United: Where From Here?
Now that the ATSB has finally closed the door on United for a loan guarantee, the lemming-section of the media over the past week has been casting lots to determine just where United will be cutting service, selling off assets, and generally taking a knife to itself.
The Issue Is Cost v Revenue. Not Big v Small. Here's a concept that many aviation reporters have missed: Who says that United will need to significantly downsize to survive? Somehow, we can't find that extra Commandment anywhere in all the stuff that Moses brought down from Mount Sinai.
True, the airline is losing money, even after huge reductions in labor costs, and cram-downs on many of its aircraft leases. True, United needs to get costs down further. True, oil prices have spiked United's fuel bill up by a reported $750 million. As a result, the usual suspects in the media are speculating what United will sell-off, close, or discontinue. This is because the assumption is that a cost problem is solved by just getting smaller. Here's some news: the cost/revenue equation is not necessarily fixed by downsizing.
No, They Don't Need To Match Southwest CASM. The contention that United needs to get costs down further is completely correct. But to survive, it's got to do a lot more. It must re-focus on the extraordinary strengths United has in the areas of market position and brand-equity. This is where the airline's real future lies, not in just cost-cutting.
A common - and inaccurate - belief is that UA must have Southwest CASM to survive. Wrong. Instead it must have a cost/revenue equation that produces numbers that aren't in brackets at the bottom of the P&L. What these compare-it-to-Southwest people miss is that United is a different airline from Southwest or JetBlue, or AirTran. Different route system, different revenue mix, and a different part of the air transportation system.
If CASM alone were the Source Perrier of airline success, the skies today would be black with airplanes operated by Vanguard, Pacific Express, Northeastern, American International, Western Pacific, Eastwind, Air South, and a whole gaggle of other Southwest wannabes. They're gone, not because of cost issues, but revenue issues. Like, they didn't have any. (And don't buy into the canard that the big guys killed them off - that's mostly trendy lore.) The reason they went glub-glub was because they had zero - or less - brand loyalty.
Brand loyalty, truth be known, is one of United's most potent strengths.
Here's an airline with outstanding operational stats. On-time performance. Schedule reliability. Employees that when dealing with passengers display an attitude that some other airlines can't even get close to. Customer service that is arguably among the best and most professional in the industry. A route system that makes some sense, including a fifth-freedom hub at Tokyo that's in the right place at the right time to take advantage of what will be huge traffic growth into China.
Conclusion: Yes, United needs to get their costs down. But they also need to focus on their core strengths, which are excellence in product delivery, and a strong brand identity. These are things absent from United's loopy cartoon-style ads. It's also counter to the Ted concept as well. (We could also mention the daily Martian Fire Drill, a.k.a the UAX operation on Concourse F at O'Hare, which has raised the concept of total confusion to an art form. But that can be easily fixed if somebody in the head office would bother.)
Time For An Executive Search, Too. And that brings up the issue of leadership. Maybe it's time to re-populate the front offices. To be fair, running an airline, especially one in United's position, isn't easy. Despite politically-correct populist rhetoric, nobody in their right mind would take these top jobs unless the compensation, either upfront or on the near-term come line, was in the respectable seven-digit range. These people may go home at night, but the job comes along with them.
But that much said, the executive track record so far at United is not encouraging. United's employees have certainly come to the save-the-airline dance party. But there's an open question whether the trio at the top are in attendance. Despite some aggressively-placed sunshine stories about the CEO in recent weeks, the fact is that the whole plan at the top seems to have revolved around cutting labor costs, re-negotiating aircraft leases, passing off a paint job (Ted) as a low-cost carrier, and finally, financing it with a government-guaranteed loan.
This is even with the phalanxes of "advisors" reportedly working for the airline. In one case, some news stories indicated that the airline was spending a million bucks a month for advice on how to re-structure the United Express system. That begs the question: who's running the store?
Likely: More Requests For Labor Give-Backs. And, Downsizing. The fact remains that even with huge employee concessions, United isn't making any money. That means something has to give. Add to that the track record in the executive offices, which seems to be more show than go when it comes to hard forward strategy, and the media pundits will probably be proven right. Downsizing may well be the new non-strategy.
Maybe the Tokyo operation goes on the block. Maybe some additional Heathrow slots will be put up for auction. Maybe there will be demands to let small jet providers take over more of the United route systems. Maybe a lot of things. But if the revenues drop as fast as the cuts, the result is simply a downsized Titanic. Maybe.
And that's just the crux of the United problem. It seems when it comes to forward-thinking strategy, everything's a "maybe."
Continued.....
Now that the ATSB has finally closed the door on United for a loan guarantee, the lemming-section of the media over the past week has been casting lots to determine just where United will be cutting service, selling off assets, and generally taking a knife to itself.
The Issue Is Cost v Revenue. Not Big v Small. Here's a concept that many aviation reporters have missed: Who says that United will need to significantly downsize to survive? Somehow, we can't find that extra Commandment anywhere in all the stuff that Moses brought down from Mount Sinai.
True, the airline is losing money, even after huge reductions in labor costs, and cram-downs on many of its aircraft leases. True, United needs to get costs down further. True, oil prices have spiked United's fuel bill up by a reported $750 million. As a result, the usual suspects in the media are speculating what United will sell-off, close, or discontinue. This is because the assumption is that a cost problem is solved by just getting smaller. Here's some news: the cost/revenue equation is not necessarily fixed by downsizing.
No, They Don't Need To Match Southwest CASM. The contention that United needs to get costs down further is completely correct. But to survive, it's got to do a lot more. It must re-focus on the extraordinary strengths United has in the areas of market position and brand-equity. This is where the airline's real future lies, not in just cost-cutting.
A common - and inaccurate - belief is that UA must have Southwest CASM to survive. Wrong. Instead it must have a cost/revenue equation that produces numbers that aren't in brackets at the bottom of the P&L. What these compare-it-to-Southwest people miss is that United is a different airline from Southwest or JetBlue, or AirTran. Different route system, different revenue mix, and a different part of the air transportation system.
If CASM alone were the Source Perrier of airline success, the skies today would be black with airplanes operated by Vanguard, Pacific Express, Northeastern, American International, Western Pacific, Eastwind, Air South, and a whole gaggle of other Southwest wannabes. They're gone, not because of cost issues, but revenue issues. Like, they didn't have any. (And don't buy into the canard that the big guys killed them off - that's mostly trendy lore.) The reason they went glub-glub was because they had zero - or less - brand loyalty.
Brand loyalty, truth be known, is one of United's most potent strengths.
Here's an airline with outstanding operational stats. On-time performance. Schedule reliability. Employees that when dealing with passengers display an attitude that some other airlines can't even get close to. Customer service that is arguably among the best and most professional in the industry. A route system that makes some sense, including a fifth-freedom hub at Tokyo that's in the right place at the right time to take advantage of what will be huge traffic growth into China.
Conclusion: Yes, United needs to get their costs down. But they also need to focus on their core strengths, which are excellence in product delivery, and a strong brand identity. These are things absent from United's loopy cartoon-style ads. It's also counter to the Ted concept as well. (We could also mention the daily Martian Fire Drill, a.k.a the UAX operation on Concourse F at O'Hare, which has raised the concept of total confusion to an art form. But that can be easily fixed if somebody in the head office would bother.)
Time For An Executive Search, Too. And that brings up the issue of leadership. Maybe it's time to re-populate the front offices. To be fair, running an airline, especially one in United's position, isn't easy. Despite politically-correct populist rhetoric, nobody in their right mind would take these top jobs unless the compensation, either upfront or on the near-term come line, was in the respectable seven-digit range. These people may go home at night, but the job comes along with them.
But that much said, the executive track record so far at United is not encouraging. United's employees have certainly come to the save-the-airline dance party. But there's an open question whether the trio at the top are in attendance. Despite some aggressively-placed sunshine stories about the CEO in recent weeks, the fact is that the whole plan at the top seems to have revolved around cutting labor costs, re-negotiating aircraft leases, passing off a paint job (Ted) as a low-cost carrier, and finally, financing it with a government-guaranteed loan.
This is even with the phalanxes of "advisors" reportedly working for the airline. In one case, some news stories indicated that the airline was spending a million bucks a month for advice on how to re-structure the United Express system. That begs the question: who's running the store?
Likely: More Requests For Labor Give-Backs. And, Downsizing. The fact remains that even with huge employee concessions, United isn't making any money. That means something has to give. Add to that the track record in the executive offices, which seems to be more show than go when it comes to hard forward strategy, and the media pundits will probably be proven right. Downsizing may well be the new non-strategy.
Maybe the Tokyo operation goes on the block. Maybe some additional Heathrow slots will be put up for auction. Maybe there will be demands to let small jet providers take over more of the United route systems. Maybe a lot of things. But if the revenues drop as fast as the cuts, the result is simply a downsized Titanic. Maybe.
And that's just the crux of the United problem. It seems when it comes to forward-thinking strategy, everything's a "maybe."
Continued.....
. Poor kid has a chip on his shoulder. Mommy got him a job flying corporates but couldn't get him on with a major during quite possibly the biggest boom in aviation history, so he spends his time attacking airlines that actually have standards. If he was correct even 2% of the time, it would be OK.
