After a Moody’s analyst last week suggested that United reconsider its hub operations to improve its financial position, United is clarifying that they have “full confidence in IAH”.
“Houston is a vital part of United’s network,” the airline said in a statement. “We’ve continued our commitment here and are excited about partnering with the Houston Airport System as they rebuild Terminal D to further strengthen IAH’s international connectivity.”
The Moody’s article stated that:
“If United determines that its choice of hubs is contributing to the underperformance, individual hub airports could come under pressure.” “There are a lot of questions,” said analyst Earl Heffintrayer, lead author of the Moody’s report. “We expect United will adjust their operations. We don’t know how that will look going forward.”
Speaking of the popular “what’s wrong with United” topic, have you checked out Cranky Flier’s post – Blaming United’s Problems on Continental (or Vice Versa) is Exactly the Problem? Makes a lot of sense! Also, don’t skip over the 232 comments from the armchair CEOs !
So how do we fix this? I don’t know the full answer. Of course, I don’t work there and I certainly don’t know where the bodies are buried. But the real problem is that management doesn’t seem to know how to fix it either. What I do know is that as long as people are publicly blaming the Continental side or the United side, United is going to struggle.
Recent United posts -
In response to yesterday’s post, “What’s Wrong with United Again”, which included a few of United’s second quarter revenue improvements, reader Mary Lillean shares an easily readable break-out of United’s extraordinary expenses for the same quarter. Most interesting, the ERJ grounding costs, continued compensation costs related to system implementation, and the plan for significant special charges related to future capacity reductions in CLE.
United’s special charges have increased to $169 million in 2Q14 from $52 million in 2Q13. Some of these costs were incurred as part of the company’s cost saving initiative. The two major costs under special charges were related to the grounding of Embraer ERJ 135 aircraft and severance costs.
- Permanently grounding of the Embraer ERJ 135 aircraft – In 2Q14 $66 million was recorded as expenses related to the permanent grounding of the 21 Embraer ERJ 135 regional aircraft. The aircraft were grounded due to pilot shortages at regional carriers, current fuel prices, and the availability of new Embraer 175 aircraft. The company is also considering grounding the remaining nine Embraer ERJ 135 aircraft in 4Q14.
- Severance and benefits – As part of the cost restructuring initiatives, $38 million were incurred for the reduction of management and front-line employees. The $82 million severance related accruals as of 2Q14 was expected to be paid by 2015. In addition to this, average daily departures from Cleveland were reduced by 60% and management also expects significant special charges related to the planned future capacity reduction in Cleveland.
- Other non-recurring expenses – Other non-recurring expenses include $32 million impairment charges on flight equipment held for disposal associated with Boeing 737-300 and Boeing 737-500 aircraft, $17 million of integration costs which included compensation costs related to system integration, training, and relocation for employees, and $16 million related to loss on sale of aircraft and other special losses.
In 2Q14 United’s (UAL) cost per available seat mile (or CASM) was 14.91 cents compared to Delta’s (DAL) 14.63 cents, American’s (AAL) 14.62 cents , Southwest’s (LUV) 12.542 cents, and JetBlue’s (JBLU)11.88 cents. These special charges added to United’s cost. If it wasn’t for these special charges, United’s CASM would have been 14.64 in 2Q14.
Recent United posts –
It seems like every day there’s another Wall Street analyst telling us what’s wrong with United. Interestingly enough, Wolfe Research’s Hunter Keay and Jared Shojaian have taken the strange move of reissuing their advice to management which was already published back in May of this year:
We believe [United Continental] has a structural deficiency relative to peers. We believe this deficiency is partly a result of a network that is too large and uses planes that are not optimized for the routes they serve. We believe in order to fix this problem there must be a willingness to forego revenues in order to save costs. We believe bad IT and poor customer service metrics exacerbated the problem, but good IT and better customer service can’t completely fix it. We believe planes need to be put down without replacement, we believe the associated headcount must be evaluated, and we believe a hard and honest evaluation of the value of the current network will yield a difficult conclusion: fewer planes, fewer cities served, and less revenue might result in lower costs and higher profits. We believe current [United Continental] management will get there.
United Continental flies 1,623 different route combinations, 58% more than Delta Air Lines and 65% more than American Airlines. United also serves 471 airports, versus just 340 for American Airlines and 342 for Delta Airlines.
Even more interesting as United’s 2Q performance actually showed revenue improvements:
United’s total revenue increased by 3.3% to $10,329 in 2Q14 driven by the 3.6% growth in passenger revenue. Passenger revenue accounted for 87% of the total revenue in 2Q14. Corporate revenue increased by 6% in 2Q14. The drivers of corporate revenue include the PerksPlus product, a points-based loyalty program for small to medium sized businesses, and a 3% increase in revenue from large corporate accounts despite the decrease in corporate revenue in April due to the shift of the Easter holiday. The revenue increase can also be attributed to expansion in network. United launched nine domestic markets and 14 new domestic routes in 2Q14. Non-stop flights were launched from Houston to Munich, and Newark to Santiago and the Dominican Republic apart from new seasonal services from Chicago and Washington. To improve revenue from the Pacific region, United launched services to Chengdu, China, and Tokyo. Several other routes including Houston to Santiago, Chicago to Belize City, Denver to Panama, Houston to Punta Cana, and San Francisco to Kelowna were introduced. United’s PRASM of 14.21 cents was lowest among its legacy peers, Delta Air Lines and American Airlines whose unit revenue was 14.99 cents and 14.57 cents, respectively. However, its low-cost peers, Southwest and JetBlue had a lower PRASM of 13.94 cents and 12.05 cents, respectively.
Recent United posts -
Almost two weeks after reports of bed bugs surfaced at United Headquarters at the Willis (Sears) Tower in Chicago, the company has been given the all clear as of Saturday night. To be clear, the bed bugs impacted only the corporate headquarters and were not discovered on any flights.
However, bedbugs were found on a Swiss flight from BOM-ZRH in business class on August 4th and one FA was bitten. According to the article (use Google translate) the plane was disinfected and has since returned to flying.
Several bed bugs were nesting in Business Class, as spokeswoman Myriam Ziesack confirmed. “After the incident became known, the affected aircraft was temporarily withdrawn from the market,” says Ziesack. pest controllers investigated the plane with a beagle. “The plane was then heated with a special hot-air oven. In this case, all the bugs and their larvae were destroyed “says Ziesack. Since Friday, the plane is on the road again.
Related – Trip Report – SWISS Business JFK-Zurich(ZRH) A330 – Best Fillet In-Flight?
Recent United posts -
I somehow missed this story from earlier in the week. I know from my own personal experience with United customer service that their email replies are extremely generic and rarely address the actual concerns noted in my correspondence. On more than one occasion, I’ve responded back asking if they actually read my email or simply sent me a generic response with my name filled in. Well, it appears this time they didn’t even fill in the name!
Dear Mrs. ————
Thank you for letting us know about your recent experience with United Airlines. I apologize if our service did not meet your expectation, and appreciate you taking time to share your concerns.
Our goal is to provide a consistently reliable product and an exemplary level of customer service. Based on the events you describe, we did not meet this goal. Your comments regarding (SPECIFIC EVENT) will be used for coaching and training our employees.
To encourage you to fly with us again and as a tangible means of acknowledging your disappointment, enclosed if (SPECIFIC ITEM).
(CUSTOMER NAME), I ask that you allow us another opportunity to serve you, as we consider it our privilege to have you aboard.
Customer Care Manager
Recent United posts –
Passport scanning via the United mobile app has arrived. UA implemented the ability to scan and verify your passport directly from the mobile app earlier this week, allowing you to head straight to security. According to the press release, once you’ve scanned your passport with your iPhone or Android camera, the app sends the details to credentials management company Jumio Inc, who verify that your passport is valid which then allows you to download your boarding pass. If your passport is already registered with United from a previous international flight, you don’t need to scan it again, it is verified automatically. Here’s the full PR:
United Airlines today became the first U.S. airline to offer customers the ability to scan their passports to check in for international flights via their iOS and Android mobile devices. United is offering customers the opportunity to use passport scanning functionality on the airline’s mobile app as the carrier completes testing.
Customers may access the passport scanning feature when checking in for international flights in the 24 hours before departure. After initiating the app’s check-in feature, customers will have the option of verifying their existing stored passport data or scanning their passport. The app uses the mobile device’s camera feature to capture travelers’ passports, similar to a mobile banking deposit. Jumio Inc., a credentials management company, will then verify the passport for additional security. Once the verification process is complete, customers may obtain a boarding pass. Customers requiring additional travel documentation, such as visas, will continue to check in at the airport.
“We are focused on building the most useful travel app in the industry for our customers,” said Scott Wilson, United’s vice president of merchandising and ecommerce. “The new passport scanning feature saves valuable time and provides customers with more options to control their travel experience.”
United will collect feedback during the testing phase of passport scanning functionality with the goal of further improving the product and launching additional customer-friendly features utilizing this technology.
Imperial Capital analyst Bob McAdoo downgraded United yesterday, saying it will take the carrier years to catch up with its competitors and recommended that the Dulles hub be closed. His chief arguments are the overlap with Newark (EWR), located 230 miles north and the fact that “local passengers prefer flying from DCA”. Hmm, 230 miles is a long way (5 hours with current traffic conditions on I-95) and I’d imagine the last thing anyone in DC wants to do is fly up to New York to make an international connection. DCA of course has slot and mileage restrictions (1,250 statute miles in any direction nonstop). Anyway, here’s his viewpoint. What do you think? Courtesy of TheStreet:
“From a trading perspective, shares of UAL may continue to move upward as sector sentiment remains positive,” McAdoo wrote. However, he said, “United’s presentations and published plans (indicate it) will take at least four years to close $2 billion of the gap on American and Delta .”Importantly, during those four years, Delta and American will be similarly working to increase earnings,” he wrote. Year-to-date, United shares are up 10%, while Delta shares are up 43% and American shares are up 76%.
Regarding the presentation United executives made at the November investor day event, where they outlined a $2 billion program of cost and revenue improvements:
It “seemed more likely to be found in a typical operating department’s annual budget presentation than in a corporate presentation as to how United’s results would be lifted to record levels,” he wrote, noting that adjustments such as reducing overtime “will not close the gap with Delta and American.” What United should do, McAdoo argued, is to close the Dulles hub, given its proximity to the hub in Newark, N.J. Other airlines have realized synergies by closing hubs that are close together, he said, and United has already moved to close its redundant Cleveland hub. Moreover, local passengers to Washington generally prefer to fly to US Airways’ hub at Reagan National. McAdoo estimated that at best, Dulles flights can get only 20% to 30% of local traffic to Washington.”United would not operate two payroll departments, so we wonder why it would operate two hubs only 211 miles apart?” McAdoo asked. “Both hubs connect traffic from the eastern third of the country to Europe (and) connect north/south domestic traffic. By eliminating the smaller of the two hubs, United would see outsized savings and improved profitability across the entire United route network.”
The Washington hub was created to compete with Continental’s Newark hub. The two airlines merged in 2010, yet “almost four years after the merger, it is still competing,” McAdoo said. “Today the Dulles hub is the smallest in the northeast, carrying fewer passengers to Europe than Newark, than Delta at JFK or American Airlines/US Airways in Philadelphia.” In fact, Newark, with 32 daily departures to Europe, is the largest and strongest of the four. Yet curiously, United flies Boeing 757s on two-thirds of its flights to Europe. “Typically a carrier would place its largest aircraft in its largest hub, especially if the hub were slot-limited,” McAdoo wrote. “By upgauging these aircraft, we believe United would be able to move traffic currently connecting to Europe over IAD to EWR.
“United’s cuts in Cleveland set the standard for whether to unwind the Washington Dulles hub,” McAdoo noted. In Cleveland, he said, 17 markets with less than 10 local passengers per flight and 16 markets with generally 11 to 30 local passengers per flight were eliminated as of next month. Using the same metrics in Dulles, 65 spoke routes would be cut.
The Association of Flight Attendants celebrated as United’s no-booze policy (implemented only 24 hours earlier) was canned. I first posted about the disagreement late last May but just discovered that the follow-up post a day later was mistakenly restricted. Thanks again to John from Brg for sharing:
A rule banning attendants from possessing alcohol while on duty, even in luggage, was withdrawn within a day after United announced the move, a union spokeswoman, Corey Caldwell, said in a phone interview yesterday. “In less than 24 hours, AFA was able to pressure management into reversing the policy,” Caldwell said. While attendants accept existing rules against on-the-job drinking, they objected to the reach of United’s regulation, she said.
United “chose to update” its alcohol rules during a “regular review” of company policies, according to a statement from the carrier. “After we received feedback from our flight attendants, we rescinded this policy for further review.” Megan McCarthy, a United spokeswoman, declined to comment beyond the statement.
Caldwell said some attendants saw the alcohol regulation as infringing on their rights. For example, the policy would have barred an employee from buying a bottle at a wine shop during a long layover and taking it on board in luggage, Caldwell said. “No one knows where this came from,” Caldwell said. “There was no incident, no triggering factor. It just came out of left field.” The union learned of the change on May 21 when United disclosed it in an internal publication called “Inflight Services Weekly.” The regulation said flight attendants weren’t allowed to possess alcohol at any time while on duty without management’s permission.
United made an exception for alcohol bought between flights at a duty-free shop, and required a receipt in such cases, according to the airline’s statement.
It’s time to find a new CEO who understands how to run an airline, not just make excuses for his failures
No one else has a greater financial stake in United Airlines than the collective stake of our pilots. Our careers should not be jeopardized by the worst senior management in the airline industry.
We have absolutely zero confidence in the ability of present management to lead a turnaround
A disengaged and incompetent CEO is leading a terrible management team. A merger that should have been completed in three years or less remains incomplete after nearly four years. Interdepartmental communication and cooperation are nearly nonexistent
We have terrible employee morale and excessive outsourcing have combined with chronic operational and IT issues to drive away our elite frequent fliers in droves, driving our revenue and PRASM downward
United should be the industry leader, with the largest population and origin/destination traffic demand in our hubs and as the largest airline across both the Atlantic and the Pacific. Instead, we are always the laggard. As in past quarterly updates, we once again hear excuses as to why United is unable to perform while we watch all of our competitors earn high and record profits.
Delta and American get the suits, we get the flip-flops and backpacks
It is time to demand leadership that is actively engaged in employee morale, operational excellence, and service quality, which will always drive revenue far higher. United should be the industry leading airline. That will never happen under present management.
Pretty interesting…these are a few of the quotes from a letter sent by three top officers of the largest local chapter of the United pilots union representing NY/NJ based pilots to their 2,300 members. The letter was sent one day after UA reported a loss of $489 million excluding items for Q1.
HT – Thanks to Mark from Yahoo! for providing the quotes!
The Fidelity promos for AA, DL, and UA have been around for some time and offer an easy way to earn up to 50,000 bonus miles for depositing $100,000 in a new or existing account each year. Back in 2010/2011, the promos were extremely lucrative as you could double-dip by signing up for more than one partner promo per year and you were even able to cycle your money into and out of your account to reach the “100,000″ requirement. However, in recent years Fidelity has placed more scrutiny on both the rolling 12 month limitation and the cycling of funds to reach the 100k threshold (some still report this working but others have been warned). One positive change is that all three offers are now open to existing account holders and no longer limited to new customers (though there were ways around this requirement as well). I followed the rules on this promo and signed up for the AA promotion in December 2011 and received 50,000 miles after maintaining 100k in the account for six months. I then pulled the funds and redeposited them in December 2012 to take advantage of the UA promotion. While the miles took almost eight weeks to post in 2012, in 2013 they posted to my United account after only 5 1/2 weeks. Back in December, I repeated the process again but went back to the AA offer (it had been well over the 12 month mark since my last December 2011 AA offer). Though it’s rare for Fidelity to try to pull the miles back, I’m maintaining the funds in the account until the nine month mark as I want to be able to take advantage of the promo again next year. Yes, for 2014 Fidelity has changed the T&Cs to require that you keep the funds in your account for 9 months instead of the former 6 month requirement. They may clawback the miles if you do not meet the new terms. Note that there is still no requirement to actually engage in the purchase or trading of any stocks.
Remember, the bonus limitations are based on your social security number, so you can withdraw the funds, sign your spouse or significant other up for the promo, and then redeposit those same funds to qualify them for the bonus. An Apple $500 gift card offer is also available.
Apple Gift Card
Questions? Check out this flyertalk thread for further details.
United Airlines is preparing to launch a brand-new service for in-flight movies that will be exclusive to Apple’s iOS devices. The service will allow passengers to stream around 150 movies and 200 TV shows to their devices completely free while mid-flight. United plans to start rolling out the service as soon as April for some flights. The hardware to support the system needs to be installed in each plane individually, but United is hopeful that its entire domestic fleet will be outfitted with the technology by the end of the year. The service will be accessed through the free United Airlines app. Laptop computers will also be supported with a browser plugin, but other types of mobile devices, such as those running Android or Windows Phone, will not be supported at launch.
Thanks to 9To5MAC for sharing!