In an attempt to regain its status as a preferred airline for travelers, United Continental (NYSE: UAL ) recently began a major ad campaign promoting itself as "flyer friendly." If United wants to rebuild its historical revenue premium, it will need to convince fliers that it has upped its game from a customer service perspective. However, last week United Airlines walked into yet another embarrassing PR blunder.
Ninety-year-old WWII veteran Ewalt Shatz, who fought during the Pearl Harbor attack, was headed to Honolulu on United Airlines for a Pearl Harbor memorial ceremony. United bumped Shatz from his flight due to weight restrictions for the plane. Instead, they put him on an American Airlines (NASDAQ: AAL ) flight that left eight hours later for Maui, where he had to connect to an inter-island flight on Hawaiian Holdings (NASDAQ: HA ) .
The story has led to a public outcry against United, with many customers vowing to take their business elsewhere. United Airlines' inability to find a more humane solution than rerouting an elderly veteran in poor health makes a farce of its "flyer-friendly" ad campaign. The perpetuation of its reputation for poor customer service will in turn frustrate United's efforts to rebuild its revenue premium.
A history of blunders
United Airlines has had an unfortunate tendency to make headlines with bad PR blunders in recent years. Most famously, in 2008, United customer (and musician) Dave Carroll watched a careless baggage handler break his guitar. After United refused to reimburse him for the damage, Carroll eventually wrote a song called "United Breaks Guitars," which went viral on YouTube.
A more mundane -- but much more serious -- problem arose last March, when United Airlines and Continental Airlines finally moved to combine their reservation systems to complete their merger. While the company had supposedly prepared thoroughly for the switchover, the change did not go smoothly.
This caused a surge in customer complaints. A variety of glitches remained through the summer, leading to frequent flight delays and cancellations, landing United Airlines at the bottom of the annual Airline Quality Rating survey for 2012.
A terrible decision
United seemed to be making some progress in boosting customer satisfaction earlier this year. United Continental executives have repeatedly noted that the company is giving all of its customer-facing employees new customer service training this year.
In the case of Ewalt Shatz, this training did not pay off. United had no choice but to remove passengers from his flight to Honolulu, but it did have a choice about whom to rebook. It should have been obvious to employees that Shatz would have a harder time coping with a new itinerary than most fliers -- not to mention the fact that he deserved better treatment.
United couldn't even manage to get him to his destination quickly. Shatz had paid for a nonstop ticket, but was instead rebooked with connecting flights.
United's poor customer service performance stands in stark contrast to the exceptional service provided to Shatz by Hawaiian Airlines. Hawaiian sent an agent to the gate where Shatz's American Airlines flight arrived in Maui in order to personally escort him to his connecting flight. Hawaiian Airlines also upgraded him to first class for the short hop from Maui to Honolulu.
Time to perform
I have been arguing all year that United Continental's management team talks a good game, but can't put up results to match. The same could be said for United's customer service performance. United may be providing customer service training to its employees, but it appears that old habits of indifference die hard. (Either that or common sense needs to be added to United's curriculum!)
I don't expect this particular incident to have a material impact on United's earnings. A few vocal customers may boycott United Airlines, but most people will continue to fly United if it offers the best price or schedule for their travel.
However, investors should abandon any illusions that United Continental has returned to the service-oriented culture of Continental Airlines. United's tone-deaf customer service will make it difficult or impossible for the carrier to grow its revenue premium over time, which will keep its margins razor-thin.
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