Reference no: EM132275050

United Airlines: How Do We Get There from Here? How do we get there from here? That's the question three successive United Airlines CEOs, thousands of employees, tens of thousands of customers, and a similarly large number of investors have been asking themselves for several years. All travelers have stories to tell, and those told by some of United's passengers sound like clips from a horror movie. Some passengers were held over for 20 hours in a military barracks in Canada, at one point all flights across the globe were canceled due to a computer glitch, and champion golfer Rory McIlroy's clubs were lost on the way to a tournament. These stories are reflections of deeper, more perva- sive problems at the airline. United has been at or near the bottom in industry performance since its merger with Continental in 2010. This is true despite its com- petitors also executing large mergers (American with U.S. Air, Delta with Northwest) and confronting the same economic pressures. Besides suffering generally declining revenues and profits over many years, United was the target of 43 percent of all traveler com- plaints filed against US-based airlines in 2015 and ranked last in customer satisfaction among its peers. The company also paid $2.8 million in fines for leaving passengers stranded on the tarmac and mistreating those with handicaps. One passenger with cerebral palsy had to crawl off the plane because a wheelchair was unavailable. CUTTING TO GET AHEAD Management's intense focus on cutting costs—through layoffs, furloughs, and the outsourcing of baggage handling—has demoralized employees, the same em- ployees who have to deal with unhappy travelers whose flights have been delayed or canceled, or who have horrible coffee or lost luggage. Employees also complained that their new uniforms are cheap and of poor quality. The airline has long struggled to sign contracts with flight attendants, mechanics, pilots, and gate agents. An airline analyst for Bloomberg Intelligence described the situation this way: "Unhappy mechanics do not tend to go the extra mile—or the extra foot—to get the airplane ready to go." The seriousness and pervasive- ness of employee problems are captured by the fol- lowing passenger quote about United's employees: "As individuals they are really nice people . . . but they are in such a horrible situation, constantly trying to deal with customers that are not happy, and they're completely powerless." WHO'S TO BLAME? Who is responsible for sustained poor performance? Many point to the CEO. United has had three since 2010. Jeff Smisek, who led Continental, orchestrated the merger with United at that time and was responsi- ble for implementing (or not) many of the changes since. The merger of the two airlines' many operating systems was done all at once and not effectively. For instance, the program used to schedule pilots actually lost track of pilots and led to widespread flight cancel- lations. The same faulty system even assigned flights to pilots who were retired or dead.67 Smisek was ousted from the top spot, along with two other executives, due to allegations of unethical conduct. The three were accused of trading favors with David Samson, chair of the Port Authority and in charge of Newark Liberty International Airport (a major hub for United). Samson was to allocate millions of dol- lars to upgrade gates and terminals used by United in exchange for the airline reinstating a flight from Newark to Columbia, South Carolina, where Samson had a summer home. The unprofitable flight, later known as the "chairman flight," was not only reinstated, but it also was scheduled to take off and land at times con- venient for weekend travel. (The flight was immedi- ately canceled after Smisek's dismissal.) Oscar Munoz was then appointed CEO, but he suf- fered a heart attack weeks later. In his absence, Brett Hart, United's general counsel, served as the interim CEO. Munoz eventually returned, but the dismissals and the generally difficult situation have caused many other executives to leave, including some who were poached by competitors. The result is a "management suite rife with openings, and three key executives have 'acting' before their titles."68 All told, it may be difficult for United to attract top talent in the near future. It may be no surprise that in the midst of manage- ment turmoil the airline lost sight of its customers. Most notably United failed to make a priority of ensuring that flights departed and arrived on time. The airline has historically relied on linear routing, which entails send- ing one plane from New York to Chicago, then to Denver, and ultimately to Seattle. While this practice maximizes profits by keeping the plane in the air all day, loaded with revenue-generating travelers, it also means that if something goes wrong at one airport, such as bad weather or equipment failure, many other flights and their passengers are affected. In contrast, Delta Air Lines, the industry leader, made on-time per- formance a priority and has effectively eliminated flight cancellations unrelated to storms. Some attempts at United to improve the efficiency and speed of boarding also went astray and actually resulted in passengers spending more time in line and boarding. Finally, United is widely known to have one of the oldest fleets in the sky.69 This fact has implica- tions for everybody—pilots, flight attendants, mechan- ics, baggage handlers, and, of course, customers. POSSIBLE SIGNS OF RECOVERY There is some light on the horizon. In early 2016, Munoz returned to work as CEO, bringing knowledge and credibility to the job. He worked outside the airline industry before becoming United's chief operating officer, plus he had been on the board of Continental Airlines. In his short time at the helm, he has visited employees on the job, crashed employee parties at bars, and reached out to employees in other ways. Coffee suppliers have been changed, and the airline began providing free snacks in economy class. Prog- ress has been reported in some contract negotiations. Profits are up, as they are at all airlines since oil prices have dropped, reducing the cost of fuel. One person described the current situation this way: "The airline was just incredibly sick and Oscar Munoz is like a shot of penicillin. It's going to get better, but it has to have some time to actually settle in and work."70 Step 1: Define the problem Step 2: Identify the causes of the problem by using material from Chapter 1. Step 3: Make recommendations