VMS3.info FEATURE ARTICLE

Subject: January 2003 VMS3.info: United Airlines Analyzed via the Value Framework™
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January 1, 2003 *4,400 subscribers* Volume 5, Issue 1
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SUMMARY

Summary - United Airlines "Rising"
Over the past 70 years, United Airlines has risen to become one of the most powerful airlines in the industry. United has deployed many strategies to bring it where it is today. Most of these strategies have been growth-related as United continually expanded its market and the customers it served. While United was often not the innovator in creating new strategies, it has been able to make the strategies of others its own by adding its personal touch of experience and expertise. It has managed those strategies through rigorous industry standards and continual monitoring of employees via the customer and internal mechanisms.

United is a seasoned company and tends to get stuck in the old way of doing things. The tendency to resist change has hurt the company when it comes to evolving strategies to keep current with the trends of the market. It has been slow to adopt a customer-focused strategy as well as in implementing an online reservation system to help expedite ticket sales. The events of September 11, 2001 have drastically changed the industry and have called for immediate strategy evolvement. United has allowed itself to get bogged down in the financials and make hasty cost cutting decisions before evaluating all options.

In order for United to survive, it needs to reorganize the company, cutting overhead costs, and implementing programs and incentives that will keep its employees focused on the customers and their overall comfort. If United waits for another airline to implement a successful strategy that it can also follow, it may be too late.

Strategy Deployed
United Airlines has become a large player in the US airline industry, ranking second in the world. It has deployed many strategies to get where it is today, most recently, a global expansion strategy. In the early nineties United abandoned its 30 year old slogan "Come fly the friendly skies" for the simple "Rising", an indictor of their upward expansion strategy. United changed its image from the patriotic red, white and blue color scheme to a more globally appealing gray, navy and red. Its image revamp included uniforms with an international touch and planes decorated with the newly adopted colors. It won applications for routes to Amsterdam, Munich, Berlin, Madrid, Tokyo, and London, and also placed the largest aircraft order in history for USD $22 billion worth of fleet. United recognized the global expansion of the economy and worked to capture this fledgling market.

United's explosive expansion project proved successful. As United's sights were set on the world, a domestic underdog began to steal market share from short-haul flights. Southwest Airlines had proven successful with its friendly service and frequent, inexpensive flights. United scrambled to compete and launched the United Shuttle program in 1994 on the west coast. This new service forced United to re-evaluate its global strategy and work twice as hard to maintain both markets. Shuttle by United focused on low-cost fares and a more restrictive in-flight service. This reactive strategy deployment taught United that it needed to monitor its environment more closely.

Until September 11, 2001, United's strategy was focused on the customer. Its long-standing success had blinded it to the changes in the industry and in the types of customers it was serving. United's typical passenger was no longer a man wearing a suit and carrying a briefcase and United recognized that it needed to overhaul its thinking. Again, the force to change its strategy to customer service was a reactive strategy. United was behind the times and market share was dwindling due to other carriers which were making more legroom and adding additional comfort features to make the flights more enjoyable. United deployed Economy Plus and increased legroom for the first ¼ of the coach compartment. It also launched a reservations website to introduce paperless "E-tickets" and make the ticket purchasing experience quick and painless.

The huge external influence of 9/11 wreaked havoc on an already unstable economy and sent the airline industry into a tailspin. United lost billions of dollars in revenue as the FAA grounded all flights and demanded stricter security measures. Customers, paralyzed by fear, cancelled reservations, postponed vacations, and eliminated business trips. United had grown so large by this point, that it could not cover its mounting costs for maintenance, labor, and ground operations, as well as spend the money required to maintain tighter security for each and every plane.

Currently, United's strategy is to stay in business. It is cutting its costs by reneging on previously negotiated wage increases, shutting down Shuttle by United all together, and eliminating thousands of jobs. In early November 2002, United announced that it would lay off 27,000 flight attendants by January 2003. In late November 2002, when the federal government failed to help, United filed for chapter 11-bankruptcy protection. Like much of the strategies deployed in the last decade, United is on defense and merely reacting to a situation to stay in the game. It would serve United well to do an intense environmental scan, identify opportunities and threats and plan to deploy strategies to neutralize existing threats and create some of its own.

Strategy Managed
United manages its customer service strategy quite well through metrics monitoring its processes. The number one metric is Revenue Passenger Miles (RPM), or the amount of miles traveled by passengers who have paid for its seat. This industry-wide metric is used as the basis for calculating market share and seeing how they stack up against competitors. United defines its profit by finding the cost per RPM and subtracting that from RPM revenue.

United uses a variety of industry-wide metrics, such as the amount of mishandled baggage, on-time departures, and gate turnover, which are key in evaluating United's customer service commitment. To ensure that customers are treated with respect both at the gate and in the air, United employs Quality Assurance Agents, who gain a customer perspective by secretly posing as regular passengers. These agents have a list of criteria that their traveling experience must meet and they rate each experience so that management can have a clear idea of what is happening on any given day. United also has systems in place that recognize VIP flyers and leaves the job of giving that VIP the treatment they deserve up to the head steward. United is constantly surveying its frequent flyers asking for their opinions and suggestions.

United recognizes that RPM depends on planes being in the air and enforces strict cycle-time measures to ensure that planes enter and leave a hanger for repair or maintenance as quickly as possible. They also monitor the Lost-Time Injuries (LTI), or on the work accidents, that cause a reduction in productivity.

Much of United's success is gauged by where it stands in comparison to its primary competitor, namely American Airlines. It uses in-house metrics such as surveys to gauge its performance but it bases much of its guides on industry measurements that show the company where it stands it terms of market share and quality ratings. United must develop more of internal measurements and increase its personal standards. In merely keeping up with, or just ahead of the competition, United loses its independence and product differentiation. If United is to truly have a customer service commitment, it must set goals and incentives for its employees to go above and beyond what is expected. If United could empower its gate agents and customer service representatives to serve the customer as they see fit, United could potentially capture the market share back from American.

Strategy Evolved
Currently, United is not working on evolving any of its strategies; it is merely trying to stay one step ahead of complete financial ruin. It is scrambling to cut costs and unprofitable routes and has completely shut down its operations such as Shuttle by United. It has done a mediocre job of evolving strategies in the past with its most recent success being the global expansion more than 12 years ago. In the past decade, it has been slow to realize the changing airline industry and the changing attitudes of the consumer. As late majority adopters, it has done well to take the strategies of others and turn those into its own, improving them when needed and thus keeping its differentiation. Its reputation and integrity has helped United to stay in business where a fledgling airline would have failed. Its enormous financial clout has helped to create significant barriers to entry and preserved its position in the industry. However, this advantage is not everlasting.

United was on the right track when it deployed its customer-focused strategy and it needed to continue to evolve this strategy especially during these trying times. It is essential that United restructure and reorganize its hierarchical organization and get back to basics as well as find its core competencies and evolve strategies from there. With new airlines like Jet Blue and Southwest redefining what a customer wants and looks like, United needs to evolve with them. It should develop internal metrics, personal goals, and demand high standards from its employees. United needs its customers business and should start to act appropriately.

Recommendations
To evolve for future success, United needs to reinstate the Shuttle program. The program was successful and took market share away from short-haul competitors like America West, Jet Blue and Southwest. It also needs to continue to develop its online reservations systems, making it easier, quicker, and cheaper to use than the competition. United needs to make it known that it is still very much a key player in the airline industry. Instead of admitting financial defeat, United needs to fight back. It needs to launch advertising campaigns that show a new customer-focused company and show consumers that United genuinely cares.

United should do a careful financial analysis and cut costs such as overhead, before it cuts programs that have the potential to provide revenue and increase market share. Its perspective should focus on the internal organization rather than on outside forces. If it focuses on customer-service, personal goals, and gauge its success internally rather than in the context of how other airlines are doing, United can regain its status and the faith of its consumers.