Much of this profitability gap can probably be traced to Delta's higher-quality service. The three big network carriers rely on well-heeled business travelers for a substantial portion of their profitability, so pleasing these customers is absolutely crucial.
In the past year or so, United Continental has devoted a lot of attention to this problem. The company is taking a hard look at every detail of what it does. Most recently, that has included upgrading the coffee served on United flights.
Fixing the big problems
United's service quality issues have been broad-based, and its performance in the annual Airline Quality Rating report highlights its deficiencies. For three straight years, United has had the worst score of any mainline carrier -- including both legacy carriers and low-cost carriers. Each year, Delta Air Lines has easily earned the best score among the legacy carriers.
In 2014, Delta had an on-time arrival rate of 83.7%, compared with 76% at United. Travelers were more than three times as likely to get "bumped" to a later flight if they were flying United rather than Delta. United lost its customers' bags about 60% more often than Delta. And customers were almost four times more likely to file an official complaint about United than about Delta. (All statistics refer to mainline flights only.)
These are big problems in need of immediate attention, and United has started to make progress on many of these issues -- though it still lags Delta by a considerable margin.
On United's recent earnings call, COO Greg Hart noted that consolidated on-time performance (which includes regional flights) had improved by 5 percentage points year to date. Hart also reported that United had canceled more than 30,000 fewer flights year to date relative to 2014 and that the rate of mishandled bags had improved by 9% year over year.
About that coffee
Fixing these airline "basics" -- arriving on time, having enough seats for everyone with a ticket, not losing bags, and so on -- is a very important step for regaining business travelers' trust. But United Continental is also looking to make smaller improvements to provide a higher-quality experience for its customers.
It's starting with coffee. United serves more than 60 million cups of coffee on board its flights each year. Since the United-Continental merger, the coffee has come from a company called Fresh Brew. While Fresh Brew had beaten out Starbucks in a taste test, the airline has received plenty of complaints about the taste of the coffee it's been serving.
United's contract with Fresh Brew expires early next year, so the airline has been looking at other options. After narrowing the search to three finalists (including Fresh Brew), United announced this week that Italian premium coffee brand Illy will become its new coffee of choice in 2016.
Obviously, coffee isn't a key reason customers choose one airline over another. But any way that United can improve the customer experience will help it rebuild its reputation as a premium airline -- as long as it keeps improving on the basics of operational performance.
United's not stopping here
Serving better coffee on board is one small change that United is making to catch up to Delta Air Lines in customer satisfaction. It has many other initiatives in the pipeline, though, as part of a drive by recently appointed CEO Oscar Munoz to improve customer service. For example, United is working to improve its in-flight Wi-Fi and tinkering with its boarding process.
None of these initiatives by themselves will get United Continental back to an industry leadership position. But starting with coffee, United is attempting to reinvent itself as a more customer-friendly airline. If it succeeds, the upside could be enormous.
Adam Levine-Weinberg owns shares of United Continental Holdings, and is long January 2017 $40 calls on Delta Air Lines, The Motley Fool owns shares of and recommends Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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