United Airlines Shows How Not to Run a Business

This commentary originally appeared in Forbes

As the world now knows, last year a guitarist named Dave Carroll was sitting in a window seat on a United Airlines (UAUA) plane at O'Hare airport in Chicago when he looked out and saw baggage handlers hurling guitar cases through the air. He pointed it out to flight attendants; they responded with indifference. When he arrived in Nebraska, he found that his instrument had been smashed. After months of complaining to the airline and getting no response, he wrote and performed a song, "United Breaks Guitars," and posted it on YouTube. It was viewed more than 3 million times in its first 10 days.

Across the world in China, Wang Jianshuo, a famed blogger, posted about a United flight he took to the U.S. A surly flight attendant refused to help an elderly passenger stow his carry-on luggage. The audio on the movie channels didn't work. The overhead lights turned off and on the entire trip. His return trip was worse: The plane sat on the tarmac for three hours and then was cancelled until the next day because of a fuel leak.

How does a company perform so badly? United's stock price was tottering even before the financial crisis. Now that even stellar airlines like Southwest are suffering, a weak player like United seems doomed to follow in General Motors' and Circuit City's footsteps unless it makes major changes.

This week, United announced a quarterly profit of $28 million, but that included fuel hedges and other accounting gains, without which it lost $323 million. It also named a new president. The airline's missteps over the past decade provide a case study of what not to do when running a company.

Here are three key lessons we all can learn from United.

Create Brand Loyalty, Not Simply Satisfaction

It is doubtful that the millions who have watched Carroll's video or read Wang's blog will want to fly United anytime soon, unless they have no choice. That is terrible for the airline. It is fighting for every last passenger dollar, and trying to make inroads into the emerging Chinese travel market. Part of the problem is that the company, like many, makes satisfying customers part of its mission statement but fails to go nearly far enough beyond that.

Winning companies like Apple (AAPL) go past mere satisfaction to try to create true brand loyalty. Not only do loyal customers spend more, they are more likely to become brand ambassadors and bring along other customers. When everyone from the mailroom to the chief executive buys into the mantra of creating brand loyalty, the result is increased profits.

Consumers are more price sensitive in this economy, and they are trading down, but it's still a great time to capture loyalty. People don't want to waste money on brands that fail to meet their expectations. They're buying only what they trust, and they'll return to trusted brands repeatedly.

Instead of watering down its frequent flyer benefits to save costs, United should be taking the exact opposite tack. It should take a page from hotel stalwarts like Starwood and Marriott, which are offering more goodies than before to their most loyal clients. In consumer studies that my organization, China Market Research Group has conducted, we've found that the No. 1 reason people fly United regularly is because they have racked up points in United's Star Alliance loyalty program. Why would United want to disenfranchise its most loyal customers?

As consumers think harder about where to spend their money, aiming to satisfy them is not enough. Only striving to create true loyalty will work.

Don't Forget Why You're Here

Many companies forget their main purpose and become bogged down in just sustaining their operations. United forgets that it's not only selling a means of transportation that is faster than trains or cars. For vacationers, who make up most passenger traffic, it's selling dreams and memories. An airline flight is typically the first and last part of a newlywed couple's honeymoon, or a family's overseas trip in planning for years.

People remember such journeys forever. I fondly recall my own first flight on TWA when I was six years old, to Italy and Greece with my parents. Likewise, my childhood flights on Delta to see my grandmother in Florida. What United fails to get is that it is selling dreams, not just a form of transportation. Few United employees take pride in their jobs, and it shows.

One company that gets it right is Disney (DIS). A trip to Disney World is not simply an outing to an amusement park like Six Flags (SIX) or Universal Studios. It is a time when families can create memories that last a lifetime. Disney trains its employees, from the monorail drivers to the people selling fast food, to be more than just salespeople. They are weavers of dreams. That is one reason families repeatedly return to Disney World, according to research my firm has conducted with visitors from eight different countries.

Unilever (UL) got it right with its Axe deodorant. That company understands that it is not selling a way to stop sweat or to smell a little better. It's selling a way for young men to be more attractive. Axe put together a TV commercial that shows a dorky guy, who happens to use Axe, getting more glances from attractive women than Ben Affleck, the movie star. The spot uses humor to imply that you, too, can be as appealing as the Hollywood star who dated Gwyneth Paltrow and Jennifer Lopez and is married to Jennifer Garner.

To create real customer loyalty, you have to offer more than just functionality. And you have to train everyone in your organization to have the pride to sell an emotional connection, not just tools.

Don't Forget Employee Morale

United's workers have been a beleaguered group for years now. They have had their wages, pensions and benefits cut even as the chief executive officer, Glenn F. Tilton, has been paid nearly $20 million over the last five years (despite United's stock dropping 43% during his tenure). Does that seem fair?

Employee morale has gone into the gutter. Unhappy workers mean terrible customer service--as Dave Carroll and Wang Jianshuo and millions of their followers know. The company may have no choice but to lay off workers and reduce benefits in the downturn, but it has to do so with respect and with effective communication to the rank and file about why such pain is necessary. Every company everywhere must have an effective strategy for ensuring that its remaining employees don't lose hope or happiness, just as it must maintain its focus on creating brand loyalty.

One thing to do is to make sure that all employees share the pain equally. If there are big cutbacks anywhere, senior management should take substantial pay reductions and limits on its privileges, such as fewer business class flights and trips on private jets. The troops look to senior management for direction. If those troops see the top brass caring for itself at the expense of others, the spirit of the entire organization erodes.

In today's economy you can't get by on decent prices or acceptable service. You have to stand out and win the hearts of your customers. To do that you have to go beyond satisfaction to true loyalty. You have to provide a compelling reason, beyond basic service and price, for consumers to choose you. And your organization must be unified in that mission. Otherwise, you may be the next to follow GM into Chapter 11.

Comments

[User 342869:]

They may have bad management, granted, but their real problem is entrenched unions in every area that don't have a clue about the real difficulties of running a complex airline. The employees have a sense of entitlement because they think they work for the union.

If you like United now, you'll love the entire U.S. economy after card check is passed by Congress!

Jul 27 08:10 AM

[stupid:]

While it is true United handled the guitar situation badly, how many other airlines have had entertainment systems, lights, seat backs not work properly. You forget sometime the oversized beasts that are carried onboard these airplanes. Yes, I have had surly flight attendents too. Have you always been courteous to the person next to you? People are looking for a whipping boy. Vote with your money if you don't like United. Don't be a hypocrite and fly United because it was the only place you could get a cheap fare!

Jul 27 09:38 AM

[josquin021:]

I have been almost exclusively loyal to UA for the past 30 years, and this year, I instituted an only-if-I'm-using-miles policy for UA. For the international business trips I take, I now fly Continental and their partners (which will, yes, include United as of 10/24), and I'm far, far happier. Better employees, newer equipment, and lower fees. For domestic, I fly JetBlue, Virgin America, and again, Continental. Best move I ever made.

(The straw that broke the back: I wanted to change a mileage ticket to a day earlier. My Chicago routing was sold out, but they had 12 seats via Denver. The cost to change: $150 for the mileage re-deposit fee, $100 for the "close-in" mileage re-issue fee, and a mandated $25 to talk to an agent to do this. That's $275 for a change where the only real difference was that I'd get the Wolfgang Puck's pizza at DIA rather than O'Hare.)

Jul 27 09:52 AM

[levin70:]

To the OP

It's absolutely glaring that you have never been in a management position in a mostly union run business.

Union businesses are all about high fixed costs and how you manage volume given those high fixed costs. In addition, its about managing a situation that you are not entirely in control of. Union rules dictate what managers can and can't do, and they are there to protect the union workforce, even when its detrimental to the Company and thus the Union itself. When your revenue drops even 1 or 2 perecent, it can be devastating, having it drop more than 10%, well then it becomes all about who can i let go today to reduce my fixed cost footprint. Because you can't change things, the union work rules prohibit the kind of flexibility you need in that kind of environment. Thus, it becomes about reducing union headcount, because that is pretty much your only tool available. A pretty small toolkit. And one that tends to crush morale. But, unfortunately, thats the only tool available to the managers at UA.

If APPLE had an entirely union workforce and had to manufacture its products in the US under union rules, I don;t think you would be singing the same tune.

Regards

Jul 27 11:25 AM

[DonFurio:]

I could talk all day about this, but United suffers from several problems. Some of their main hubs for connections are Chicago and Denver, and that is huge pain for travel due to weather half of the year, and just general congestion for Chicago year round. Customer service is an issue, as I've noticed that way more of their customer service has been outsourced compared to other US domestic carriers.

The guy in the article should not have waited so long and, yea bc of union work rules, it's not technically their job description to lift carry-ons.

I think that the Union work rules combined with years of mismanagement have led to United's current woes. I actually do think they are worse than American, Us Airways, Continental and Delta.

Jul 27 12:10 PM

[User 461604:]

You are a moron if you think that all these major businesses should be liquidated. It would ruin not only the US economy but also pull down the global economy further. The answer to have a change in US corporate governance that seeks innovative ways at creating value to their products year after year. American business has been mired in cost cutting, short term shareholder profits rather than producing things that customers really want. That's what you should hope for!


On Jul 27 02:47 AM PutMoneyDown wrote:

> I"ve lived in Asia the last four years and have traveled extensively.
> Luckily my travel has mostly been on Singapore Airlines. Unfortunately
> several flights to the US, and within the US; have been on United.
> What a difference! United is uniformly AWFUL: schedule, employees,
> aircraft... Singapore Airlines on the other hand is a pure JOY to
> be on. And it's mostly the little things: flight attendent behavior,
> food quality, and so on. You clearly see that the Singapore employees
> CARE. The United ones couldn't seem to care less. They can't go bankrupt
> fast enough if you ask me. And this time (please also include GM
> & Chrysler) let them be liquidated.

Jul 27 12:36 PM

[levin70:]

Actually, with the new runway that came online in Nov 2008, O'hare isn't the disaster it used to be. Not saying its perfect by any means, but it definately helped, very noticable in fact


On Jul 27 12:10 PM DonFurio wrote:

> I could talk all day about this, but United suffers from several
> problems. Some of their main hubs for connections are Chicago and
> Denver, and that is huge pain for travel due to weather half of the
> year, and just general congestion for Chicago year round. Customer
> service is an issue, as I've noticed that way more of their customer
> service has been outsourced compared to other US domestic carriers.
>
>
> The guy in the article should not have waited so long and, yea bc
> of union work rules, it's not technically their job description to
> lift carry-ons.
>
> I think that the Union work rules combined with years of mismanagement
> have led to United's current woes. I actually do think they are worse
> than American, Us Airways, Continental and Delta.

Jul 27 02:09 PM

[Carousel:]

Being trapped at a United hub, we have little choice in airlines unless we want to transfer multiple times, plus, as mentioned, the MILES!!! I am a slave to the mileage points which make travel on United almost acceptable. However, it is odd that Tilton & Twitts don't seem to get it...how can you be so mediocre and overpaid, and yet hand out harsh reviews and comp freezes to flight crews and gate agents barely making enough to get by on.

Another peeve, United likes to present this "seamless" travel experience, but the second you encounter a ticket agent, baggage handler or ground staff, you are immediately reminded that they are not United, and that they are an outsourced part of your travel experience!! This makes resolving your conflict much more difficult.

Jul 27 04:20 PM

[Carousel:]

The US economy is already ruined because of the antics of these corporations. Enough of this too big to fail crapola. Let them go under and let new small industry be born. The likes of GM, UAL, CIT, etc., have proven they are not reputable and not worth our support.

************
461604 -You are a moron if you think that all these major businesses should be liquidated. It would ruin not only the US economy but also pull down the global economy further. The answer to have a change in US corporate governance...

Jul 27 04:26 PM

[johnyboy:]

What most of you,(and this includes UAL employees),donot realize is that Tilton is being compensated so highly for exactly what he has been doing to United Airlines,He is what to is referred to as a EHM-economic hitman.His job was to break the spirits and wallets of United.Who would pay him to do such a thing? The very Banks which now basically own UAL through financing.Why? thousands of employees making much less money and no pension,which hold mortgages and credit through these banks are now indentured servants to the banks and the good old USA government say to this by allowing these steps to be taken through bankruptcy court with a federal judge over-seeing and abiding to one man receiving millions of dollars and thousands receiving peanuts and cake...this was planned,and now the auto industry and other will join in...

Jul 27 05:22 PM

[Mobywhite:]

My experience with United was so bad that I have not flown with them since nor do I plan to ever fly with them again.

My favorite lately has been Virgin America. Very friendly employees and good service.

Jul 27 05:36 PM

[Oldflyer:]

Sure would be fun to pick apart the businesses you're all in. I would imagine that there are many imperfections and that you don't always please your customers either.

Jul 27 08:28 PM

[User 461916:]

Echo the comments here on how poorly managed Unite is.
But
Passengers share some the blame. They want to pay nothing for a coast to coast ticket and then get meals and movie no less. Americans appreciate the price of everything and the value of Nothing.
As for the bag going in the overhead....."You brought it you stow it".
Or....here is a tip....its called a "Carry-On" and if you can not carry it, it should not be brought onboard; stupid.
In America, some people will buy generic toilet paper and drive a Yugo...and some companies will provide this (Southwest comes to mind). United's problem is it needs to figure out what kind of airline it is and then price accordingly. If that means a flier goes to Southwest because it is the "Cheapest", so be it.
Singapore Airlines makes a profit and guess how they do that???
They charge fares for seats that cover their costs. Duh.

Jul 27 10:21 PM

[Dream Achiever:]

I've been a Purser and flight attendant for United for nearly 14 years. Luckily, I've been able to take advantage of voluntary layoffs throughout the years to pursue my educational goals. As a second generation UAL employee, I concur with the OP and the many comments from dissatisfied customers.

United's problems are mostly systemic and cultural. Employee groups are so compartmentalized and segregated...a system than lends itself to divisional in-fighting with no sense of esprit des corps. Furthermore, senior management at UAL has segregated themselves in an ivory tower on W. Wacker Street in downtown Chicago and have failed miserably at any form of employee engagement.

I believe that most UAL employees want to do their part to provide excellence in customer service, but with limited manpower and too few tools to work with, front line employees do not feel supported, nor valued by upper management. As such, there is a collective sense of despair, resentment, and demoralization among the ranks.

The only way a customer-driven business like United is going to survive is through a fundamental re-engineering of its corporate culture...with Glenn Tilton being shown the door and with a new management team that can inspire the troops with a solid corporate vision and a management strategy that engages the employees and makes them feel valued. When employees feel valued for the work they do, they will go above and beyond for the customer. None of this is new thinking, but senior management at United just doesn't get it.

Lastly. United has created a caste system among its customer base...by channeling all of its resources toward 1K and Global Service Customers, while completely ignoring the needs of the-not-so-frequent customer. I believe in rewarding one's best clients, but every customer is entitled to courtesy and respect.

Jul 27 10:49 PM

[johnyboy:]

"blowing a billion dollars on fuel hedges"..Hmmmm,is the oilman(Tilton),playing both sides of the game..should be looked in to...


On Jul 27 04:36 AM Doc1945 wrote:

> The Board of Directors of United Airlines should be held personally
> accountable for the demise of this once great airline. They are
> spineless wimps that are held in Tilton's hip pocket. He is undeniably
> the worst CEO in Airline history. At least Lorenzo had a plan.
> Tilton's long term strategy changes every Tuesday morning. From
> paying dividend's so he and his cronies could enjoy a Xmas bonuses,
> to changing equipment on flights so his family can ride in first
> class, to blowing a billion dollars a years on fuel hedges and personally
> blowing the CAL merger because of his insistence to be of the new
> companies board of directors. Yet, this pathetic Board gave him
> another 18% raise this year. I have never talked with a United
> employee that even has an ounce of faith that he could learn to run
> an airline. He is the Bernie Madoff of the airline industry. It
> would be funny if he didn't ruin so many lives on his self serving
> personal quest.

Jul 28 05:49 AM

[archery401:]

As an employee of UA now for 24 years, I must beg to differ with you. There was a time when I started working with united that employee's took pride in their jobs. Customer satisfaction was the rule of the day. We knew who was paying our wages (the costumers). Since those days of yesteryear and many greedy self serving CEO's we have learned that this is not the number 1 goal for our company. Working on the ramp there have been many a day that we will have a whole cart of bags that came in late for the flight. I myself tried to get the bags onboard pre departure. However was turned around because we would end up with a 2 min delay as we loaded the baggage. In my personal opinion, I would rather be a couple of min late (which can usually be made up in air time anyways) than to arrive at my vacation and find I have no clothes to wear.
However the supervisors are only thinking of them selves. they are guranteed a bounce each quarter for on time departures. so forget the costumers. Not the way to run a business. If we take it on ourself to delay the plane and make some costumers happy we will be pulled in on an investigation to explain why we did what we did.
You can blame the unions if you want but keep in mind that when the CEO running your company has no interest in it's products (costumers) then how are we as workers supposed to react to that. Let me tell you it can be very discouraging.


On Jul 27 08:10 AM User 342869 wrote:

> They may have bad management, granted, but their real problem is
> entrenched unions in every area that don't have a clue about the
> real difficulties of running a complex airline. The employees have
> a sense of entitlement because they think they work for the union.
>
>
> If you like United now, you'll love the entire U.S. economy after
> card check is passed by Congress!

Jul 28 11:47 PM

[johnyboy:]

To User 342869,"entrenched unions who dont have a clue,with a sense of entitlement?"..Dont know or really care what you do for a living,but if you are on the arrogant/ignorant management side it understandable of your uneducated/no experience opinon arrives.Front line employees(union employees),make the airline work everyday,they are the foundation.What does upper management or even middle management contribute daily to the survival of the airline?next to nothing or negatively.You really have you head up your elitest ass if think otherwise and the present state of Americas destroyed economy should be proof enough even for an idiot like you of what happens when Corporate greed is allowed(by government) to rule over fair and moral capitalism..


On Jul 28 11:47 PM archery401 wrote:

> As an employee of UA now for 24 years, I must beg to differ with
> you. There was a time when I started working with united that employee's
> took pride in their jobs. Customer satisfaction was the rule of the
> day. We knew who was paying our wages (the costumers). Since those
> days of yesteryear and many greedy self serving CEO's we have learned
> that this is not the number 1 goal for our company. Working on the
> ramp there have been many a day that we will have a whole cart of
> bags that came in late for the flight. I myself tried to get the
> bags onboard pre departure. However was turned around because we
> would end up with a 2 min delay as we loaded the baggage. In my personal
> opinion, I would rather be a couple of min late (which can usually
> be made up in air time anyways) than to arrive at my vacation and
> find I have no clothes to wear.
> However the supervisors are only thinking of them selves. they are
> guranteed a bounce each quarter for on time departures. so forget
> the costumers. Not the way to run a business. If we take it on ourself
> to delay the plane and make some costumers happy we will be pulled
> in on an investigation to explain why we did what we did.
> You can blame the unions if you want but keep in mind that when the
> CEO running your company has no interest in it's products (costumers)
> then how are we as workers supposed to react to that. Let me tell
> you it can be very discouraging.

Jul 29 11:28 AM

[Pilotguy:]

When you've managed to reduce your fixed costs via pension termination and salary reductions of 30-50% plus increased copay and out of pocket employee costs for health care, and renegotiated many of your aircraft lease terms it's no longer about your fixed costs, it's about your ability to lead and manage. UAL never restructured within the company...over 40 corporate officers running divisions that aren't necessary all so Glenn can keep pocketing money while underperforming. UAL's executive pensions were never underfunded and consequently survived. (Note: UPS pilots comingled their pensions with UPS management/executives just to avoid this type of circumstance.) UAL's BOD does what Tilton tells it. Beholden simply by greed.
UAL managed to lose $B in fuel hedges...hmmm, thank goodness Tilton was an oil exec. All the quotes attributed to Tilton are true. I observed several similar exchanges with employees while I worked there.
One final thought:
United Needs a Glennema


On Jul 27 11:25 AM levin70 wrote:

> To the OP
>
> It's absolutely glaring that you have never been in a management
> position in a mostly union run business.
>
> Union businesses are all about high fixed costs and how you manage
> volume given those high fixed costs. In addition, its about managing
> a situation that you are not entirely in control of. Union rules
> dictate what managers can and can't do, and they are there to protect
> the union workforce, even when its detrimental to the Company and
> thus the Union itself. When your revenue drops even 1 or 2 perecent,
> it can be devastating, having it drop more than 10%, well then it
> becomes all about who can i let go today to reduce my fixed cost
> footprint. Because you can't change things, the union work rules
> prohibit the kind of flexibility you need in that kind of environment.
> Thus, it becomes about reducing union headcount, because that is
> pretty much your only tool available. A pretty small toolkit. And
> one that tends to crush morale. But, unfortunately, thats the only
> tool available to the managers at UA.
>
> If APPLE had an entirely union workforce and had to manufacture its
> products in the US under union rules, I don;t think you would be
> singing the same tune.
>
> Regards

Jul 30 03:13 PM

[JOE N:]

GLENN TILTON DID WHAT WE HIRED HIM FOR...HE PULLED US OUT OF BANKRUPCY .....THEN HE TOTALLY DESTROYED US.....HE STOLE FROM US, HE STOLE FROM THE PASSENGERS AND HE IS CRUMBLING US INTO TINY BACO BITS AND SELLING US OFF LITTLE BY LITTLE....BECAUSE HE CANT GET MORE THAN HE HAS NOW....LIKE A 2 YEAR OLD HOLDING HIS BREATH.....WHY DOESN'T ANYONE INVESTIGATE THESE AIRLINE C.E.O.S LIKE ENRON ? TOO MUCH PAYOLA ? THEY SHOULD BE WITH THE BANKS AND THE INSURANCE COMPANY AND DRUG COMPANY CEO'S ..IN PRISON.


On Jul 26 10:41 AM flyerc wrote:

> Glenn Tiltion was quoted as saying "Your morale is not my problem"
> to the employees. He has never never understood that an airline is
> a service based business. But he has compensated himself more than
> any other legacy Carrier's CEO. Even though every metric used to
> rate upper level management at an airline shows he is worth very
> little. He has doomed this once great Airline.

Aug 01 03:27 PM

[David White:]

Airlines got a little more bad news today when Chevy announced its mpg figure of 230mpg for the Volt. Chevy called this figure conservative. With this kind of gas mileage, a few more people will elect to drive to "closer" airline destinations.

Aug 11 09:23 AM