We usually say we know when someone is dead. But in today’s modern world, we’ve found out that often there are people who are alive now, but we know will not survive more than a few hours or days. We see trees that have rotten roots – but look alive for another season or two before so little sap rises that no more leaves sport in spring. The arborist tells us that we might as well cut it down, before it falls in a big wind causing avoidable damage, but we keep hoping the tree will revive next year. The reality is that we tend to be very optimistic about the future even when we have no reason to be so. We want to believe things will get better right up to the very, very end.
Businesses operate that way as well. When their Success Formulas become obsolete we see signs of root rot in their lower customer satisfaction ratings, poorer performance against industry metrics, lower market share, weak reactions to competitors (especially new ones), higher prices and declining margins. But management is always saying things will get better. Even if there is no reason to believe this.
That can now be said for United Airlines. United has always been one of the "major" airlines (as if Southwest wasn’t major – but that’s not the purpose of this entry.) But as the Chicago Tribune headlined on Sunday "United up against a new reality for airlines" (read article here.) United spent 3 years in bankruptcy after the events of 9/11/01, and promised it had turned the corner when it came out of bankruptcy. But now the company is in deep trouble again with rising costs, declining ridership and no plan for how it will try to survive this very bad economy for airline travel. Customers are being hammered by rising plane ticket prices, new charges for baggage checking and the worst on-time performance ever. The employees are struggling as the company keeps trying to cut pay even more, despite the fact that no flight attendant could live on United’s new hire pay.
United developed root (or should I say route) rot a decade ago. The hub and spoke system designed during derugulation in the 1970s has proven to use lots more fuel, extend flight times for customers making layovers, and take more employees and gates (which have charges) than a point-to-point system. Likewise, a commitment to customizing aircraft for routes has led to a heterogenous and complex set of equipment that is costly to fly and maintain. Amazingly complex pricing has led customers to look at other airlines first when seeking tickets, recognizing that United’s list prices are unrealistic but the customer has no idea how to find a decent price at United when it is incredibly easy at Southwest. And rather than develop a more flexible workforce in its union contracts, United settled for arguing over pay rates leading to an unhappy workforce more focused on its bad pay than happy customers.
United had a chance to fix its problems when it launched its "low cost subsidiary" named Ted. But this wasn’t White Space to try anything new. Ted had to follow all the old United rules. Customers soon learned Ted wasn’t a bargain, it was just the south end of the UniTED mule. Then again, when the government shut down the airlines for a week in 2001 United had the opportunity to propose serious changes to its operations including route changes, renegotiating contracts with unions and vendors and simplifying its rate structure. But instead United focused on re-opening exactly as it had operated before. Which soon led to bankruptcy.
Lately we’ve heard that United needs to merge with another airline to succeed. Even the top brass at United have started to realize that simply getting bigger will not make United more successful. It could even make matters far worse. Higher fueld prices are just the last dagger into the United Success Formula causing the company to face potential failure. But the big problem is that United didn’t admit its problems, its Lock-ins to a failed Success Formula, a decade ago. Now, with the problems piling up fast, its not clear United can be saved. Despite its size, United may well go the way of Pan Am, Eastern, Braniff, Republic, Air Midwest and other failed airlines. There will remain optimists to the bitter end, but reality isn’t hard to see. United is in the Whirlpool and it’s going to take a miracle to pull the company out of it now.