Save UAL: Winner #2

If I were made CEO to save United, the first thing I'd do is start looking for a new job. In my opinion, United, or any other airline (except Southwest) for that matter, is beyond being "saved" at this point. The airlines performance is affected by outside forces (the economy, fear/comfort with flying, fuel costs, etc.) and by irrevocable decisions made in the past (a really, really bad pilot's contract at United, aggressive aircraft purchase commitments etc.). Little that can be changed over the next few months will alter United's course toward Chapter 11 bankruptcy.

Nevertheless, here's what I propose:

Aircraft Fleet Plan -- Stick with the previous CEO Goodwin's existing plan. A number of people have suggested that United (i) retire aircraft, (ii) sell aircraft, (iii) park aircraft, (iv) convert them into freighters or, (v) simplify the fleet to 737s. Here are my thoughts.

(i) Retiring aircraft given the collapse in demand is absolutely the right thing to do. But it's something that has already been done. Prior to September 11, United retired its DC-10 and 747-100 and 747-200 fleets. After the 11th they announced the early retirement of all 727s (about 75 planes) and its oldest fleet of 737s, the 737-200. Retiring newer planes (rather than parking them) makes no sense for obvious reasons.

(ii) Selling aircraft -- Great idea. Just let me know who is willing to buy in this environment.

(iii) Parking aircraft -- Again, given the fall in demand, some parking of aircraft is warranted, but United is already planning to cut departures a whopping 31%. Keep in mind that United will still have to pay the interest on the aircraft debt, and realize little to no savings in pilot costs.

(iv) Convert aircraft into freighters -- United's been there, done that. Bad idea. "Belly Cargo" (cargo placed in the belly of a passenger plane) is very profitable for airlines since the operating expenses are in effect covered by passenger tickets. But United learned the hard way how competitive the standalone freight business can be. Frankly, United is probably better off just lighting the government aid money on fire than converting passenger planes to freighters.

(v) Simplify the fleet -- A noble goal given the potential for significant maintenance and pilot training cost savings. However, there are two problems. 1. United needs different aircraft type to service its route network and customers (737s lack the range for many United routes or amenities for United business travelers). 2. There is a massive upfront cost in selling the planes and retraining pilots.

Customer Service Plan -- This one may startle you. As CEO, I plan to continue to provide the same bad service that United is known and loathed for. Good customer service does not matter in the airline industry (United had the worst service but the highest profits in the industry during the late '90s). What sells (in the order of importance) is price, schedule frequency, reliability, route network, and then service. Even if United tried to improve service, they'd still be hamstrung with thousands of bad customer service agents as a result of the poor decision made years ago to underpay them.

Network Plan -- United has the best route network in the world. If I were CEO, I would make it even better. I would buy USAir assets at a fraction of the price that United was willing to spend as little as one year ago. This would give United the missing link to its route structure -- a strong East Coast presence.

A good route network is one of the few sustainable competitive advantages in the industry. It locks in the business customer through Corporate Volume Agreements (CVAs) and increases loyalty through a more attractive frequent flyer program. Because of its route network United has always gotten more than its fair share of the lucrative business travel. If it can weather the effects of this business downturn and poor past decisions (which, again, I don't expect it to), its route structure will reward United.

Labor Plan -- Goodwin sold the farm on the last pilots' contract that he signed based on a lot of wishful thinking about USAir and the economy. For this he deserves to be fired (even after he resigned!). The mechanics are probably underpaid and pissed off because Goodwin wanted United to take a hard line on labor costs (so are the flight attendants for that matter, though they already have a signed contract). The airline desperately needs to get its pilot costs in line with the rest of the industry, a tough task given the power of United's union.

As CEO, I would educate the public on the power that the pilots' unions have over United and the rest of the industry to try to pressure the pilots to re-open their contract. Airline pilots work an average of just 80 hours per month. Yet thousands of United pilots make more money than all but a dozen of the top management at United. If negotiation fails, I would simply allow United to bleed itself into Chapter 11 to void the pilots contract and renegotiate a new one.

Safety -- Focus on making safety the number one priority. Support measures to have the government take over security operations at the airport and add sky marshals. Continue to publicize that United's entire fleet now has reinforced cockpit doors. Additionally, add staff to the security checkpoint to try to speed up the process.

That's my plan. But it's all based initially on my finding a different job!

--Highflyer

The above was originally posted on our UAL discussion board  on Oct. 25, 2001.

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