatings Costs per Available Seat Mile.

Delta and United are almost the same size, serve almost the same numbers of cities and target the same customer base.  These numbers should be much closer.  

I also took a look at the pre-merger operations for the combined United/Continental carriers, in the first quarter of 2010, against their performance now, and here is what I found:                                        

                                         1Q/2014       1Q/2010                 % Difference        

      (1)  PRASM (cents)          12.91            12.47              3.53%  (.9% annualized)  

      (2)  Yield (cents)            15.92            13.50             17.93% (4.2% annualized)

      (3)  CASM (cents)            15.81            12.37             27.81% (6.3% annualized)

It can be argued that a big part of the increase in costs is due to the long overdue raises to many of the many employees as Joint and Tentative Collective Bargaining Agreements were put into place.  However, declining demand for the product has kept United from seeing the revenue growth that Delta and other carriers are realizing.  

As Jeff and his "Team" said in the webcast, "this quarter is definitely not where we should be."  Jeff went further by saying that there are still "structural issues (tied to the merger) that my Team has to work out."  I noticed that Jeff never took responsibility for himself, it was always his "Team."  I had to laugh when one analyst asked the "Team" - "what excuse will you have for us next time?"  Yeah Jeff, you got schooled.

As I listened to this webcast I felt so vindicated that everything that I have been trying to say was being confirmed by analysts and others out there that do have a voice.  As a shareholder I was certainly disappointed to see what happened to the stock price after this webcast.  The day before the announcement, UAL stock shot up after the glowing announcements put out by Delta, American and Southwest.  Everyone thought that United too would report that actual numbers were better than what was expected.  Those numbers were worse.  At the opening of trading on Thursday, UAL stock dropped almost 6% right away.  As I was listening to the web cast open in one "window" on my computer, I was tracking the trading in UAL stock in the other.  In that one hour, UAL stock dropped another 5% points and by the end of the conference call, the stock was 12% down from the day before.  On Friday, UAL stock went down another 9%. 

Right away on Facebook and different sites, people were posting quotes from analysts weighing in that day.  I listened to both CNBC and Bloomberg news, and those commentators were all in disbelief that Jeff and his "Team" thought they could put all the blame on the weather.  One CNBC analyst even commented at how fragmented the operation still seems to be, to quote, "its been three years, they should be operating as one airline by now."  Jeff and his "Team" had nowhere to hide on Thursday.

When questioned by analysts about revenues, James Compton Vice Chairman, and the number 2 man, conceded there was work to do.  He said they were going to improve yield management.  That one kind of took me by surprise, Continental was supposed to have been the darling in this area and what about SHARES, aren't the same algorithms that were programmed in Apollo being used by the SHARES system?  I think there is something here.   Apollo was a leader in computer reservations systems for the airline and travel industry.  Automated yield management played a big part in how the system controlled inventories and fares.  It could track demand and make adjustments right away to optimize the amount someone was willing to pay for their seat at the time of booking.  The Apollo system engineers had years of experience in fine tuning demand and supply trends and having the system control inventory to optimize revenue.  Mr. Compton says they have gone back to reduce the number of available seats for lower advance purchase fares, and are taking a look at pricing through the Denver, Houston and Tokyo hubs.  Is SHARES telling them to do that, or do they have to make the determination on their own?  If what I suspect is right, SHARES is not as sophisticated as Apollo to effectively monitor and measure demand and respond accordingly.  United will never be a revenue leader if they cannot manage fares and inventory in tandem and more efficiently. 

So what is going so wrong at United? 

Jeff - it's about the Starbucks coffee, not so much about the actual coffee served, but it is about what that change represented.  Right after the merger you promptly got yourself on the safety videos and arrogantly promised that United customers were going to like the changes that were coming.  One of those first changes was to discontinue serving Starbucks coffee and then replace it with some swill that was no better than a generic brand one would find at a grocery store.  Jeff, with just that little change you were telling your United loyalists that you did not care about the details; therefore, you did not compare about the customer.  The old United got it right, show the customers that you care enough about them to serve a premium, well-known coffee.  United was telling us customers that they cared about our morning cup of coffee.  It was a nice touch.  You all may have thought it was too expensive and that no one really cared, but the backlash you received said differently.  You responded by promising us a better cup of coffee, but it still not as good as Starbucks.  

The next change we were going to like was to the Mileage Plus system and the elite award levels.  Elite customers were now going to be Premier Silver, Premier Gold (formerly Premier Executive) or Premier Platinum (formerly 1-K).  Global Service would still be Global Services - you can't afford to piss them off.  With those changes though it was going to be more difficult to redeem mileage awards and secure an upgrade.  I don't even know or understand the new rules to get an upgrade, I just pay the first class fare, which I guess is what you want me to do.  The changes were necessary because, to quote another member of your "Team," John Rainey, "some customers had become over-entitled."  This was another change that we were supposed to like, but it became a change that you said was necessary because us customers from both United and Continental had become "over-entitled."

In 2010, I was a "Pass Plus" member with "1-K" status spending about $35,000 per year with United on travel just for myself.  Suddenly I had become over-entitled.  Well, Jeff my spending on United dropped to just under $5,000 in 2011.  I wanted to fly, but what you were doing with United was making my stomach turn, I just could not justify spending that kind of money anymore.  You had changed the routes, fleet and crew so much, there were no flights I wanted to take unless I had to.  At pre-merger United, the 3-cabin 777's and 767's that were flown cross county and between hubs had a purpose.  If you were going to fly in the first class cabin internationally, they wanted the customer to have that experience on all segment of their trip.  Those flights not only helped with positioning and getting more use out of the planes, but more importantly they were there to tell the premium customer that United cared enough to make their whole journey as nice as possible.  Those flights were full, customers sought them over the other flights to the same destination, and they were timed perfectly so that passengers could easily connect to their international flight out of Dulles, Chicago, San Francisco or Los Angeles.    They knew at pre-merger United that the demand for seats on those planes paid for those trips, and the margins they got from premium customers sitting in United First or Connoisseur class made those flights profitable.  I loved the 777 trans con flights and I always paid to sit up front, now that is all gone.  More often than not now, any trip I book domestically is going to be on a 737.  You are now telling your premium customer that if you want to go to Europe from Los Angeles, they are going to have to endure a cross country flight in a 737 to meet their connecting flight at Dulles or Newark.  You tell us it is a better utilization of the fleet.  I am sorry Jeff that you could not see the full picture and reasoning for putting those planes in the domestic schedule.  This is another change where you are telling us that you really do not care about our experience.

Most importantly, I still say the biggest problem and reason for customer defections is your failure to fully integrate your operations and get your people working together.  Many of the analysts weighing in on Thursday and Friday concurred.  You purposely segregate employee groups to do what is needed to reign in costs.  You don't care how demoralizing it is to those employees and you are blind to the fact that this divisiveness is felt and seen by the customers every day.  It makes us very uncomfortable.  This affects elite customers from both United and Continental.

Using a loophole in the Collective Bargaining Agreements, as older aircraft are retired, you layoff well-trained, experienced hard-working flight attendants on the United side, and then hire new, unpolished and inexperienced flight attendants to staff the new planes being put into service on the Continental side.  The only reason for doing so is because you are trying to break the resolve of United's Flight Attendants who only want to do the best for their customer and their airline.  You need more productivity out of them and you are determined to force it out of them rather than negotiate.  All of this divisiveness Jeff is noticed by the customers and they do not want to deal with it.  You are losing customers because you will not negotiate fairly with the employees.  

Two years ago, on the beverage napkins, you said, "Planes Change, but values don't - at United your priorities will always be ours."  As a customer my priority Jeff is to have the same respect from this United that I received from the pre-merger United.  That is not going to happen as long as you continue to treat the front-line employees as a line-item on the Income Statement that needs to come down.  How can you tell the customers that you care about them and their needs, when you cannot even do the same for those on the front-line keeping this airline flying.

So, yes Jeff, you are losing customers because of the coffee, the tulip, and the unfair treatment of employees.  You are also losing elite customers because any customer can buy elite status privileges when they book their ticket.  There is no longer a need to fly a minimum number of miles.  The United Club (formerly the Red Carpet and President's clubs) is no longer restricted to those of us who maintain annual memberships.  Any customer, for the right price, gets access to the club.  Now these clubs are no longer a refuge for the road warriors seeking some place to relax between connecting flights, or get some work done before their flight.  Again, another detail where you show you do not care about the elite flyers from both airlines.

Before the merger, United and Continental were good airlines; however, your arrogance is bringing them both down  There are 9 million passengers that used to fly United or Continental that are now flying on Delta or other newcomers like Virgin America and JetBlue, where they do care about some of the details, and the customers feel respected once again.  It is the little details that show your customers that you care about their lives and their experience while flying United.  When you stop placing importance in those details, you are telling your customer that you do not care.  

Paying an outside consulting company millions of dollars to retrain employees in customer service is not going to fix things or bring customers back.  A relatively new employee with only 2 years of experience cannot go around and start telling other employees about "route structure" to those employees who have been on the front-line for 45 to 50 years.  Bring back the Starbucks coffee, bring back the tulip, bring back the Friendships and Proud Birds, stop treating the employees as commodities and get back to respecting your elite flyers and their loyalty.  If you and your Board of Directors don't get this, then it is time for you all to step down.  I am going to do all I can to reach out to as many shareholders as possible to convince them that change is needed.  You got schooled this week Jeff and it was humiliating not only to you and your "yes" men; it was humiliating to shareholders, and it was humiliating to the customers that have remained loyal all this time.

My day at World Headquarters...

My apologies for the delay in posting this report; I know many of you are anxious to hear about what happened at my meeting with Senior Management at World Headquarters this last Wednesday.  It was really difficult to take a day away from the office to go to Chicago, but I could not pass up this opportunity to be able to discuss my concerns, as a shareholder, customer and supporter of the front-line employees, about what is happening to United Airlines.  The last few days have been a struggle not only to find the time to sit down and write this, but to be honest, it was difficult for me to figure out how to tell you all that I did not come away from the meeting having succeeded in directing any change, or with any optimism that things are going to get better in the near term. 

The meeting was held in a conference room on the 10th floor at World Headquarters in downtown Chicago.  In addition to myself, in attendance at the meeting were:

Brett Hart –    Executive Vice President, General Counsel and Secretary

James Compton - Vice Chairman and Chief Revenue Officer

P. Douglas McKeen - Senior Vice President Labor Relations

John Gebo - Senior Vice President Financial Planning and Analysis

Jonathan Ireland - Managing Director for Investor Relations

I had met Messrs. Gebo and McKeen before this meeting.  I have had the chance to sit down with Mr. Gebo on other occasions to talk at length about what is going on at United.  He has always been fair and candid with me, and I was glad he was there.  Mr. Compton is the only executive in attendance that had come over from Continental. 

Instead of starting out with a dry recap of what transpired in the nearly two hour meeting, it is best just to come right out with the “take away.”  For as much as I was hoping to make a difference, I knew there was little chance that what I had to say was going to influence any of the decision makers in attendance.  I did leave the meeting feeling confident that the facts I used as the basis for my arguments could not be disputed.  The meeting was relaxed and cordial, and I did not feel intimidated into re-thinking my position.  They appeared to respect what I had to say and I felt good right after the meeting; however, the next day as I had a chance to review some information I had been given at the meeting, and after taking some time to talk to a friend at LAX, it was apparent that much of what was discussed was still just a lot of “lip service.”  I got caught up in the moment and in my desire to show them I appreciated their time and commitment, I withdrew my shareholder proposal.  I failed in my attempt to make a difference.

Executives at United are certain they are on the right course.  In any area where the airline is under-performing, the blame can be placed squarely on merger-related “hiccups” or weather.  Customers should also expect to find more automation and outsourcing as they are the better business decisions.  The most significant revelation I got from this meeting is confirmation that a Joint Collective Bargaining Agreement (“JCBA”) for the Flight Attendants is going to have to mirror the tentative agreements in place now for the sCO/sCM Flight Attendants.  Until then, layoffs will continue on the sUA side as older equipment is retired, or demand drops off forcing more capacity reductions.

Looking Ahead

Even though I withdrew my proposal, shareholders will still have at least two opportunities to cast their vote of “no confidence” in the leadership team.  The first is the election of the Board of Directors – shareholders can vote “For,” “Against” or “Abstain” for each nominee, one of which will be Mr. Smisek as Chairman of the Board.   It does not take a majority vote “Against” to convey the message that shareholders are waning in their support for Mr. Smisek.  More often than not there is a lack of interest by shareholders; therefore, management exercises their right to vote “For” each nominee by proxy for the non-voting shareholder.  If there is a big increase in shareholders actually taking the time to vote “Against” the nominees; that can send a pretty loud message to the Board members who keep Mr. Smisek employed. 

The second is to vote on an Advisory Resolution approving the compensation for Mr. Smisek and his Executive Management team.  This is only an Advisory Resolution, meaning that the Board is only required to take into consideration the desire of the shareholders.  Even if there is a majority vote “Against” this resolution, the Board can still approve the compensation for the name executives as laid out in the Proxy Statement.   However, like in the election for Board members, if there is a big jump in the number shareholders actually voting, it is another “no confidence” signal that is very public and casts a bad light on Mr. Smisek and his team.

For the Flight Attendants, consider re-setting some of the objectives laid out for your Joint Negotiations Committee.  Management is not changing its course, so it is more important now than ever that all United Flight Attendants come together as soon as possible.  From what I learned from Mr. McKeen, once there is a JCBA in place, those who have already crossed over will get their seniority back, and when staffing needs require it, furloughed Flight Attendants will be called back to work.  As long as the three Flight Attendant groups stay divided, management will always have the stronger hand.  I wonder how effectively Mr. Risoli can manage when he can no longer hold the threat of furlough over his employees.

What I was happy to hear on this trip is that nearly 90% of sCO Customer Service workers voted to join their peers on the sUA side and become part of the IAM.  This means that all of United’s Customer Service employees are now governed under one JCBA.  This was a blow to the managers who lobbied hard to convince them to vote against joining the union.  Now with all of the front-line employees unionized these Continental managers find themselves treading in unfriendly waters. 

My last take-away from this meeting took me by surprise and left me a bit embarrassed.  After the meeting, Mr. Hart’s assistant had arranged for me to take a tour of the Operations Center.  It was a fascinating and impressive experience, but what I realized is that even though the customers may not see these professionals who work in dispatch, man the crew and hotel desks, watch the weather and airport operations, and keep their eyes and ears open to any security risks – these employees are as much on the front-line as those employees we see at the airports.  The merger was intended to consolidate these departments; thereby reducing a significant portion of the fixed costs for the airline. We do not hear much about it, but there are a lot of good people who have already lost their jobs.  Now when I voice my support for the front-line, I will keep in mind those in the Operations Center and those in support positions at WHQ.  They too are at risk as myopic managers make poor decisions.

To repeat what I said before – Proxy Notices will be coming out any day now.  If you want to make sure you get a chance to vote, consider buying some shares if do not hold any now, and if you do own shares, follow-up with your Brokerage account manager to let them know you want to vote.  When I withdrew my proposal it was conditioned upon more of the shareholders being given the opportunity to ask questions or express their views at the Shareholders Meeting.  I was assured that would happen.  I am planning at being at that meeting, and I ask that you consider taking time out of your busy schedules to be there.  Change will not happen if no one questions the actions of these managers. 

Never forget that you are more than a co-worker, - YOU – are United Airlines!

Meeting Recap

The meeting was relaxed and each manager had prepared in advance to address each of the five points that I brought up in my Shareholder Proposal.  Much of what they discussed was taken from the presentations that were made at the last Investor’s Conference held back in November of 2013.  This conference is a meeting with those fund managers and institutions that hold 95% of UAL stock, as well as Wall Street and Media Analysts that follow UAL.

1. Merger Costs.  In my proposal I had stated that merger and integration related costs had far exceeded original projections, and had exceeded what had been reported by Delta Air Lines in connection with their joining up with Northwest Airlines.  On the last 10-K filed by United Continental Holdings, the total for what was reported as “Merger and Integration Related Costs” was $2.025 billion.  Shareholders were originally told that these costs would be around $l.2 billion, and when I checked again, the total reported by Delta on their 10-K’s as “Merger and Integration Related” was just over $1.5 billion. 

Mr. Ireland explained that this area can be subjective in its reporting.  His interpretation is that Delta reported other costs separately that really should be considered as “merger related.”  When you add in those other costs, Delta’s true integration costs are closer to the $2.0 billion that UAL has spent.  They feel that the costs are in line and justified.  What I need to take time to do is look at the 10-K’s for both companies to see if there are other one-time charges that are reported separately, but might be considered “merger related.” 

2.  Operational Performance.  This is where I brought up that expense growth was outpacing revenue growth, when measured on a unit basis (PRASM, Yield and CASM).  I also brought up that revenue growth rate at Delta was outpacing United, in fact almost twice the rate. 

This is when I received my first lesson in “Stage Length Adjustments.”  Because United is more of a long-haul carrier, it follows that their nominal unit revenue statistics (PRASM and Yield) will be lower that those reported by a carrier who’s “Average Stage Length” is lower.  In a nutshell, Delta flies more of the shorter, higher revenue producing city pairs than does United.  To more accurately compare the performance of the two carriers; those nominal statistics reported have to be adjusted to account for the difference in the “Average Stage Length.”  They displayed a graphic that they used at the Investor Conference that United’s “Stage Length Adjusted” unit revenue statistics are the highest in the industry. 

Mr. Compton and Mr. Gebo both conceded that United was lagging terms of growing revenue and had work to better those numbers.  The problem in 2011 was that is was the first year of the merger and that there were integration issues that were a distraction.  In 2012, that problem was the conversion to the SHARES system and the outages that were experienced, and in 2013 the blame is on the bad winter weather.   However, they wanted to assure me they are on track to better those numbers.  They continue to find more ancillary revenue opportunities.  In fact, a big part of the decision to go over to the SHARES system is that its programming is flexible enough to add an infinite number of “impulse items” that can be purchased when a customer is making a reservation or checking in for their flight. 

When discussing On-Time performance, they repeated the same excuses, merger hiccups, the SHARES outages and bad winter weather.  They also said that most of the delays were coming from United Express flights which are out of their control, and that previous tracking was based upon “padded” flight schedules.  It is easy to be on-time if you add on thirty minutes in the schedule.  While this “padding” can improve On-Time performance, it doesn’t work because it increases the block time for which in-flight employees are paid, keeps planes on the ground longer so they are used less, and it doesn’t paint a true picture of the airline’s performance.   They did say that there is work to be done here and they are on track to get that number back up to where it was before the merger.

3.  Stock Price Performance and Return to Shareholders.  My proposal pointed out that Delta shares have gone up nearly 170% in the last three years, while UAL shares have gone up 81%.  It is hard to argue against an 81% return and management certainly does not agree with the opinion any run up in UAL shares is momentum driven.  They think that the performance of the stock tracks with the performance of the company.  I think they are a little nervous though about what will happen this Thursday, April 24, when first quarter 2014 earnings are reported.   

4.  Market Share and Customer Satisfaction.  Mr. Ireland pointed out that management is not where they want to be, but they see that the J.D. Power rankings are improving, and that United’s own internal polling shows big improvements.  I asked where they got the data for the internal reporting and they said it came from the surveys customers are asked to fill out after every flight.  I told them that I had not received a survey request since the merger which they said was some kind of glitch and they would see that it is corrected.  They also talked about the commitment in retraining over 43,000 employees involved in customer service. 

There was no real discussion offered by them about the exodus of passengers to other carriers, by my estimate at least 9 million in the last 3 years.  They did concede that they are not where they want to be in this measure and that that merger hiccups have disappointed long-time customers.  Based on what they did, or rather did not offer here, I am more certain that capacity cuts have been more driven by the drop in demand that they would care to admit.  They want shareholders to believe that it is a focus on “capacity discipline” in order to drive up revenue and cut costs. 

5.  Labor Agreements.  This is where Mr. McKeen came into the presentation and discussion.  His first point is that JCBA’s have been reached for all of the employee workgroups except the Flight Attendants.  He repeated what had been said before - that sUA Flight Attendants have had numerous opportunities to keep their jobs and cross over to sCO.  Older planes on the sUA side were being taken out of service and delivery of new planes was coming from orders previously placed by Continental, and those new planes are considered sCO metal.  He said it the AFA that wanted the restrictions that prohibited employees from the named divisions from working on the other’s metal until a Joint Agreement was in place. 

Mr. McKeen was also forthcoming in that management is expecting a Joint Agreement that mirrors the Tentative Agreements in place for sCO and sCM flight attendants. The pay scales are higher for sCO and sCM flight attendants, but the more restrictive work rules on the sUA side are expensive and inefficient, so much so that it makes sense they do what they can to get more sUA employees to cross-over.  Further, he put the delay on reaching a Joint Agreement squarely on Marcus Valentino and Greg Davidowitch and their “butting heads” with each other, and in some sense jockeying to see who was going to come out the leader.

I asked Mr. McKeen and Mr. Compton if they truly realized how demoralizing and divisive this has all been.  I told them that from my own experiences and in my talks with other customers, there remains an uncomfortable atmosphere in the airports fueled by the efforts of management to keep some employees divided.  Executives brought over from Continental, especially Mr. Smisek, have not garnered any level of respect from pre-merger United employees.  Long-time loyal United customers have not been happy with all of the changes and the numbers prove a lot of them have defected to other carriers. 

My sincerest thanks to all of you for your support and well wishes – it meant a lot to me; and Thank You for keeping the Skies Friendly!

Mr. Anderson goes to WHQ....

Dear Readers - my apologies for the delay in posting my report about what happened at the meeting on Wednesday.  This is a particularly busy time for me at work, and taking that day to go to Chicago meant focusing on my day job when I got home.  

I have also been wrestling with how to report what happened.  I was unable to change any minds or get them to see that they may be on the wrong track.  Was it a failure on my part that I could not make this opportunity work?  I don't know.  I left the meeting feeling that they were taking me seriously, but yet I still feel somewhat played by them.  I have my report 90% complete, I just need some time to edit and to think about moving forward and working "within the system" so to speak. 

I want to remind those of you that own UAL shares, please do not wait this opportunity to let the Board of Directors know how you feel.  My proposal my not make it on the agenda, but you will definitely have the opportunity to vote "For" or "Against" each Director, including Mr. Smisek.  The Proxy Statement and notices are going to be coming out any day now and if you are not a shareholder of record once those notices go out, you will not have the opportunity to vote.  

Voting is every easy and can be done on-line.  You can vote in advance and still attend the Shareholder's meeting.  If you decide that you want to be able to vote at the meeting, then you must be at the meeting.  Once you make that decision to get your Proxy released to you so that you can cast your vote at the meeting, you cannot change your mind.  If you miss the meeting, then you miss the chance to vote. 

I will get my report from the meeting up soon.  Thanks again for all your support and Thank You for keeping the Skies Friendly...