September 11, 2015

Thank you everyone for your support of this blog. As I post this today, there is unexpected news that has just come out about changes in leadership at United Airlines.  I will not use this post to discuss what has transpired, but when I travel on Friday, I think I will see some new smiles and optimism that has gone missing at United in the last couple of years. I also wanted to let everyone know I do have a new supply of the "More than a Co-Worker" wrist bands.  

They are free to anyone who wants them, first come first serve, while supplies last.  Just send me an e-mail through this blog, or private message through my Facebook page, with your mailing address and how many the wrist bands you would like.  If I sent some to you previously, and your address is the same, then just send me note that you would like some more.  All addresses are kept confidential and are only used for the purposes of distributing the wrist bands.  

SEPTEMBER 11, 2015

Sometimes, it is hard to believe it has been fourteen years since that awful day in 2001. So much loss and grief, not only on that day, but in the years since with wars in Afghanistan and Iraq, world economies enduring a prolonged recession, and now today, refugees flood into the European Union to escape war and hardship in countries where ISIS terrorists grow stronger and take over for defeated Al Qaeda terrorists.

Here in the U.S., September 11, 2001 is commemorated in many different ways. There will be ceremonies in New York, Washington, D.C., Pennsylvania and all across the country.  News media will no doubt have reports on whether or not our skies are safer, and why the FAA and TSA have not made the advances we expected so that we do not have to endure the delays to be screened at the airports.  As the 2016 election cycle picks up, this week is a good time for candidates and pundits to trade barbs and warn us all that the current administration has let down its guard and we need to get back on track because it inevitable that there will be another September 11 event.

September 11 is an especially difficult reminder for those who were directly affected.  I am talking about family members and friends who lost loved ones on the planes, in the towers or at the Pentagon.  There are also the first responders on the ground who will never forget the horror they witnessed.  It is a hard day for airline employees, especially those at American and United Airlines.  Not only did they lose colleagues and friends on that day, every airline employee found themselves awakened to a new reality and unprecedented stress and uncertainty.  Every passenger is now a suspect and things that were regarded as harmless implements or pieces of clothing can now be used as a weapon.  For many airline employees it caused them to think long and hard as to whether or not this was now the job they had signed up for.

September 11 put a new focus on the importance of the Flight Attendants.  The first casualties and first responders on September 11 were the flight attendants on those four planes.  This event woke us all up as to how important Flight Attendants are, and how we take that for granted.  I often think back to those flight attendants and pilots who showed up for work those first days after September 11, 2001, as U.S. airlines began getting their planes back in the sky, and our country started moving again.  Not only were they still grieving the loss of their friends, but they had no idea if things were any safer, nor was there enough time to properly train or counsel them on what to do if the unthinkable should happen again.   

As the first anniversary, September 11, 2002 approached, the focus by the news media was whether or not Bin Laden had another attack planned, and if planes and people would be flying or would they stay home.  There was no doubt for me - I was going to make sure I was on a plane that day.  I wanted to use the day to thank the flight attendants and other airline employees at United Airlines for continuing to make it possible for me to buy a ticket and go where and when I wanted - SAFELY.   That day, on my flight back to LAX, the Captain came on to thank us for being there today.  He went on to explain how the outlook for United remained positive and that they were not going anywhere.  New planes were being delivered and customers were coming back.  It was the customers that gave him and the other crew members a new resolve that United will survive.  It is that resolve by the employees that has kept me coming back to United to this day.

So this Friday, September 11, 2015, as I have done for the last 13 years, I will be flying United to New York and back.  It is a day that I can show that no matter what is thrown at us, I still have the right and freedom to get on a plane and be assured that I will reach my destination safely.  It is also my chance to personally thank a few employees at United Airlines for everything that they do for us customers.   My one day trip has me leaving LAX at 6:00 AM (ughh!), and heading up to SFO to connect to the 8:45 AM P.S. flight to JFK. From JFK I will take the nonstop back to LAX leaving at 7:55 PM and landing at 11:00 PM.  It is a long day, and I have friends who question why I do it.  The answer is simple, because it is United Airlines.

Rumors / Speculation / Gossip / Hostility / Frustration

Hi Everyone -

Thank you so much for all of your feedback and kind responses to the last two posts.  It has been awhile since I have felt like writing.  Even though I do not fly United as much as I used to, with Facebook and e-mails, you all have kept in touch and take the time to express your frustrations and tell me all about what is happening.  After some time, I begin to question whether or not to put any more energy or money into something that has little hope of making a difference.  In our hearts, and from first-hand experience, we all know that this new United is not the world-class airline that it is meant to be. I am flattered and honored that what I post does get read and that it does help to keep everyone energized.

Recently, in the Wall Street Journal, there was an article about the compensation corporate leaders receive today.  I was unable to find a copy, or else I would post a link so that you could read it.  The gist of the article was that the pro-business bent of the Reagan administration ushered in a new "me-me-me" type of leadership with compensation tied to stock price performance.  Before this time, being the head of a major corporation was not about making themselves and shareholders obscenely rich. In exchange there was prestige and power, plus there were moral imperatives and ethics that came with position.  Good leaders knew they had to treat their employees fairly, and that they should not be enriched at the expense of those who are the backbone of the organization.  Don't get me wrong, corporate leaders did alright for themselves, but there was not this huge gap between what management is paid over their employees.  This article closed by saying that maybe it was time to bring some of that morality back, and by doing so, big business could once again be viewed as a good thing for our economy and society.

2014 was a profitable year for United Continental Holdings, Inc. (UAL), and as his contract stipulates, Mr. Smisek is to be rewarded for guiding the company to achieve this.  With salary, profit sharing, stock options, and other benefits, Mr. Smisek's compensation in 2014 was just nearly $13 million.  His lieutenants, James Compton, John Rainey and Gregory Hart all did well too, earning seven figure amounts.  Combined, the four of them received compensation that totaled $25.9 million.  Was their leadership, wisdom and guidance all worth this much money?  The majority of UAL shareholders, and their Board of Directors, all seem to think so.

I looked at the full-year 2014 and first quarter 2015 financials and there some things that caught my attention:

1. Since the merger was booked in 2010, through the first quarter of this year, nearly $4 billion has been spent or set aside for merger-related costs and severance packages.  This is more than double what was originally estimated.
2. $100 million in this year alone is being set aside for payouts to 2,500 Flight Attendants who took early buyouts or were furloughed.  Yet, this summer, United finds itself in the position of having to pay time and a half for Flight Attendants to voluntarily pick up extra hours to cover shortages.  They are also actively recruiting to hire new Flight Attendants.  Somewhere in all of this are extra costs that did not have to be incurred.
3. In 2014, United carried nearly 3.8 million fewer passengers than it did in 2011.  
4. The $1 billion dollar swing from a loss in the first quarter of 2014 to a profit in the first quarter of 2015 is all coming from lower fuel prices.  

What concerns me though is that excluding fuel expenses, controllable operating expenses have gone up nearly 11% from where they were in 2011.  This is one why UAL's share price performance trails its competitors.  This is where management's focus is now, and once again they are going to be wanting to hammer at labor costs.

All of the above is old news.  This management has made very costly strategic decisions such as shifting domestic business to regional partners and then choosing Continental's reservation system over that used by United.  Twice in the last two months, United has been hit with system wide delays because their computer systems went down.  Over four million passengers who used to fly United are now flying other carriers.  Yet, there is no one on the Board of Directors who wants management to answer for these mistakes.

Looking forward - its your turn...

As I mentioned earlier, I have received feedback from many of you about what is going on at United Airlines, especially for the Flight Attendants.  Sam Risoli blames the lack of progress in the contract negotiations on the three pre-merger groups who are unable to set aside some of their own differences.  I have also of isolated stories from the line that tell of hostility toward pmUA Flight Attendants who crossed over to pmCO.  If any of this remains true, it is discouraging, because management will take advantage of this divide, and it is certainly behavior that would not be expected from a United Flight Attendant.

I can tell that you all are frustrated by the lack of answers, either from management or your union leadership, to key issues that need to be worked out to reach a joint agreement.  If I were to pick one issue that you all want answered now it is "Seniority Integration."  For the pmUA side it is black and white, seniority is determined by date of hire.  However, for the pmCO and pmCMI side, you all do not want to give up the seniority you have earned and you want to some sort of relative seniority factored into a joint agreement.  

What is meant by relative seniority?  To clarify this for the civilian readers, it is helpful to have a history of Continental Airlines.  Back in the early 80's, Texas Air, operating as Texas International Airlines acquired Continental.  Texas Air was run by a man named Frank Lorenzo.  Deregulation of the U.S. airline industry was signed into law back in 1978 and Texas International, with their "peanut fares," quickly became the leader in the low-fare industry.  However, if you are going to be a low-fare airline, costs to run that airline had to come down and labor was in Mr. Lorenzo's cross-hairs.  After Texas Air acquired Continental, Lorenzo was unable to get the concessions he wanted from labor, so in 1982 he put the entire company into bankruptcy and voided all the collective bargaining agreements.  Employees were faced with coming back as non-union "scab" labor with big cuts in pay and benefits, or they did not come back at all.  Most of the employees at today's Continental are all new hires after the Texas Air takeover and bankruptcy. 

After Continental, Texas Air acquired Eastern Airlines, and those unions would not roll over for Mr. Lorenzo. Eastern Airlines was then put into bankruptcy and eventually out of business.  Some Eastern employees stayed on working for Continental, but many lost their jobs.  In 1986, Frontier and People Express Airlines both went out of business, with Continental purchasing most of the assets.  Some Frontier and People Express employees were hired by Continental, but most lost their jobs.  Continental employees who were around during the Lorenzo years have put in their dues and seen their share of bankruptcies. They have seen Continental at its worst, and they have seen Continental at its best. 

For the Flight Attendants and their seniority, on the Continental side, there will be few, if any, Flight Attendants that have a hire date before 1978.  On the United side, the Flight Attendant holding the number one spot was hired back in 1958.  If the number one spot on the Continental side belongs to someone hired in 1978, if you go by "date of hire" then that person gets pushed down to the same level as someone who was hired by United in 1978.  Instead of being number one, that person might be assigned as number 2001.

So both sides, United and Continental, have valid arguments for their position on seniority integration.  So the next question to be answered is what is the formula for determining "relative seniority?"  What model should be used to equitably integrate the three groups?  I do not know all the legalities, or all details of what has been discussed, but I do know that the Negotiations Committee is working with a Federal Mediator, and with any impasse, neither side might not like what the Mediator comes up with as a solution.  If I were a Mediator facing this decision, I would just have to so some serious math, look at weighted average time of service and see if there was a middle road to be met.

I polled some of you asking for your date of hire and what number you have on the seniority list.  Then I weighed in estimates for new hires from Pan Am on the United side, and new hires from Frontier and Eastern on the Continental side.  Then I put in estimates for expansion and contraction periods for the two separate airlines.  Finally, I put in my estimate for the early buyouts, furloughs and crossovers that affected the United side.  Using all of these factors I was able to come up with a reasonable distribution by year and the number of Flight Attendants who would have a hire date in that year.  With all that I could calculate a weighted average seniority for both groups.  To my surprise the difference came out to only four years.  On the United side the weighted average year of hire was 1988 and on the Continental side, it was 1992.  I am sure the real numbers are different, but what it does suggest is that there may be room to compromise.  A mediator could split the difference and say that Continental flight attendants hired before the 2010 merger would get their seniority assigned based on a date that is two years before their actual date of hire.        

However this all falls out, Flight Attendants from both sides have to be prepared.  I think they have taken more hits on the United side, so it would be nice if some of the senior people got some of their regular flying back.  Seniority may be assigned system wide, but trips are awarded by domicile.  Depending on where you are based, you may regain some ground you lost, or you may find yourself taking a back seat to many others that work on the other side.  My personal opinion is that "date of hire" should be used straight across, but only because I think the time a person has committed to their job should not be discounted.  On the average, United Flight Attendants may have only four more years of experience, but a lot can be learned in four years.  It took only one day in September of 2001 and Flight Attendants hired before that date will definitely have a different experience story to tell over those hired after September 2001.  My opinion aside, the main point that I finally am getting around to that Seniority Integration may not have the impact you expect and it should not be something that prevents all of you from coming together and presenting a united front to management.

I listened in on last week's teleconference with Sara Nelson and I am encouraged by the show of unity from the Flight Attendants. Your Negotiations Committee is working hard to reach compromises with each other and stand firm with management on issues that are important to all of you.  It is important that all of you come together to back them up. This is why the "Day of Action" set for this Thursday, July 16, is so important.  Take the time to show up and show management that you all can stand together.  Do not let them use what divides you now to their advantage.  This is about a Joint Agreement that makes sense, one that recognizes your contributions to this airline, one that recognizes that you are United Airlines. 

P.S. - unless my day job gets in the way, I will be standing with you all at LAX on Thursday.  I hope to meet many from the pmCO side and let you know how much, as a customer, I appreciate how hard your job is and thank you for keeping the skies friendly.

Be predictable - Be gracious - Be the solution - Be the Brand .....Part 2

This two-part post was started a few months ago and before you get into Part 1, I wanted to start out with an update on the negotiations towards a joint contract for United's Flight Attendants.  As you know, tentative agreements were reached three years ago with each of the three working groups - pre-merger United (pmUA), pre-merger Continental (pmCO) and pre-merger Continental Micronesia (pmCMI).  One part of these tentative agreements was that that Flight Attendants (FA's) from one working group could not work on planes (aka metal) that was once part of another subsidiary.   For example, pmCO FA's could not be trained for or scheduled to work on the 747's which were part of the pre-merger United fleet.  On the other side, pmUA FA's were not going to be permitted to train for or work on the new 787's that had been ordered by Continental.  This arrangement has led to a lot of confusion, and resentment for not only the FA's, but for us customers as well. 

By all appearances over the last three years, Mr. Smisek's buddies cannot make up their mind on where to position aircraft and how to staff the domiciles. For example, when you look at a schedule, a 1:00 PM flight from LAX to Denver can have a different flight number and different aircraft every day (I so long for those days when I used to know the flight numbers and knew what equipment was being used).  In their contract, the pmUA FA's have work rule protections so that they have adequate rest periods, minimum layover hours, and a maximum number of duty hours they can work in one day.  These protections were kept after they were asked to take huge pay and benefit cuts when United was in bankruptcy ten+ years ago, and the pmUA FA's fought hard to keep them.  The pmCO and pmCMI FA's do not have some of these same protections and management has more flexibility in stretching out their duty days.  Add these protections in with the restriction on which metal pmUA FA's can work, and then throw in this daily rotation of flight numbers and aircraft, and scheduling for pmUA Flight Attendants becomes significantly more complicated than for their pmCO and pmCMI partners.  It also does not help when fleet scheduling moves pmUA metal into Continental's hubs in Houston and Newark.  That means more pmUA FA's have to "dead head' to those hubs to start their line, and those "dead head" hours are paid hours.  So with the work rule protections, restrictions on "metal," and more "dead-heading" hours, the contract with pmUA FA's makes them more expensive than their partners at pmCO and pmCMI.  At the outset, Mr. Smisek made his goal very clear - to cut costs, and that they are going for a joint contract for the FA's that does away with many of protections that the pmUA group still has.  

Over the last three years, there has clearly been a bent by management to "stack the deck" and pare down the number of pmUA FA's with the hope of being able to shift the outcome of the vote for a joint contract.  Cash buyouts were offered to encourage senior pmUA FA's to retire.  Those who did not accept the buyouts were then forced to cross over to the pmCO side or be furloughed.  FA's who did cross over lost their seniority and became junior to their pmCO partners.  Then, in April of 2014, 111 pmUA FA's were involuntarily furloughed.  At most domiciles, pmUA Flight Attendants with as much as thirty years of service found themselves back on Reserve.  To add salt to the wound, while all of this was happening on the pmUA side, United management was actively recruiting and hiring new FA's for the pmCO group. Now this was all last year, but the summer of 2015 is a little different picture.

As I wrote about in Part 1 of this post, United management has had some new revelation and you can see some of how the old United used to operate. With more mainline domestic flights, things have turned and United is now having to hire new FA's for the pmUA side.  In addition, within the last three weeks management has also had to declare at least three "Limited Critical Coverage" days, not only in the U.S., but at their domiciles in London and Frankfurt, asking pmUA FA's that had not worked their maximum to pick up trips at 1.5 times their rate of pay.  When the schedules came out for July, all of the pmUA FA's had lines that scheduled them out to 100 or more block hours.  When you add in layovers and added duty hours, some FA's might be home six days during the whole month.  It has been nice to see Mr. Smisek and his buddies actually forced into admitting they need the pmUA FA's.  It is nice to have their arrogance from last year coming back and biting them in the a**.    

Negotiations towards a joint contract began in 2012; however, it was not until a year ago after a Federal Mediator was brought in, that these negotiations began a small crawl forward.  When I say a small crawl, in realty, there has been nothing substantive that has been agreed to.  FA's from all three groups have become very frustrated and rumors circulate about what is going on with negotiations.  The AFA has been very quiet and very little public information made available.  On the management side, Sam Risoli, United's Senior Vice President for Inflight Operations has sent out generic memos saying that negotiations are moving forward, but he too has not been able to offer anything substantive.  All he can offer is "Thank You for all you do."

On July 1 the AFA MEC Presidents, as well as members of the negotiations committee, for the United, Continental and Continental Micronesia groups all came out with a joint announcement for a "Systemwide United Flight Attendant Day of Action" to be held on July 16 at all domiciles.  FA's from all three groups will be coming together to publicly declare their frustration at the pace of negotiations and that they will not back down to management.  I cannot tell you how encouraged I feel to see this kind of unity after all these years, and I encourage all of you reading this, to do your part to support this effort. There are so many other inefficiencies and problems that need to be dealt with at this airline.  United's Flight Attendants are hard working and dedicated and they are not the problem.  They are not going to be Mr. Smisek's sacrificial lamb in order to boost the stock price.  

The AFA has also come out with a red "Unity" pin that all AFA members are going to be receiving and wearing this month.  If you are a customer flying United or another airline and you see a Flight Attendant wearing this pin, take the time to thank them and let them know you support them.  I hope to be able to pick up my own pin this month to wear when I fly United, and I hope to have time on the 16th to go out to the airport to lend my support and say thank you.  Mr. Smisek this "Day of Action"' is not about pay and benefits - it is about what this airline has become under your leadership.  These Flight Attendants are gracious, they are the solution and they are the Brand.  These hard-working dedicated professionals are the Friendly Skies and they are United Airlines.   

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.