Thanksgiving is tomorrow, so the crush of people flying through O’Hare airport has started. It’s natural to think about the largest airline in Chicago – United.
United was on the brink of failure last summer as jet fuel prices skyrocketed. In response, United started charging people for baggage. Take a couple of bags along and your baggage costs could be 50% or more of your ticket price for a round trip. United also raised prices, and cut flights. None of these actions were likely to make United a more competitive airline – and weren’t designed to. United leadership was using “foxhole management” – trying to survive. Of course the problem is that it doesn’t take long sitting in a foxhole to get blown up.
Last week I had a business trip from Chicago to south Florida. Imagine my surprise to learn that United no longer services 2 of the 3 airports in south Florida, and for the remaining destination it has one flight each direction daily. The result? To get to south Florida from Chicago (something done by many people in the winter), I had to fly U.S. Airways connecting through Charlotte. Not supporting any loyalty to United. And the latest word is that United intends to further cut flights (read article here). United is the example of a company that is slowly killing itself in its effort to save its old Success Formula.
Meanwhile, Southwest Airlines keeps growing. After United left South Florida, Southwest raised its fares on those flights, from its lower-cost Midway airport, to over $800! It has been a profit boon for Southwest that United is cutting flights – and allowing Southwest to keep on growing.
When oil prices took their dramatic rise last summer, United was already a very weak competitor. Although it was large, it had never addressed the market changes making its hub-and-spoke system and militaristic operating practices less viable. Not the shutdown on 9/11/01, nor the bankruptcy filing, caused United to alter its business practices established 3 decades ago. Thus the oil run-up put a weak competitor on the edge of viability – with a nudge over the other side. United’s reaction demonstrates how, when confronted with the non-viability of its outdated Success Formula, an organization can remain entrenched – and uwilling to take actions that would save it. Locked-in, without White Space, United was unprepared to deal with yet another market shift. Intead, United chose to take minimal actions short term, HOPING somehow things would change back to the good old days, long ago, when the company was less unprofitable (keep in mind that over its lifetime since deregulation United has never consistently been profitable.)
Trying to save a troubled business, in rough economic waters, during a period of market change, cannot be done by doing more of the same – “better, faster, cheaper.” Market Challenges pile up, until a punctuated equilibrium changes the market for all competitors – and rendering some no longer viable. To be viable long-term takes a willingness to recognize the future must be different from the past, that competitors are more successfully growing and are worthy of intense study, that Disrupting old patterns which keep the status quo in place makes it possible to leverage White Space to create a new Success Formula. Unfortunately for all those travelers out there this holiday – that’s not what United has done.