Monday Hot Flash - March 17, 2003
News, Issues, & Reviews
Item: The Growing Shortage At United: Credibility
"While we have seen only the press reports, those figures do not come even close to adding up."
-CSFB Analyst James Higgins, CBS News, March 13,2003, regarding United CFO's claim of being cash-positive in January.
It's becoming sort of the reverse of crying wolf.
Last week, United's CFO got the airline some great press, announcing that United was cash-positive to the tune of $1 million a day in January. Great news. The media headlines trumpeted this achievement, taking the CFO's statement at face value. But there was a lot of skepticism in the industry, given the track record of weird data coming from United's executive offices.
Two days later, Credit Suisse First Boston came out seriously questioning United's claim: "Our only surmise is that United is not making payments on many items...we can think of no way that monthly cash flow could have been even close to positive ... such decisions not to pay are unsustainable."
What's also unsustainable how long this stuff will be taken seriously. Getting accused of playing word games by financial institutions like CSFB is not a good sign for United's senior management. Nor can it build confidence in the carrier's overall direction.
This comes fast on the heels of another sunshine story that left the industry underwhelmed. Two weeks ago United's senior management grandly announced that its new, substantially-lower business fares were "revenue positive" - i.e., the decline in unit revenues was being more than off-set by increases in the number of passengers. Other airlines - which have seen just the opposite - scratched their heads. Bluntly,a lot of folks didn't believe it. Then, just days later, United announced the lay-off of 900 more flight attendants because of lower passenger traffic. First, they tell the world their grand fare scheme is generating more passengers. Then they pink-slip hundreds of employees for low passenger loads.
As they say down on the farm, that cow don't moo. CSFB is right. Something here doesn't seem to add up.
United is not running out of money. It's much worse. It's senior management is running out of credibility. The track record is getting pretty clear. In November there was the embarrassing ATSB filing, with numbers that were zip codes away from reality. Then there was the flood of obviously advisor-scripted babble about "reconstituting margins" and "transformational models" and describing some passenger segments as "price-driven occasionalists," all of which seemed to indicate more smoke than substance in the front offices.
Stop Blaming Labor. This is one big reason United's labor unions are not rushing to agree to management's concessions. They have to ask, concessions to achieve what? They see shifting numbers, unclear direction, and what is unquestionably a fuzzy plan to simply start a parallel airline, with everybody at the bottom of the wage ladder. Regardless of how much management is paying its "advisors" and how aggressively its public relations department tries to get the media to write sunshine stories about management's great expertise and its heroic efforts, things seem to be getting increasingly cloudy at United.
There Is A Better Model. United's situation remains in stark contrast to that of US Airways. That carrier has so far progressed through - and hopefully, out of - a tough bankruptcy. They had a plan. They had employee support. They didn't rely on trendy crackpot panaceas like starting surrogate airlines. No leaked PowerPoint extravaganzas touting terms that seemed to come out of an Airline 101 class at some rural junior college. And unlike United, US Airways' numbers, data, and plan were believable to both the ATSB and outside investors.
To get out of bankruptcy, United will need the full confidence of employees, creditors, financial institutions and the flying public.
They need to work a whole lot harder in that direction.
