Musings from the Friendly Skies

What will tomorrow bring? Part 2

2012-01-06T08:13:00.000-08:00

Today, January 6, 2012, marks the end of the second full year that the contract with United's Flight Attendants became amendable, as well as the 2 years and 9 months that the United AFA (Association of Flight Attendants) has been in negotiations with management over new contract terms. To that end, it is significant that today is the last day of the "expedited mediation" process in those on-going negotiations. Today, United management is to present what they consider to their "best and final" terms for a new contract to be voted upon by AFA members.

United management will present this Tentative Agreement ("TA") to AFA's Negotiating Committee. They will take this TA back to the United AFA Master Executive Council ("MEC"). The MEC will carefully review this TA and decide if this is something they feel should be presented to the membership for voting.

This will be a very difficult process and decision for the MEC. They are keenly aware how eager their members are to move forward and finally get a well-deserved raise. However, the MEC also knows that if they give in too quickly just to get on with things, it will set the tone for the relationship the union will have with the "new United" management from this point forward. Management still feels there is room to cut labor costs and they will not hesitate to exploit any weakness that presents itself.

No one can predict what will come out of this last week of "expedited mediation." Mr. Smisek and his management team appear to be getting testy and arrogant, and I am doubtful that any terms, over and above what the Continental subsidiary flight attendants have now, will be presented. It is also very unlikely that salary increases will be fully retro-active to the January 7, 2010 amendable date. To do so would cost the company, at a minimum, $200 million (just for the United subsidiary flight attendants). United management is not prepared to take this kind of hit as it affects their compensation. They also do not want to set such a costly precedent to be exploited in the on-going negotiations with pilots from both subsidiaries, as well customer service agents, ramp, dispatch and other work groups.

The United AFA MEC should take this review time and sit down with the ALPA (Air Line Pilots Association) MEC's from both the United and Continental subsidiaries. From here you will be able to gain your best support in your decision whether or not to present the Tentative Agreement to the membership. You are all in this together, and any weakness shown by one group will only make things harder for the others.

To my AFA readers, I make no illusions as to what you want or how to tell you to vote. I know how badly you deserve and need raises, and how many of you really just hate this whole process. If the MEC comes out tomorrow and presents a Tentative Agreement, they have only done so because they feel they have a responsibility to do so. It is up to you to carefully review this agreement and decide if you want the MEC to go back management and say "thanks, but no thanks."

We all may be surprised and management might be changing course and setting a new tone for this "new United." Lets keep our fingers crossed that this is the case. Nonetheless, today is again another significant day for United's front-line employees.

In all of this, please remember, irregardless of which subsidiary writes your paycheck, you are all more than Mr. Smisek's "co-workers" - YOU ARE UNITED AIRLINES. I, along with millions of other customers, support you.

More than "co-workers" - you are United Airlines.

2011-12-25T13:53:00.000-08:00

Hello All - it is a beautiful day here in Southern California making for a fantastic and relaxing Christmas Day. Wherever you may be, I hope you are all able to enjoy the day.

For the readers who are traveling this time of year, bring with you a lot of patience. I am sure many you have already experienced one hassle or another. Be patient with the TSA agents, and please be patient with those on the front-line of any airline. Many are away from their families today. Many have chosen to work on the holiday to pick up the extra pay they need to help them cover extra expenses they too have at this time of year. They will put up with full planes, and passengers fighting for overhead space as they try to bring their "kitchen sink" aboard in their carry-on. Customer service agents will have long lines of customers who have missed connections, or weather has caused delays or even cancellations of flight. If you are traveling this season, bring a smile, and take the time to really say "thank you."

For my friends at United, this is my chance to again say "thank you." You are truly dedicated. You endure long hours, and layovers away from your family just so that us customers will be able to enjoy the holiday season. You are more than "co-workers," you are United Airlines.

I need to get a mileage run in to lock-in my elite level Mileage Plus status for 2012. I have picked up a last minute trip from LAX to Richmond and back for Monday, December 26. I have connections in Chicago. The fare was pretty decent, I guess there are not many going to Richmond this time or year. It will be a long day, 6:00 AM flight (ughh), but with a double miles promotion in place for flights going to or through Chicago, I will hit my mileage goal. I hope to see some of you tomorrow.

When I return I hope to finish up two blog entries I have started. One discusses the importance in recognizing humility against arrogance. In the other, as I remain puzzled by the status, pace and direction of the labor negotations; what are the reasons? Well, I can think of about 200 million of them. The first week of 2012 will mark the second anniversary dates from when many of the contracts became amenable. Other than with the engineers, where a tentative agreement has been announced, there has not been much progress with the other groups. Mr. Smisek continues to look for that agreement that is "both fair to the employee and fair to the company." Each time he repeats that statement I get the feeling that what he sees is "fair to the company" will not be as fair to the employee.

Again - Merry Christmas everyone. I appreciate all my readers and supporters. Be safe!

Ten Years Later - Always Remembering, Never Forgetting

2011-09-05T14:35:00.000-07:00

This Sunday, September 11, 2011 marks the ten-year anniversary of a very dark day in history. Over the last month, we have been reminded that this indeed is the tenth anniversary of the 9/11 attacks. Retrospectives have appeared daily in the newspaper, and television has had one program or another with interviews and in depth analyses of the events of that day. It was hard for me to watch what was happening on that day ten years ago, and it is hard for me to watch again, so I don't. Is that wrong?

There is something good to remember though. At that time, this country and its citizens came together in such unity and resolve, the likes of which had not been seen since the U.S. entered World War II. Thousands of volunteers descended upon New York, Washington D.C. and Pennsylvania, coming from all corners of the world, to assist in any way they could. In local communities, people packed churches to attend prayer vigils and services honoring the dead, the wounded, and the emergency responders working hard with rescue and clean-up efforts at the crash sites. Heck, even our government cast aside politics and party lines to come together to quickly get money, supplies, troops and equipment to these sites. I will never forget the horror, but to get through that I remember that feeling of unity and determination that the U.S. is still the greatest nation on the planet, and its citizens are going to do all they can to make sure it never happens again.

"Always Remember" and "Never Forget" are phrases we will hear and see a lot as the tenth anniversary nears. They both carry a lot of meaning. Always remember and never forget the dead and wounded - innocent victims of an evil act put together by a few nutjob religious zealots thinking this is what their god wanted. Then there are the fire, police and other first responders fighting tirelessy in their rescue and then sadly recovery efforts. So many of them lost their lives too. Not to be forgotten are the crew and passengers on those four airliners that did all they could to stop what was happening, even if it meant their own lives.

As I have every 9/11 since 2002, this Sunday, I will get on a United flight and take a moment to thank every crew member I can. This year, as I have for the least six years, I will fly non-stop to JFK airport and back to Los Angeles on the same day. There are many reasons why I set this tradition for myself as a way to bring honor to the day. I think the biggest reason I do so is that, despite what happened 10 years ago, the men and women who are on the front line of our airlines continue to show up for work and bring us confidence that we will reach our destinations safely. The good people at United have been through so much in the last ten years. The dedicated front-line employees accepted pay cuts and loss of pensions just so that the company they have devoted their lives to would survive. My little trips and Starbuck's cards will never go far enough to thank them properly, but I do what I can. September 11 is a very difficult anniversary for them and I just want them to know that the customers do appreciate their dedication.

This being the 10th anniversary, a lot more is being made of the day than in recent years. That is fine, but I urge everyone to keep and honor every anniversary of September 11. A new generation of young Americans is coming up that are too young to remember, or were not even born yet. It is our responsibility to pass on and make sure they understand what that day was about. It is up to you what to tell them, but just make sure you tell them something they will take to heart and pass on to the next generations. This is how we "Always Remember" and "Never Forget."

What will tomorrow bring?

2011-06-28T09:00:00.000-07:00

"Any agreement (with labor and the unions) has to be fair to the employee, and fair to the company."

I still cannot shake this talking point that Mr. Smisek kept using at the shareholders' meeting earlier this month. To my disappointment, Mr. Smisek made it very clear that management will be deciding what is fair to the employee. That got me to thinking about what senior management is looking at to come up with that number they call "fair."

Mr. Tilton always used to say that airline management needs to deal with the "structural issues that plague the industry." Mr. Smisek talks about "fairness." No matter how you say it, both of them still have it in their minds that controlling and reducing labor costs is one of key avenues to "sustained profitability." It is also the fallback plan when they cannot compete well enough to increase revenues. This view is backed up by Wall Street analysts crunching numbers and offering their take on how well an airline is managed. With all that, the front-line employees only chance to be heard is through their union representation.

Nearly all of the collective bargaining agreements in place, for both the United and Continental subsidiaries, are currently "amendable." The Railway Labor Act (RLA) prohibits any agreement from expiring at the end of its term, it only becomes "amendable" and both parties are able to negotiate new terms for a fixed period. Until new agreements are ratified, labor groups keep working under the the existing terms of their contracts.

Getting back to "fairness" and "structural issues" - it has become clearer that Mr. Smisek's leadership team has their "fair to the employee, fair to the company" plan already mapped out, with all roads leading to concessions on the part of the employees. Again, to them, labor costs are a "structural issue" to be reformed. Management has already and "in general" conceded that employees deserve raises, but where they hope to gain the greater concessions are in work rules, productivity improvements, reduced employer contributions for benefits, and more outsourcing of jobs to third parties. This outsourcing includes expanding the scope and having more flexibility to use regional and code share carriers.

FLIGHT ATTENDANTS - In just a little over 24 hours from the time this entry is posted, flights attendants at United and Continental will have made their choice as to which single union will represent them as part of the "new" United. This is an important decision as it will demonstrate to management how hard the flight attendants are willing to fight to restore pay and benefits back to levels they deserve. As an outsider, from what I can see, the best chance for the flight attendants to make a real difference and show management that their contributions deserve more respect is with the "AFA," the Association of Flight Attendants.

In their representation of the Continental flight attendants, the other union, the International Association of Machinists and Aerospace Workers ("IAM") has already set the tone and floor for any contract negotiations with United's senior management. Having already already negotiated an agreement for the Continental flight attendants, they really have no leverage to go back to the table to demand more in their representation of all flight attendants of the combined carriers.

Being the largest union in place to represent only flight attendants, the AFA will make sure their membership is heard. They clearly understand the needs of of all flight attendants whether they are senior or junior, line-holder or reserve, and know how to structure an agreement where they all are represented fairly. They have professional standards in place for their members to abide by so that they stand out as more than just a commodity to management. As a customer, I feel comforted when I see a flight attendant wearing their AFA pin.

As with the pilots, any contract the flight attendants agree to should make sure loopholes are closed for management to outsource service to regional or codeshare carriers. Just to keep up with inflation, wage rates need to be higher than those set in the agreement the Continental flight attendants recently ratified. Protections also need to stay in place so that flight attendants get enough rest, layovers are in safe hotels, and make scheduling more efficient to minimize dead-heading and make the number of hours that they are actually paid for is closer to the number of hours they are actually "on duty."

CUSTOMER SERVICE - I have many dear friends in customer service at United. One of them is a shop steward for her local IAM council. In conversations we have had, there is no real love of the IAM with CSR's. Continental's customer service agents do not belong to a union.

Sadly, number crunchers for senior management will view this group as being more expendable than others. It costs less to hire and train a new customer service agent than it does a pilot, flight attendant, mechanic or dispatcher. Without union protection, management is free to hire and fire, or to reduce wages and hours "at will." When senior management sends out the directive to cut labor costs, employees who are not part of a collective bargaining agreement are the most vulnerable.

At hubs, mainline customer service agents will not be affected as much when service goes to regional carriers. They are still needed to check-in the customers, work the clubs and lounges, and work at the gates. CSR's should care though at the smaller stations at risk of going to all regional service, like Burbank did recently.

THE PILOTS - Continental's Board of Directors should never have approved the merger without this matter being resolved beforehand. Pilots from both subsidiaries are represented by the Air Line Pilots Association (ALPA), and that gives them more leverage than any of the other labor groups. Continental's pilots have been in negotiations since 2008, and United pilots started their negotiations in 2009. Little of any substantive value has been resolved. Wages and seniority integration are two big issues, but from what I have read, scope protections, particularly limiting the use of regional carriers is going to be the biggest fight. United pilots, in the bankruptcy, were forced into conceding more on this issue. It seems like Denver has become more of a Skywest hub than it is a United hub. Continental pilots are better protected.

Management loves the flexibility of using regional carriers. It helps them get load factors up, which will drive yields up, particularly in mid-size non-hub destinations. More profit is derived from filling 70 seats on an RJ-700 than filling 70 seats on an A-319 or 737. The RJ-700's and similar equipment are easy sells to the customer because they can put in a First Class section for the elite flyers and instead of offering one flight on an A-319, they sell the customer on the flexibility and convenience of two flights to different hubs on the RJ-700.

ExpressJet is a regional carrier that is the primary provider of regional service for Continental Airlines. On May 1, 2010, Continental and United announced they were going to merge, and on August 5, 2010, Skywest announced it would acquire ExpressJet. In February of 2010, United exercised warrants they owned to acquire a large stake in ExpressJet. Continental already owned a large stake. United and Continental management had already decided before they announced their own merger that they were going to sell their majority interest in ExpressJet to Skywest (or another regional operator). This accomplished two things - (1) it would help to minimize anti-trust problems which may quash the merger they were planning, and (2) they knew that when they needed to add regional service with jets carrying more than 50 passengers it could be done under the "United" subsidiary by a third party like Skywest. To remain competitive and keep their elite customers happy, Continental has had to keep mainline service on some routes that might be more profitably served with regional jets carrying more than 50 passengers. There is now nothing stopping the new United from replacing that service with regional service under the "United" subsidiary and "United Express" name on larger regional jets. Skywest, as the third party and without scrutiny, when mechanical or other unforeseen issues arise, can now "substitute" larger regional jets on routes operated by ExpressJet. When that happens, there is nothing stopping the new United from selling those extra seats.

It is an ugly issue, and if there is any sticking point that will lead to a strike, it is this one. This issue also impacts flight attendants, and if there is anything management would fear, is that the pilots and flight attendants stand firmly together and go to the negotiating table with the same terms on this one issue.

BACK TO MANAGEMENT - As I started to write in this post, management has already made up their minds as to what they feel is "fair." They favor the IAM over the AFA for the flight attendants knowing which union is more "fair" to management. With the pilots they will push the loopholes now provided by the merger to increase outsourcing to regional carriers and will use threats of legal action and base closures to weaken their ranks.

Even threats of work actions or strikes by the workers are in their calculations of what is "fair." To them, in the short term, the cost of any work action may reap its own returns by wearing down union members enough they will eventually give in to management's terms. All that I ask is that the employees remain strong.

Some are going to argue that my observations are without merit and that this fight is not mine. However,as a shareholder, I am concerned about how this company is run, and I firmly believe that a well-paid, well-respected front line is the only way to the "sustained profitability" management so desparately seeks. As a customer, if the front-line employees are enthusiastic about going to work, then the "travel experience" Mr. Smisek wants to sell to me will be that much better.

Mr. Smisek, these good people on the front-line are not your "co-workers." They are more than that, they are this airline. Until you are outside, below the wing, on a snowy Christmas Eve in Chicago, or sitting at a customer service counter after a flight cancellation; until you put yourself on the front-line you will never be able to call yourself a "co-worker." Get your number crunchers to take some time to re-think what is "fair," and by all means get yourself into this mix and settle these contracts.

Who should be the arbiter of fairness?

2011-06-08T12:09:00.001-07:00

45 minutes - that is exactly how long the 2011 annual meeting of shareholders for United Continental Holdings lasted this morning. Its too bad United management finds these required meetings to be so bothersome. Attendees had to check their bags or leave them in their cars. I guess they posed a security risk. Because I was wearing my AFA and ALPA pins, I was mistaken for an employee, and I was almost moved to the overflow room. A big thank you to Tyler Reddien from Investor Relations who cleared that up.

This was my first chance to see Mr. Smisek in action. He seemed friendly enough. There were a lot of new faces from Continental. Mr. Smisek has definitely surrounded himself with those he trusts. They are all young fresh faces with new ideas. They need to be careful though because experience counts for a lot, and United employees bring a lot of experience, especially when it comes to serving the customer.

Mr. Smisek had a short presentation recapping the profits and performance in 2010 and how they are ahead of schedule, in some respects, to unify the two carriers. In addition, he still expects to meet the goal of having a Single Operating Certificate by year-end.

The volatility in fuel costs remains a big obstacle, but with stricter capacity management they can respond more quickly and raise fares to absord additional costs. In addition, they will be taking delivery of new 737-900 and 787 aircraft promising much higher fuel efficiency. It is difficult and risky to try and hedge advance fuel purchases to stabilize your costs. Mr. Smisek's point, and I agree, is that with strict capacity discipline and more fuel efficient planes, the airline is in a better position to respond to fluctuations in oil prices.

Like a lot of corporate cultures, platitudes are plentiful at Continental. As I sat through the meeting I jotted down a few - "leading airline," the 4-point "Go Forward" plan (Fly to Win, Fund the Future, Make Reliability a Reality and Working Together), and that "travel is not a commodity, it is an experience."

Mr. Smisek finished his short presentation and the meeting was adjourned. At this time the 15-minute time period for questions was opened. Some attendees had to watch the meeting on monitors in another room, and they were given the chance to write down their questions. Mr. Smisek selected 3, fairly innocuous questions, and we got 3 fairly flat answers. I have a feeling that a lot of questions about unresolved labor contracts were set aside.

Mr. Smisek then invited questions from us in the main auditorium. I raised my hand and was picked to ask the first question:

"Mr. Smisek, since the merger was announced, then completed, and now sitting through this meeting I have heard a lot of the same phrases like "leading airline," "working together" and now today that "travel is an experience." Yet this is the 4th year in a row that I have attended these meetings, and for the 4th year there have been picket signs up. Mr. Smisek, these unresolved labor agreements have gone on far too long and someone at your level needs to take care of this now. It is not enough to pass it down to your middle managers to deal with. All of these talking points and platitudes mean nothing as long as the picket signs are up."

Mr. Smisek's response was to assure us that these labor contracts are a priority. However, any deal made not only has to be fair to the employee, but is has to be fair to the company as well.

A Boston based flight attendant then stood up and pointed out how frustrated he was at the slow pace of negotiations which appear to be going nowhere. He pointed out that the AFA negotiating committee and United labor relations were all there in the same room, and was confused why they could not sit down and talk. Mr. Smisek again responded that negotiations are a priority, but they have found that talks facilitated by the mediator are far more productive.

So any deal made has to be "fair to the employee, and fair to the company," but who decides what is fair? I walked away from that meeting with the impression that Mr. Smisek will be that final arbiter of fairness. He himself cannot sit down and talk with the negotiating committees, but he appears to be one who will decide what is fair. Can he be trusted? It is hard to tell. Continental pilots have been trying to negotiate new contract terms since 2008. I am guessing Mr. Smisek's view of "fairness" is quite different from that of the pilots. If it were any closer they would have a contract now.

United and the other carriers have done quite well in the last few years in managing capacity to raise fares and seeking out new revenue opportunities. Yet, there still is this pervasive attitude to cut costs, and management pushes it right down to the front line employees. I am not so hopeful that this new management team will be much different from the old.

Out of all this fairness, uncertainty and to quote Mr. Smisek,"the hard work to bring together the two carriers," I get a sense from United elite customers that they are not liking what is going on. Mr. Smisek tells us we will like the changes, but I have found my elite status diluted, crowded clubs which were once reserved for annual members only, and how much does a pillow cost? The airlines are like yo-yo's with the freakin' pillows. Their on, their off, their on, their off. How much time was spent analyzing the cost of pillows that could have been used to work on ways to get more money to the front line. Now management is just pissing off the customer and the front line employees.

Mr. Smisek - get it together before this goes on any further. Stop pushing down "Continental" like changes to the customers you think they will like, we don't, and before anything else, get the labor contracts in place.

The Proud Bird with the Golden Tail

2011-05-16T08:16:00.000-07:00

Many thanks to all of you for your kind words of support and appreciation in response to the last posting. I have long advocated that an airline's success is driven largely from management's ability to maintain an honest and collaborative relationship with the front-line employees. During this "great recession" that started in 2008, Southwest Airlines is the only U.S. carrier to be consistently profitable. If you look at the work culture at Southwest, you will largely find a motivated work force that feels respected by upper management, and take pride in the airline's continued success.

As a loyal United Airlines customer, since 9/11, it was becoming more and more difficult for me to watch employee morale continually erode. I am one of those customers coveted by management, a business traveler paying for first class seats. I will never forget one trip from Denver to Washington. I had paid several thousand dollars for a First Class seat, and as I boarded I was greeted by very glum faces and hushed voices of employees concerned over the recent announcement that their pensions had been terminated in the bankruptcy. Before take-off one flight attendant, almost in tears, confided in me that she did not know what she was going to do. It dawned on me at that point, that the several thousand dollars I had paid for my seat that day would do nothing to help these people, it was only going towards making sure executive salaries and bonuses would be paid. This is a big part of why I have become such an advocate for United's front-line employees.

It was not that long ago that Continental employees were experiencing the same turmoil. I remember when I went to work for Frontier Airlines back in 1982. I was based in Denver, and Continental still had a hub and base at Denver's Stapleton airport, so I crossed paths many times with Continental employees. At that time, Continental flight attendants were staging a bitter strike over forced concessions and Frank Lorenzo's use of the bankruptcy courts to abrogate labor agreements. I remember riding on hotel shuttle buses during layovers with Continental "scab" new hires. I felt sorry for them, and angry that Mr. Lorenzo had let the situation get as bad as it was. It was such a mess. People who had dedicated their lives to the "Proud Bird" airline were either now out of work, or forced to work for a carrier, at sub-standard wages, that was an embarrassment in the industry. This dark period at Continental dragged on over a decade and was marked by two bankruptcy filings, yet Mr. Lorenzo remained a tyrant who was certain that profitability would only come on the backs of his front-line employees. This mindset applied to all front-line workers - from the pilots down to the baggage handlers.

I also remember flying Continental as a customer in the late 80's and early 90's. At that time, Continental was the only carrier offering service to my home town in Wyoming through its Denver hub. I was always struck by the inexperience, and poor attitudes of the workers. Customer service was minimal. In Denver, there were still traces of legacy Continental employees which was refreshing. I remember the boarding announcements of gate agents still referring to the flight as offering "proud bird" service to my destination. It also made me sad as these employees obviously longed for the day when it truly was "proud bird" service.

The last time I was ever on a Continental plane was back in 1992. A flight I was supposed to take on United from Chicago to Los Angeles had been canceled, and United had put me on Continental flights connecting through Cleveland. The segment from Cleveland to Los Angeles was on an old 737-300 and I was not looking forward to 5+ hours on this small plane with no movie or audio. I was at least able to snag a exit row seat. We departed late, and I was struck by the young age and surly demeanor of the three flight attendants while we boarded.

An hour or so into the flight, I could hear one of the flight attendants in the rear galley heating up the meals for the economy cabin. It was easy to hear the oven doors open and close. At one point, she cried out in pain, and I looked back to see her holding her hand and wrist. The other two flight attendants were busy with the drink and meal service in First Class, so I got up and went back to ask her what happened and offer my help. It turns out she had not properly vented the oven before reaching in to take out the meals and the steam burned her hand and wrist. I told her to put her hand in some ice right away and leave it there. I then went to the front to get the "lead" flight attendant.

We walked back and the injured flight attendant still had her hand in the ice and was experiencing a lot of discomfort. Coming from what I was taught at Frontier, I told the "lead" she should inform the captain. She refused, stating that management discouraged them from doing so if they think it is something that is not life threatening. I was also puzzled as neither of them seemed to know how to treat the burn. There were no cold packs in the first aid kits, so I told her to keep her hand in the ice until she felt more comfortable. She was unable to finish heating up the meals, so I volunteered to do it for her. With her guidance I was able to get the carts ready so that the other two could take care of the meal service.

When the pain eased, I was able to wrap her hand to protect it. I told her she should get it looked at right away in Los Angeles. She said she would have to get approval from her supervisor in Cleveland which would not be until the next morning. Their layover was only eight hours. This poor girl had only been six months out of training, and just seemed overwhelmed by all of this. I also found out that the "lead" had only two years experience. This was the Continental of the early 90's, underpaid and inexperienced crew members afraid of management.

As I said, back then, Continental was considered an embarrassment in the industry. Luckily, Gordon Bethune came in as President. He recognized that to be successful, the employees needed to be treated better and given the respect they deserve. It was not long before Continental was going from "worst" to "best," all because someone recognized that you cannot be a dictator and treat your employees as robots who are expected to work had for little money.

Today, Continental employees have every reason to be proud of their airline's success as it has come largely from their efforts. On the same note, United employees have every reason to be just as proud, as the airline is only here because of concessions they made. So, with the merger, you have two very proud work groups who now have to work together. Both work groups bring strengths and experiences that they can pass on to each other so that the new "United" can become the "Leading Airline." Management will have to be especially vigilant and mindful, and have to work extra hard to put out a unifying message.

I have noticed that a big part of the new management team is made up of people brought in from Continental. There is some sense in this, as the new President, Jeffrey Smisek, comes in from Continental and wants a team that he can trust. However, as is shown by the recent memo from Sam Risoli to the flight attendants, there seems to a pattern of ideas emerging that lean towards the "Continental" way of doing things. Even long-time United customers are noticing the "Continental" way emerging and it is making them uncomfortable and think twice about what this new "United" is really going to be like. I was on FlyerTalk this morning and noticed that many United frequent fliers do not like the new boarding procedures that are the same as those used at Continental.

As employee ranks were decimated under the tenure of Frank Lorenzo, in terms of years of experience, Continental employees have far less, as a whole, than the employees at United. That additional experience should not be discounted. There is a reason that the "United" name survived the merger. This is a name that brings with it great pride for both the employees and customers. With that, it should not be the name only that survives. Those things that made United a leader over Continental cannot be cast aside. This starts with the front-line employees and extends down to the level of service expected by the elite customers. The new "United" should be an innovator, not just copy what one carrier does over the other. Go against the grain and above all bring down the walls that have come up between management and the unions. After all, these unions are only trying to protect the interests of their membership, and management needs to concede that these dedicated employees are valuable assets needed to make the new "United" a "Leading Airline."

Flying Together?

2011-05-13T14:27:00.000-07:00

What follows is a copy of a letter I wrote to Mr. Smisek today in response to a memo United flight attendants received yesterday from their Vice President of Inflight Service. The memo specifically impacts furloughed United flight attendants, and tells them that to fill expected staffing needs for 2012, they will have to be re-hired as "Contintental" flight attendants, under the terms of the contract "Continental" has with their flight attendants.
***********************************************************************
May 13, 2011 ** Via Fedex Overnight **

Mr. Jeffrey Smisek, President
United Continental Holdings, Inc.
77 West Wacker Drive
Chicago, Illinois 60601

RE: “Flying Together”

Dear Mr. Smisek:

Congratulations on the successful completion of the merger of United and Continental. It must feel quite rewarding to be at the helm of what is promised to be the “World’s Leading Airline.”

Since the merger, customers have gotten to know you through the introduction that precedes the safety information provided in the pre-flight videos shown on most flights. In that introduction you try to ensure your customers that the merger, and the changes that it will bring, will mean an improved product to be enjoyed by all. Specifically, you tell us that:

“Over the course of the year following our merger, we’ll be working to form a single airline……You’ll see a number of changes in the months ahead, and I think you’ll like them. Our goal is to work together to deliver clean, safe and reliable air transportation, great customer service, and a broad choice of destinations and flights.”

These words are comforting only if they can be received as sincere. As a customer, the only real integration I have witnessed in the last seven months is cosmetic. Your goal of obtaining a single operating certificate by November 1 is just over four months away, yet I cannot help but feel that with ongoing labor issues, a truly unified “Leading Airline” may never happen.

Making its way across the internet and to all United/Continental flight attendants worldwide is a memo from Sam Risoli, Vice President of Inflight Service, dated May 12, 2011, discussing projected in-flight staffing needs for 2012. A copy of that memo is attached. What is disturbing about this memo is that it appears to keep up distinct borders dividing the United, Continental, and Continental Micronesia subsidiaries; and that in order to fill anticipated flight attendant positions at “Continental,” “United” and “Continental Micronesia” flight attendants will have to consider becoming “Continental” flight attendants, or face furloughs. Mr. Smisek, this memo does not unify, it only divides.

As a long-time and very loyal United Airlines customer, I have held firm in my belief that management was, and appears to remain out of touch with the front-line. This leads to inferior customer service as your customers are your first witness to this less than harmonious relationship. With the time I have spent on the planes and in the airports, I have gotten to know many of United’s finest employees. These are all very good people who have dedicated their lives to this airline, and despite their best efforts not to, will express their frustration over working conditions to the customer. This is what has kept United from rising above its competition in terms of customer service awards.

I have noticed recently that whenever expanded service announcements are made, mainline service is being offered on what are called “Continental” flights (some out of “United” hubs), yet any expansion to “United” service offerings (with the exception of the new service to Shanghai from Los Angeles) is being offered on United Express carriers. This is part of the reason Mr. Risoli has an imbalance to equalize.

However, Mr. Risoli uses the excuse of new aircraft deliveries coming from orders placed by the “Continental” subsidiary as the main reason for the in-flight staffing imbalance. Since “Continental” placed the orders, these have to remain “Continental” aircraft; therefore, they can only be staffed by “Continental” employees. Has the same memo gone down to the pilots? When I call reservations, will I have to figure out beforehand if I am flying on a “Continental” or “United” plane so that I can be routed to either a “United” or “Continental” agent? Mr. Risoli is asking employees to decide which subsidiary they are going to work for, so I guess the customers will have to figure out which subsidiary they are flying with. None of this is unifying Mr. Smisek.

Mr. Risoli’s premise is flawed, as you and I both know that neither Boeing, nor the airplane leasing company will care who writes the check for the new plane. Once a single operating certificate is issued, the FAA will only see all the aircraft as being operated by United Continental Holdings. The IRS is only going to see one consolidated tax return, and us shareholders are only concerned that the combined holding company is well managed. The timing of Mr. Risoli’s memo is suspicious coming just before the voting period opens for the flight attendants to decide which single union will represent them. For a furloughed “United” flight attendant to work again, they are left with no choice but to be hired by “Continental” and work under the terms of the “Continental” contract. This is all very divisive.

Mr. Smisek, when you let your middle managers come out with memos such as Mr. Risoli’s I get very concerned as a shareholder and customer. Your words about being a “Leading Airline” are empty, and as a customer, what should I expect in terms of customer service as employees are being divided and feeling as if they have no choice but to go the “Continental” way. Mr. Smisek, the only thing your employees want to do is work for the best airline. The only way you will have the best airline is by taking down the borders between subsidiaries; taking down the barriers between management and the front-line; offering all employees decent salaries, benefits and work rules; and making it a priority to settle all amendable collective bargaining agreements NOW.

Sincerely,

James T. Anderson
Mileage Plus #00073687942,
UAL Shareholder, and United LAX Customer of the Year for 2006.

"Experience is Priceless"

2011-05-02T12:44:00.000-07:00

Tomorrow, May 3, 2011, pilots for both United and Continental Airlines will be conducting informational picketing at bases around the world. Pilots from both airlines are represented by the Air Line Pilots Association (ALPA), and both groups are currently working under contract terms that became amendable over a year ago.

Like the flight attendants at United, the pilots also gave up a lot in terms of wages, lost benefits, and lost pensions to keep United from going under. They too were taken in by the promise of "shared sacrificies, shared rewards." As with the flight attendants, management is focused on pushing down contract terms resulting in more concessions.

Wages, benefits and work rules are all up for negotiation; and the pilots are only seeking a return to fair wages and benefits, and work rules that will make sure they are not required to put in excess hours to the point of compromising safety. Just as important as wages, benefits and work rules, are the "Scope Clauses" which limit management's use of regional carriers and code share partner airlines. Without these Scope Clauses, management, as a matter of cost savings, would be given free reign to enlist the services of third party regional carriers and code share partners to carry the customers.

How many of you remember the crash of Continental Connection flight number 3407 in the winter of 2009? The flight was coming from Newark airport, and while on approach to land in Buffalo, New York, the plane crashed into some houses just short of the runway. In February of 2010, the NTSB ruled the cause the of the crash as pilot error.

This particular Continental Connection flight was owned and operated by Colgan Air. Continental has hired them to carry passengers from their hubs to smaller and mid-size destination airports such as Buffalo. The NTSB, in making their determination that it was pilot error that caused the crash, focused on the age of the young pilots, and their lack of experience in terms of flight hours logged. Also sited was pilot fatigue. One of the pilots had commuted from Seattle that same day and spent hours waiting in the crew lounge at Newark before getting into the cockpit for this flight.

This crash brought to light how much U.S. carriers have grown to rely on these regional carriers such as Colgan. All they have to do is slap the Continental or United name on the planes, and the flight will be marketed just as they do mainline flights. What the airlines do not tell us customers is that the pilots and flight attendants for these regional carriers do not receive the same level of training and do not have the same work rule protections as their mainline counterparts. They are also paid far less, which means the carrier can realize a greater profit on a segment that regularly averages less than 100 customers. The two pilots on Continental Connection flight 3407 each made less than $30,000 per year.

These Scope Clauses that limit how much management can use regional carriers or code share partners are extremely important. Not only do they ensure some level of job security, but customers should be mindful of how they help to ensure that there are experienced and rested pilots getting us to our destinations. The more carriers are allowed to use regional carriers, the greater the chance us customers will be taking a flight with tired, inexperienced, and underpaid pilots.

If you can, and you are near any of United or Continental's hubs or base locations, go out to the airport and show your support for the pilots (and other employees) that will be picketing tomorrow. If you are flying tomorrow, whatever airline you are on, just take the time to stick your head in the cockpit and say thank you. Pilots no longer receive the respect they deserve from their employers and the traveling public. It is time for that to change. I don't know about you, but I do not know how to fly a jet, so I sure as hell want someone with experience, and who is not carrying the stress from fatigue or being underpaid, to get me where I am going.

"The Long Way Around"

2011-04-20T07:36:00.000-07:00

"The best way for a business to maximize profits is not to seek to maximize profits."

This was the title of a book review that caught my eye in the April 12, 2011 edition of the Wall Street Journal. It was written by Andrew Stark, a professor of strategic management at the University of Toronto. The book being reviewed is titled "Obliquity - Why our goals are best achieved indirectly," and written by John Kay, the former director of the Oxford Business School.

Quoting from Mr. Stark's review, Mr. Kay, in what he calls the "profit-seeking paradox," argues that "consumers will go the extra mile to contribute to your success, or employees will go the extra mile to contribute to your success, only if they believe that you care about their interests. The best way to establish that you care is to show that you can place their interests ahead of your own." Further, Mr. Kay does note that it takes more than just a facade of appearing to care about their interests, your efforts need to really show that you are not looking out for your own interest.

Today, Wednesday, April 20, 2011, flights attendants for American Airlines will be holding protests at their U.S. bases in response to the news that executives at AMR have and will be paid bonuses totalling in the hundreds of millions of dollars. This is after American was the only major U.S. carrier to report a loss for 2010. American Airlines flight attendants, represented by the APFA, have been working under an amendable contract for three years now, and AMR management continues to assert that they cannot afford to give them a raise as long as they show a loss.

To tie this back to the review of the book and Mr. Kay's "profit-seeking paradox," would American's flight attendants be walking the picket line today had AMR exectives declined or even deferred their bonuses? Mr. Kay would argue, and I agree, that it would take the extra step of sitting down with the APFA, and not leaving the table until an agreement was reached that would finally give back and reward these employees who gave up a lot to help American avoid bankruptcy. That extra step would go a long way to send out a sincere message to the front-line at American that management does care.

Too many corporate management teams are tasked with the "black and white" goal of maximizing shareholder value. It is understandable, especially when you tie their compensation to that goal. However, this keeps too many managers focused on goals that that fit within the timeline of their contracts, or to the next earnings reporting season. They have lost sight of long-term sustained profitability that would benefit both shareholders and employees. As a result, you have employees at both United and American out in public demonstrations of their outrage. Executives at both carriers would argue differently, but their income statements and balance sheets do reflect the damage. American did not show a profit for 2010, when other carriers could. How much of that is from customers fed up with disgruntled employees and going to another carrier, or not flying at all? And back to Mr. Kay's paradox, how can you sincerely show your customers you appreciate their business, when you cannot show that you appreciate your employees?

At United, Mr. Tilton pushed through a hastily arranged, "do or die" merger with Continental, with UAL still undervalued, and UAL shareholders getting a smaller piece of the pie than they deserve. It doesn't matter to Mr. Tilton, he still got paid a HUGE sum for meeting his goal. Most of the front-line at United continues to work under amendable contracts with concessions that cut their wages back to levels they received in the 1990's. The new president at United, Jeff Smisek, now faces the daunting task of bringing together the employees of the two carriers, and from what I have witnessed, he is finding the job harder than expected. I think he was expecting to push down collective bargaining agreements that mirror those for the front-line at Continental, but groups at both carriers are becoming increasingly frustrated.

Back to American Airlines and today. I urge all of my readers to get out to the airports where APFA members will be demonstrating and show your support. There is more to today's event than anger over contract negotiations and delays, this demonstration is in response to the message that executives and Board Directors at many U.S. corporations appear to only look out for themselves. Shareholders and employees be damned.

The tulips may be fading, but the United name remains...

2011-03-30T14:18:00.000-07:00

United's flight attendants continue to work under contract terms that have long expired. Based on information made available to the public, relatively little has been resolved and United management continues to assert that AFA members (the union representing United's flight attendants) are unwilling to negotiate in good faith. Continental's flight attendants are represented by the IAM (International Association of Machinists), and they recently ratified new contract terms with minimal improvements.

Now that the two carries have merged, the call has gone out for a "representational vote" for the flight attendants from both airlines to decide on which union will represent them under a single carrier. I am not sure when this vote will take place, but I understand that the IAM is working very aggressively to get AFA members to switch sides. What bothers me are rumors I am hearing that the IAM is having some success. Some United flight attendants have been seen wearing IAM pins which has caused some discord with AFA supporters. Sadly, this discord is witnessed by customers and further strengthens management's desire to push through contract terms that mirror those that Continental flight attendants are working under.

Even with the new terms that Continental's flight attendants have been offered, if United flight attendants were to accept the same, higher pay scales would give way to work rule changes with the end result being the net concessionary contract wanted by United management. I urge all United and Continental flight attendants to give the AFA a chance to negotiate contract terms you all deserve. Do not let management or the IAM push you into a rushed vote. This only invites dissent among the membership of both groups. This dissent is witnessed by customers, and this dissent only serves to open the door for management to push through the contract they want. Even through the bankruptcy, the AFA still managed to negotiate a contract with trip rigs, duty rigs, and other terms to protect your safety, yet these are terms that management still finds too costly.

For AFA members that have any grievances with the AFA, talk them out with the AFA. Your support of the IAM can only help United management. The IAM puts out a lot of fancy, glossy materials with lots of promises, but they are still an organization that works with many different employee groups across many industries. When it comes to flight attendant specific issues that need to be addressed by management, and more importantly, our government and aviation authorities, would you not want the experienced professionals already in place to continue to represent you?

This message goes out to all of the front-line employees at United and Continental - coming together to form a "United" work force is your best hope for getting the message to management that you are going to be heard. It is not enough that the pilots, flight attendants, customer service, ramp and mechanics support each other as individual groups, but more importantly, your groups need to work together as one. Without that unity, you remain just numbers that are crunched by management to fatten their wallets, not yours.

Spring is here, where are the tulips?

2011-03-30T12:53:00.000-07:00

Big announcements came out this week from both the Los Angeles Dodgers and Chicago Cubs about new and renewed partnerships with United Airlines. Being Chicago's hometown airline, United has had a long-standing relationship with the Cubs, but those attending Cubs games at Wrigley field will see and expanded presence with United's name and new logo visible on billboards, cups, club suites and all kinds of other protional materials.

This is a first year partnership for the Dodgers and United. As with the Cubs, United will become the official airline of the Los Angeles Dodgers and we Angelenos will see the new United branding along side Dodger branding all over town.

These types of partnerships are not new, and they do open a lot of avenues for United to advertise. Julie Johnsson, aviation expert and writer for Tribune newspapers wrote about these new partnerships, and in her article, the following caught my eye:

" The new United opted to meld elements from the two carriers — United's name, Continental's globe — into its new brand rather than adopting the larger carrier's identity, as Delta Air Lines did with its 2008 merger with Northwest Airlines. The move angered some longtime fliers and design buffs because United dropped a popular hallmark, its Saul Bass designed U, known as "the tulip." But the controversy should recede as the sports sponsorships start to forge a new identity for the airline, now the largest in the world. Starting in May, United plans to roll out the new brand at O'Hare International Airport and other large hubs, while limiting the old Continental signage to check-in and boarding areas."

What follows is something I had a chance to work on a couple of weeks ago while waiting for a flight home to Los Angeles -

"Spring is here, where are the tulips?"

This time of year, it is rare, and a real treat, to grab some down time to myself. Today, I have snagged a few hours to relax in the Red Carpet Club at Denver International. I am heading back home tonight after a long weekend in Colorado with my family to celebrate Mom's 70th birthday. My view this afternoon looks to the south across the tarmac between Concourses A and B. I have always enjoyed sitting here watching the planes land and take off, and all of the activity of the ground crews around the gates. Today, I am seeing more and more United planes that have been repainted with the new colors and design that came from the merger with Continental Airlines. Sadly, what is missing is the iconic red and blue "tulip" trademark that has been a significant part of United Airlines for over thirty years.

In advertising and marketing circles, the United "tulip" is considered one of the most widely recognized, successful, and admired trademarks. When people saw the "tulip," they thought of United Airlines, which made them think "Friendly Skies." To achieve such success is branding is rare and truly remarkable. Why anyone would want to cast aside such a treasure is a mystery to many of us loyal United customers, but with this merger, just as the Continental names fades away, so must the "tulip."

Tulips are hearty, bright colored flowers that return every spring. They peek their heads out of the ground just as the last snows are melting. They brighten our minds and hearts after the cold and darkness of winter. Even though the "tulip" is gone from United planes, what it represents in terms of heartiness and brightness of spirit still remains with United's dedicated front-line employees.

This afternoon I ran into Chris Orr. She is a very kind and bright spirit who is part of United's customer service team in Denver. It has been a couple of years since we last saw each other, but as I walked into the Red Carpet Club, she recognized me right away and greeted me with a warm smile, big hug, and lots of thank yous for my support of the front line. I was with my sister Julie, who I introduced to Chris, and right away Chris wanted to make sure we were both OK with seat assignments and find out if there was anything we needed to make our trips today more enjoyable.

I do consider Chris a dear friend and United's customers are lucky to have her on their side. Chris has over 30 years with United, and just as the tulip bulbs survive the harshness of winter, Chris has survived all of the ups and downs at United. Bankruptcies, pay cuts, lay offs, mergers, the after effects of 9/11, the continuing revolving door of greedy executives and now the merger, these are all things that would send less dedicated individuals looking for another job. Not for Chris though, you can just tell she loves to work with people. Through everything that United has been through in recent years, Chris shows up for work with a smile, lots of cheer and eager to help as many customers as she can. Chris is not unique at United, there are so many other "tulips" working the front-line. As I mourn the loss of the "tulip" on the planes, I have to remeber it is the people that keep me and many other customers coming back to the "Friendly Skies."

Stand United and W I N (Whip Inflation Now)

2011-01-05T07:56:00.000-08:00

"Whip Inflation Now (WIN)" - is there anybody reading this old enough to remember that gem from the 1970's? It was a rallying cry from the Carter Administration trying to stem the double-digit inflation consumers were experiencing during his presidency.

I got to thinking again about all the back and forth between United management and the AFA. As discussed before, United's position is that AFA members should accept a contract that mirrors the contract Continental Airlines has with its Flight Attendantns who are represented by the IAM. AFA members would see big increases wages; however, there are some protections they would lose. AFA members stated early on in negotiations they would not accept any contract that would result in any more concessions to the company. So, is the "Continental-like" contract being proposed by United management concessionary, or will AFA members come out ahead?

AFA leadership and its negotiating team have published a lot of information breaking down the proposed contract to show its members how a Continental contract would affect them. A lot of it points to minimum duty rigs and other protections that would be lost, so at the end of the day, even with higher hourly flight-time wage rates, both reserve and senior line-holders would end up giving up something.

The gist of this post is to look at the hourly flight-time rates being proposed to see if United AFA members would get back what they lost from the bankruptcy forced cuts they took in 2002. According to information I pulled from the United AFA web site, the highest hourly wage rates being paid in April of 2002 were $45.02 for domestic flying, and $48.87 for international trips. If I adjust those numbers for inflation, as of November 2010, using the U.S. city average index posted by the U.S. Department of Labor, those hourly rates would now be $55.00 for domestic flying, and $59.70 for international trips. Under the "Continental" contract, the top hourly rates being proposed by United management are $50 for domestic, and $51 for international. These numbers are 10% and 15% below the inflation adjusted wage rates that were being paid in 2002. If I were an AFA member, just looking at this point, I would clearly see that management is once again trying to gain concessions from the front-line to improve the bottom line.

To the AFA membership - you told your leaders and the negotiating team that any contract resulting in concessions to the company was unacceptable. The AFA took a bold step by laying out what they want to see as far as hourly flight time rates, and they are more than fair. In fact, when you compare them to the inflation adjusted rates being paid in 2002, they are right in-line or slightly lower. They also want to protect your minimum duty rigs, make sure you do not have to stay in flea bag hotels in unsafe neighborhoods, and protect jobs by putting limits to how much the company can rely on regional carriers and alliance partners.

On Friday, January 7, 2011, get out and stand together with your fellow AFA members. The loudest message comes from voices singing together. A fair contract for you is the best thing in the long-term for this airline, I just wish management would see this.

One Year Later...

2011-01-03T07:45:00.000-08:00

This Friday, January 7, 2011, will mark the one year anniversary that United Airlines' contract with its Flight Attendants became amendable. It also marks 640 days since discussions began between United management and the United AFA-CWA to negotiate new terms for this amendable contract. Sadly, to this day, there has been little progress.

United management continues to assert that the AFA is not negotiating in good faith. They want AFA members to accept terms for a new contract that mirrors the contract that Continental has with its Flight Attendants. Wage rates under the Continental contract are significantly higher, and United Flight Attendants would certainly welcome the raise; however, in exchange for the raise in pay, United Flight Attendants would lose work rule and minimum pay protections that are in place. These protections keep flight attendants from being forced to work excessive hours which could result in fatigue and illness that effect passenger comfort and safety. Also at issue is limiting the use of regional carriers and code-share partners to transport customers. Taking into account the loss of these protections, United AFA members are being asked to accept terms with the net result of concessions to the company.

What is new this year is that United and Continental Airlines have completed their merger, and a new senior management team is in place. Jeff Smisek, formerly president of Continental Airlines, is now the new CEO for the combined United Continental Holdings Incorporated. United employees, for the most part, welcomed this change. While Glenn Tilton was in charge, morale was low, and Continental management had a reputation for its high-regard for the efforts of the front-line employees.

It has only been 4 months since the merger was completed, but I have not seen any real significant changes to improve conditions for the front-line employees at United. Mr. Smisek at the outset appeared to be more open and caring when it comes to his dealings with the front-line than did Mr. Tilton. For the most part though, it appears to just be talk and little action. As a customer and shareholder I do see more evidence of the "Continental-izing" of United Airlines, which should not be a surprise, but some of the changes have taken away some of the prestige of being a United Frequent Flier.

Where I get concerned is that I see little change in how senior management and the Board of Directors for the combined company operates. Short-term results in terms of numbers rule decision making with little regard for the long-term. For example, United Continental Holdings proudly announced expanded service out the Denver hub to Florida. Read the fine print and you will see that most of the expanded service is being offered on the ExpressJet regional carrier. There was also an announcement of expanded service to Hawaii out of the LAX hub. Read further, and that expanded service is being offered on Continental Airlines, not United. In both instances, I do not see where United employees would benefit.

To finally get to a point, this Friday, January 7, 2011, United Flight Attendants will once again be conducting informational picketing at all of their bases. This time the message will be directed to a new management team, and that message is that nothing seems to have changed - senior management continues to earn huge salaries and bonuses, and the front-line for the most part are just numbers that are manipulated to improve the bottom line. Mr. Smisek, you and your team can appear more accessible, but until you get contracts with improvements for the front-line in place, morale will once again turn, and that will impact the customers. You want customers to remain loyal to United and Continental, but we are witness to your management style through the front-line. The longer you delay in resolving this matter with the Flight Attendants, and all other labor groups, the greater the risk that customers will decide that another carrier offers a better product.

This Friday I urge all United and Continental customers who might be flying take the time to stop and offer a sincere "thank you" to all the front-line employees you encounter. Let them know how much you appreciate their efforts. They are dedicated individuals who sincerely want to provide a superior product to their customers; however, their hands are tied by management that has a hard time putting faces behind the numbers.

Divided you will fall...

2010-10-24T13:45:00.000-07:00

This weekend was my opportunity to fly this "new" United Airlines since the merger closed with Continental back on October 1, 2010. United customers will not notice any changes yet. The merged companies are still operating as separate carriers. What is new is a little optimism that shows itself when talking with the employees; however, that optimism is tempered by skepticism. These employees have been through so much. So many promises have been broken. Yet, I see no evidence that this new senior management team coming in from Continental shows no more interest in the welfare of the front line than their counterparts at United. They talk a big game - unity, teamwork, moving forward together, but so far, I am only witness to "lip service."

Shortly after the merger closed, it was announced that United's new CEO, Jeff Smisek would become the highest paid U.S. airline executive. All justified by the fact he will be running what is now the world's largest airline. As a shareholder, I do not recall being offered the opportunity to approve such a compensation package. Worse yet, United's outgoing CEO, Glenn Tilton, will still receive a six-figure salary, multi-million dollar pension and lavish offices at HDQ as non-executive chairman of the new United Continental Holdings, Inc. At the same time he will be earning big bucks with his prestigious new position as an advisor to President Obama's administration. Pardon my graphic language here, but I feel like I am now getting doubly screwed as a shareholder and taxpayer.

With this hastily put together deal, the Board of Directors for the two companies showed no concern that there are over a dozen amendable collective bargaining agreements among employee groups for the two companies. That is a lot of uncertainty, and front-line employees are asked to be patient, and just show up for work as long as they are told to do so. They are given no indication what the lies ahead. Yet senior management still expects them to put on their best face for the customer. I do know that the front-line employees at United are true professionals, and will continue to do the best job they can, but any air of optimism that exists now will fade fast. If this new senior management teams does not act quickly to solidify these agreements with the employees, customers are soon going to be witness to the same deterioration in morale that they witnessed after Mr. Tilton and his suits showed their true colors a few years ago.

As a shareholder and customer, of particular concern to me is how the Flight Attendants will be treated by this new management team. Flight Attentdants for the two carriers are working under two different collective bargaining agreements and are represented by two different unions. For their side, United Flight Attendants, well-represented by the United AFA-CWA, are being asked to accept a new contract that mirrors the contract that has been proposed to Continental Flight Attendants. United senior management continues to sell the terms of the Continental contract as the best fit for this new merged carrier. You can check out their position at the www.unitednegotiations.com web site.

On the surface, the contract with Continental flight attendants does appear as if it is too good to be true, and it is. You have to dig deep into work rules and productivity provisions to really see that Continental flight attendants, for the most part, do not have that great of a contract. Mr. McKeen posts on the United Negotiations web site that Continental flight attendants have the flexibility and potential to earn $100,000 a year. The hourly rate proposed for international flying in 2010 is $52.25 per flight hour. To earn $100,000 that means flying 160 hours per month, which is illegal. So, to earn $100,000, flight attendants would still have to fly the monthly maximum of 97 hours, maximize holiday pay time and try to hold international lines maximizing per diem hours (layover).

Flying 97 hours per month may not sound like much to those of us who put in 50+ hour work week, 9 to 5 jobs. Flight attendants are only paid "block to block," that is from when the door closes and the plane pushes back, until the plane parks at the gate at the destination. They do not get paid for all that time that it takes us to board, and de-plane. They also have to take time for pre-flight briefings and other duties that they are not paid for. A Washington to Zurich trip that might pay 17-18 flight hours, means about 3 days away from home. You could get 5 of those trips in within a month for 90 hours, but that is 15 days away from home. By my estimate that attractive $52.25 per hour really is less that $15.00 per hour when you count all that extra time.

There is so much more that goes into these contracts, and I will admit to being confused by many of the details. What is important that the AFA members at United get involved and pay attention to the information that is being put out by their representatives. Again, the Continental contract is not as shiny and magical as it appears to be. When you add everything up, by accepting the terms being proposed under the Continental contract, AFA members are again being asked to make concessions. Sadly from different sources, I have evidenced more divisiveness among AFA members. You all have to stick together and get involved. Talk to your representatives to get the facts. Gossiping among your co-workers about what or what may not happen just leads to confusion and the divisiveness I have seen.

A few days after the merger closed, Julie Johnsson of Tribune Newspapers interviewed Mr. Smisek. One of his points was how at Continental they tried to convey to the front-line that when you are moving a plane forward at 600 miles per hour, it does no good to look in the rear view mirror at what was. Mr. Smisek - as you sit in that cockpit flying that plane, stop to take a look in that rear view mirror, first into the passenger cabin. The first thing you will see in that rear view mirror is the customer who is paying you to fly the plane. Look further, you will see the Flight Attendants serving the customers. Look even further back outside of the cabin and you will see the ramp workers that got the plane ready to fly, and the agents who got you the customers who are paying you to fly that plane. Mr. Smisek, you drive that plane forward too fast without looking in the rear view mirror, you will miss seeing the damage left behind in its wake. How's that for beating a metaphor to death? Its time to start giving back to the front-line in a big way Mr. Smisek, without their support, you do not have much of an airline.

I need to give a big "shout out" and thanks to the crew of flight 319, DEN to LAX, on Sunday, October 24. Awesome, awesome service. Mr. Smisek is lucky to have people like you behind him, I just hope he notices.

United Continental Holdings, Inc. - UAL (NYSE)

2010-09-30T09:07:00.000-07:00

Friday, October 1, 2010, the merger between United Airlines and Continental Airlines will be completed and shares of the new company, United Continental Holdings, Inc., will be traded on the NYSE. This follows on the heels of both shareholder and U.S. government approval to combine the two companies to form the world's largest airline. I was able to attend the meeting on September 17 to vote my shares in person to approve the merger. For a dork like me, being there was pretty exciting. This was a big day in United Airlines history, and years from now I can at least say I was there.

The meeting itself was merely a formality as a majority of shareholders had already cast their votes approving the merger. The Board of Directors was not even in attendance. The meeting was not without its humor and highlights though. In attendance was Evelyn Davis, who I now know is an outspoken advocate for shareholder's rights and spends her time traveling across the country to attend meetings and really challenge senior management.

I was waiting for registration to open up for the meeting, when a car pulls up to the United Training Center in Elk Grove. The driver gets out of the car and opens the passenger door to assist an elderly and frail looking woman into the lobby. She is wearing a ragged coat, bad wig, knee-high stockings, a lot of red lipsptick, and unfortunately, a skirt with a hem line above the knee (that is how I noticed the knee-high stockings. I soon find out this is Ms. Davis, and what a pistol she is.

She is hard of hearing and when she comes into the lobby she is upset that her escort is not there. "Where is Glenn (Tilton)," she yells, "he is usually here to meet me?" The staff at the registration desk is trying to assist her, but Ms. Davis will have none of it, and soon security is escorting her to the meeting room on the second floor. At this point, I still have no idea who she is, and I cannot help but wonder who this crazy old lady is making such demands.

Registration finally opens up, and the shareholders are allowed to go up to the meeting room. When I get there, Ms. Davis is seated in the first row right across from the podium where Mr. Tilton will be speaking. After about 30 minutes, Mr. Tilton and other senior managers arrive. Mr. Tilton goes right over to Ms. Davis and gives her a big hug.

Mr. Tilton starts the meeting at 10:00 AM he announces the agenda. The only item is the vote on the merger. There is no discussion period scheduled before the vote (this is typical of all of the UAL shareholder meetings I have attended). Right away Ms. Davis stands up and begins to demand to know why there is no discussion before the vote and has several questions she wants answered before she casts her vote. Again, as she is hard of hearing, she is quite loud.

She lets us know right away that she is against the merger, and that Mr. Smisek will not be a good leader. She likens him Stephen Wolf, another unpopular CEO of United Airlines in the early 1990's. She advises us that "we have to keep out the Wolfs." She begs Mr. Tilton to stay on another 5 years. She is also persistent in knowing how much the legal expenses are in connection with the merger. Sadly, neither Mr. Tilton nor UAL's general counsel have the answer to the question, and Ms. Davis will not let up and move forward to the vote until she gets her answer. "What about all the overlapping routes" she asks? She brings up the example that both United and Continental have a lot of flights between Washington D.C. (a United hub) and Cleveland (a Continental hub). "Who wants to go to Cleveland" she asks? That gets a big laugh from the audience.

After Mr. Tilton promises to get her the total for legal costs, the meeting proceeds and the ballots are taken. Within a few minutes, Mr. Tilton is happy to announce that with 84% of the shareholders in attendance at the meeting (by proxy), and a 98% approval by those voting, the merger will go forward. With that, the high def screens posted throughout the meeting room are soon showing the colors for the new United Airlines.

So, its done, and tomorrow will mark the first day for the new United Airlines. Customers will not begin to see any real changes for quite some time, and it is expected to take 2 years before the carriers are operating under one certificate. In the meantime, there will still be a United Airlines and a Continental Airlines, both operating as subsidiaries of United Continental Holdings.

I sure hope this marks the beginning of much needed improvements for the front line at both carriers. I hope to learn more about the new management that will be coming over from Continental. I do not know much about them, but I sure hope they spend more time taking care of the needs of the employees and customers, than they do on their own compensation plans. Because without the customers and the hard working front line, we would not have this new United Airlines.

To close, when I returned to Los Angeles after this meeting, I had a chance to "Google" Ms. Evelyn Davis, and was I pleasantly surprised. She is a Dutch holocaust survivor who has spent these last years crusading for shareholders rights. She shows up at shareholders meetings and really holds senior management accountable for their actions. She doesn't stand on ceremony, and she doesn't back down until she gets the answers she is seeking. She has been written about in countless business publications and appeared on both CNBC and Fox Business News. I feel bad for criticizing her fashion, and as an investor, I am grateful there are people like her that are out there to remind the suits that they are working for me, not themselves. Now we just need someone like her to hold the fire to our elected governmental representatives.

Witness to history....

2010-09-16T17:22:00.000-07:00

Right now I'm just sitting my hotel room waiting for room service. I am in Chicago to attend the UAL Shareholders Meeting to cast my vote on the merger with Continental Airlines. Tomorrow will be a big day in the history of both airlines, and I feel fortunate to be able to witness the event.

It is expected that shareholders will approve the merger. Many see this as the "white knight" rescue needed to save United Airlines. Fundamentally, Continental is viewed as the better-managed airline. United brings its strong brand and route network to the table. Leaders of both companies call this a "merger of equals." Truth be told, as Continental is the financially stronger company, UAL shareholders have to give up 5% of their holdings to Continental shareholders for this "merger of equals."

Many of the United employees I have had a chance to are excited about the merger. They are hoping new management coming in from Continental will bring much needed improvements in management/employee relationships, bigger numbers on their paychecks, and improved benefits. They deserve it. They have given up a lot, and put up with a lot to keep United flying. Customers sure hope to see improvements in employee morale and service.

Well, most of the easy steps in this transaction have taken place, and tomorrow's vote should pass with little resistance. Then the real work to make this combination a success will begin. Mr. Smisek, now head of Continental, will step in as President and CEO of the new United Continental Holdings. His big challenge will be integrating two highly unionized and different labor groups. Mr. Tilton alienated and angered thousands of United employees, and regaining their trust will be a huge undertaking for Mr. Smisek. What is certain is that Mr. Smisek will fail if he attempts to seek more concessions from the front-line.

Employees from both airlines want to see this work. They will take pride in being part of the world's largest carrier, but pride does not pay the bills. There are over a dozen amendable collective bargaining agreements with labor groups with both airlines that are being negotiated. These employees will hold steadfast in their goal of securing improvements in their contract. Mr. Smisek, I urge you to work with the unions quickly and get these contracts settled.

I hope to have a chance to update after the meeting tomorrow. I have no idea what to expect. Nonetheless, when I fly back home tomorrow night, I will still be flying on United Airlines. It remains United Airlines not because of the suits bringing this merger together, it remains United Airlines because of the hard work and sacrifices of those serving the customers every day.

September 11, 2010 "Never Forget"

2010-09-06T17:49:00.000-07:00

Nine years gone and it still seems like yesterday. I used to laugh at my parents and other "oldsters" around me who always commented how quickly time flies. Now, I am one of those "oldsters."

September 11, 2001. There is no need to recap the events of that awful day. We were all there, we all remember. More importantly though, is that we never forget. We can never forget the thousands of lives lost, and the many more thousands of family members and friends of those that perished that were left behind to pick up the pieces. We can never forget the efforts of the first responders to the World Trade Center, Pentagon, and Shanksville, Pennsylvania sites. The death toll would be higher without their training and dedication. We certainly cannot forget those in the military who, to this day, continue to put their lives on the line to eradicate the evil that made itself known on that day. It is they who are responding to our cry of "never again will this happen." Sadly, as this ninth anniversary approaches, I cannot shake the feeling that there are many who are forgetting. I am saddened by the recent bickering over the right to build a mosque two blocks from ground zero. Sadder still is that no one in authority can seem to agree on how to re-build on the World Trade Center site. The twin towers remain a distant memory all because of political correctness. Unlike last year, I can only hope President Obama will take the time this year to make a trip to New York to attend memorial events being held at Ground Zero.

Closer to my own heart, I cannot, and will not, forget the pilots, flight attendants and passengers on those four planes that did all they could to try and stop what was happening. We can never know the exact details of the events that transpired on those planes, but we know enough that those who were on those planes struggled and fought. We can never forget that when we fly today, crew members are showing up for work knowing that what happened nine years ago could happen again. This takes a lot of courage and dedication that has to be respected.

This year, I will keep with my own tradition of getting on a United flight, and this year again it will be a trip to New York and back on the same day. It seems kind of silly, but it does give me a chance to thank those on the front-line who show up for work that day. It is a difficult anniversary for them, and I can only hope they take some comfort in a show of support from customers.

Back on the first anniversary in 2002, memories were still fresh, and there was still a lot of fear that Al Qaeda terrorists might try something again. The new color-coded terror threat level was raised to "red" and many just did not want to fly on that day. I remember a pre-flight announcement the captain made on a flight flight I was on from Chicago to Los Angeles. He thanked all the customers that were there that day and let us all know how much it meant to everyone at United. He went on to comment that despite the setbacks the airline experienced, there was still a sense of optimism that United would remain the premier U.S. carrier.

Since that first anniversary flight, as a customer, I have seen a lot happen at United. That sense of optimism in 2002 quickly gave way to cynicism and corporate in-fighting and greed that nearly led to the demise of the airline. United's front-line employees did not let that happen though, and by their sacrifices, United Airlines is still flying today. Of greater significance, coming out of those sacrifices is a stronger airline, and next week, shareholders will be casting their votes to approve the merger with Continental Airlines. The combination will form the world's largest airline that allows the United name to live on. As a shareholder and customer I will never forget that this would not have happened without the sacrifices of those on the front line. I only wish the memories of United's senior management were better.

I urge readers to use this Saturday not only as a day to reflect upon the events of nine years ago, but make a commitment to yourselves to never forget what happened. We need to put greed and political correctness aside and get back to what is important. Terrorists, in the name of their god, killed thousands of innocents and have vowed to keep up their fight to bring down the freedoms and prosperity we value. They are still out there, and we cannot allow ourselves to cast those thoughts aside that will allow them to catch us by surprise once again.

For those on the front-lines at United, new leadership will be taking the helm of this airline to which you have dedicated your lives. No matter what happens going forward, do not allow yourselves to forget what has happened. Stand together to remind this new leadership that it is by your sacrifices that they have their jobs and it is time to start restoring the respect you have all earned.

Stay Focused and Stand United

2010-08-27T09:47:00.000-07:00

It has been 32 years since President Carter signed legislation deregulating the U.S. airline industry. That is two generations who have never experienced a time when traveling by air was a luxury. Back then, passengers who could afford to by a plane ticket appreciated the experience, and airline personnel were treated with respect. I am one of those who remembers that time. Deregulation made air travel affordable for more people, but it is the front-line employees at the airlines who have paid the price for those cheap seats us passengers park our butts in.

There was a couple of weeks in July where I had the luxury to stay at home and watch TV, good and bad, while recuperating from hip replacement surgery. It is funny how our lives get so busy that recovering from major surgery can be a welcome break. During this leisure period I was able to catch a new episode of "The Closer," Kyra Sedgwick's series on TNT. The story line had pilots and flight attendants for a major fictional airline smuggling drugs into the U.S. from Honduras. They were smuggling for a major drug distributor under investigation by the FBI, and Kyra Sedgwick's character was investigating the murder of a flight attendant.

The writers threw in some stereotypes that got my dander up including ditsy stewardesses seducing passengers, that all male flight attendants are gay, and that most in-flight crew members supplement their income by smuggling. However, there were two major plot points that did ring true and made me pay attention. First, the murdered flight attendant's body was found in an RV parked at LAX in a makeshift community of RV's owned by other LAX based pilots and flight attendants. These RV's serve as "home away from home" when commuting from other cities as they can no longer afford to stay in hotels or rent an apartment. The Wall Street Journal and other media have published reports about this real community and those that live there.

The second point is the message the writers were able to get out about how pilots and flight attendants no longer garner the respect from the traveling public they once did. The leader of this small ring of smugglers is a captain living in this RV community. While being questioned by Kyra Sedwick's character, he gives an impassioned speech about how there was a time when he could afford to support his family and passengers would look up to him. Now he has to continue to put up with pay cuts and transfers, or go without a job, and that his employers and the passengers view him as no more than a "bus driver."

The episode ended with the capture of the drug lord and murderer; however, and unfortunately, the writers did not succeed in clearing up their misconceptions that airline employees are whiny and really dumb. It really bothered me how these writers missed their chance to correct their mistakes.

A few weeks after this episode aired we hear the true story of JetBlue Flight Attendant Stephen Slater and his "take this job and shove it" escapades. Not all of the facts are out, but Mr. Slater has emerged as an "anti-hero" speaking for many in the industry who have wanted to tell customers where to go or where they can put their carry-on. Mr. Slater has a lot of fans and supporters, but he did nothing to improve the tarnished image of the flight attendant.

Right now, employees at United Airlines are going through a period of unprecedented uncertainty. There are so many questions about the planned merger with Continental Airlines. The biggest question on the minds of many is whether this merger is a good decision that will result in increased wages, benefits, and job security for the front-line. Or is this merger merely a business transaction that will result in big payouts to senior managers, who in turn will keep looking for concessions from labor?

The outcome will depend on the strength and resolve of all those on the front-line who have had it with business as usual. The new leadership of the merged carrier will use the bad economy, the competitive challenges of the industry, and threats to job security to get concessions they want to improve the bottom line. However, if those employee groups cave in to management, they will do nothing to improve their standard of living, working conditions, or earn the respect they deserve from management.

This is a pivotal time for the front-line employees at United Airlines. Eight years ago, these employees, working under collective bargaining agreements, made major sacrifices just to keep the airline in business. Since then, management ranks have increased, along with their greed. It is ironic how those ultimately responsible for the billions of dollars in losses suffered by the shareholders got paid millions of dollars. Front-line employees now have the power to change this, but they will only succeed if they stay firm in their resolve and stand together as one group.

It is easy for labor groups to look out for their own interests; however, by doing so, airline employees will never succeed in changing the status quo. Now with the pending merger, there is the challenge of integrating two different long-established cultures. There is also a greater chance for management to foster divisiveness and insecurity which defeats the efforts or purpose of working under a collective bargaining agreement.

Management from the two airlines have issued a release that an agreement in principal has been reached with the pilots; however, representatives from the ALPA representing both groups caution that there is no firm deal in place. We will have to wait and see what happens.

Flight attendants at both carriers have a bigger challenge by being represented by two different unions. Management will use this to their advantage. United Flight Attendants now, more than ever, have to stand behind their AFA representatives. Any grievance they may have with the AFA has to be put aside. They need to keep the pressure on management to negotiate in good faith now rather than later. The focus must be on doing "Whatever it Takes" to secure a better contract.

Back in June of this year, I was able to attend the annual meeting for shareholders of UAL Corporation. On the shuttle bus from the parking lot to the meeting location at the training center was a mid-level manager from HDQ. When he saw all the flight attendants who had gathered to demonstrate, he came out with some profanity laced statement demeaning them as a group. As a shareholder, and premium customer, it was embarrassing to witness; however, it just goes to show what the front-line has to put up with. This Moog probably had no idea what they go through day to day. I would even wager that he had no public contact experience whatsoever.

Next month, shareholders will be voting on the planned merger. It will probably be approved. New leadership will continue to move into HDQ and even more policy decisions will come down that effect the front line. It will make coming to work even more of a challenge to the front-line, but they need to stay positive and they need to stand behind their union leaders. Only then will they have the power to make management listen to their needs.

"We have to deal with the structural issues that plague this industry..."

2010-06-10T11:34:00.000-07:00

This was another talking point from Mr. Tilton, Chairman and CEO of UAL Corporation, repeated over and over at this morning's annual meeting of shareholders. This gem was offered in context with the discussion of the planned merger with Continental Airlines. His point being that while the merger is a good thing and will help United on the road to "sustained profitability" there are still many ways of doing business across the industry that need to change.

These meetings are always interesting. It is obvious that Mr. Tilton and upper management see them as just another pain in the a** obligation, but UAL is a public company and the shareholders have the right to question those they have entrusted with their investment. I have attended these meetings for the last 3 years now, and do try to get a question to Mr. Tilton that addresses my concerns over labor relations.

The first question posed in the open discussion period of the meeting asked when UAL management expected the open and amendable labor agreements will be settled. Mr. Tilton deferred the question to Doug McKeen, Senior Vice President of Labor Relations at United. Mr. McKeen offered no specifics and basically just answered that negotiations are on-going and the contracts will not be settled before they are ready to be settled.

I was able to get the second question in and I wanted to follow up on this issue of the labor contracts. This is just going from my notes, but the question I was able to ask this year went something like this: "It appears that all of the open and amendable labor agreements will not be settled before the merger with Continental is finalized. United customers have already been witness to the contentious relationship between the front-line employees and management. So now I have an even greater concern not only because of the open agreements with United employee groups, but the work forces of two differently managed carriers are going to have to be integrated with minimal impact on the customer. Further, I cannot help but feel that these open labor agreements have held down the market capitalization of UAL; therefore, UAL shareholders are having to give up too much of the company in this merger. Given this on-going issue of labor problems and how they have have negatively impacted the value of the company, why should shareholders approve the merger?"

Mr. Tilton responded to my question by saying that the shareholders will have to look at all aspects behind the merger and draw their own conclusion that the agreement as it is now should be approved. Mr. Tilton then addressed another, and the last, labor negotiations question that came in from a flight attendant watching the meeting from television monitors in another room. She pointed out that negotiations have been going on for over 14 months, yet no agreement was in sight. She wanted to know why? Mr. Tilton pointed out that both United and Continental pilots are represented by the Air Line Pilots Association (ALPA), and that the two groups are coming together to forge an agreement. Mr. Tilton then deferred to Mr. McKeen again to talk about the other groups.

Mr. McKeen's response was that, by far, of all the groups they are in negotiations with, the AFA has been the most difficult. He said that the AFA, from the beginning, has not been willing or open to negotiate. Why Mr. McKeen would make such a false statement in front of the AFA representatives in attendance is beyond me. The AFA has always been willing and open to negotiate, but they made it clear up front that their membership would not approve any contract resulting in any net concession to the company. It is UAL management that has taken the hard stance here, not the AFA.

So I ask you Mr. Tilton - you want so badly to correct the structual issues dragging down this industry, yet one issue, labor relations, you do not want to deal with fairly and equitably. There is a reason the airlines are heavily unionized Mr. Tilton. Who else is going to look after their interests? They invest their lives in the company yet year after year, decade after decade, UAL employees have had to give and give just so that the company can survive the mismanagement of one leadership team after another. Change that cycle Mr. Tilton and then you can say that you are "dealing with the structural issues that plague this industry."

Thank you again to the AFA members that were at the meeting this morning. You are all terrific people and you so deserve so much better. I only wish I could do more. Many thanks to Sarah Voss and others from HDQ that were all so very kind and accomodating. Sarah, I so regret not being able to take you up on your offer to tour the operations center this time. I hope you will keep the invitation open and we can do it next year.

2010 UAL Corporation Annual Shareholders Meeting

2010-06-02T15:02:00.000-07:00

The 2010 UAL Corporation Annual Shareholders Meeting is set for next Thursday, June 10, 9:00 AM CDT at the United Airlines Training Center in Elk Grove Village, Illinois. The highlight of this year's meeting, of course, will the the announced merger with Continental Airlines. Most certainly the message coming from Mr. Tilton and the UAL Board of Directors will be one of optimism, and that this merger is the best and only solution for the long-term for UAL employees, customers and shareholders.

For this meeting, shareholders have the opportunity to cast their vote on two significant proposals. The first is the ratification of the current Board of Directors. My vote will be NO. This Board of Directors, notably its Chairman, has operated under the sole premise that a merger is the only way this company would survive. Having such a narrow focus has led them to make decisions that have alienated important customers, and more importantly, severely eroded the morale of the front-line employees. Only recently have they begun to make improvements; however, these changes have only come after years of hard feelings and significant losses.

This Board of Directors also continues to allow for the excessive compensation paid to UAL executives. UAL's top managers are paid more than their counterparts at the other U.S. carriers, yet this company has consistently performed worse than those other carriers. Shareholders should be approving major decisions such as executive compensation. This company needs a Board of Directors that recognizes that their responsibility is to the shareholders, not themselves.

The second proposal is a little more complicated. The Board of Directors is asking shareholders to approve a 3-year extension to their authority to approve the acquisition of 5% or more of the outstanding stock in the corporation by any individual or group. The Board is concerned about any transfer of stock that would trigger an "ownership change" as defined in the U.S. Internal Revenue Code, Section 382. They are selling this proposal as the only way to preserve the tax benefits the corporation would realize from the $9.0 billion in unused Net Operating Loss Carryforwards that are on the books. Those tax benefits could potentially be worth over $2.0 billion but would be greatly reduced with any "ownership change."

The Board makes a good argument for approving the proposal; however, what they are not telling us is that this authority would prevent any group coming in that might see more value in the company and offering that premium to its shareholders. Because of the way this company has been run, its market cap going into this merger, in my opinion, is understated, and UAL shareholders are having to give up too much of this company to bring in Continental. I am against any proposal that would continue to grant authority to this Board in matters that should be approved by the shareholders; therefore, I am recommending a NO vote on this proposal. If any individual or group sees more value in this company independent of Continental, as a shareholder I would like to have the opportunity to consider any such offer. Any ownership shift can be structured to preserve the Net Operating Losses, do not let this Board push you into a decision that extends their authority.

So for those shareholders that might be reading this, the deadline to submit your votes outside of the scheduled meeting is June 6, 2010. If you plan on attending the meeting please make sure to contact your plan administrator or intermediary holding the shares right away to obtain the necessary proxies. Do not waste this vote. Last year, the ratification for the Board of Directors passed by only 64%. Its time to swing this around to less than 50%.

I still have not been able to decide if I can attend the meeting. Pressing work and personal commitments are making it difficult to take the time away. However, I think it is important that shareholders be involved and keep reminding the Board and executives who really is the boss. I also do not want to miss any opportunity to throw out a question or two to Mr. Smisek if he is there.

Because it is United Airlines....

2010-04-28T15:45:00.000-07:00

"Because Continental managment is widely considered superior to that of United's, most industry observers say Continental would take the helm of any new airline." This quote is from an article written by Christopher Hinton that appeared in the April 28, 2010 edition of the Wall Street Journal. This article was not even really about Continental or United, it was about Boeing and Airbus and which aircraft manufacturer would come out ahead in this merger. What struck me about this line though was that it was the first time in all this merger talk that I saw some truth come out in the main stream press.

Well, the announcement just came out this afternoon that the Boards of both UAL and Continental have approved a merger. I was shopping at Trader Joe's when the E-mail from Crain's Chicago Business News hit my Blackberry. A lot went through my mind on the drive home.

Continental shareholders will receive 1.05 shares of UAL stock for each Continental share they own. UAL will have a 55% ownership stake in the new company. Jeff Smisek, currently CEO and Chairman of Continental, will be named CEO of the new company and Glenn Tilton will be moved to the largely ceremonial position of Chairman. At the end of two years, Mr. Tilton will step down and collect a healthy severance in cash and stock that will probably be worth over $15 million.

As Mr. Hinton said in his article, Continental management is considered superior to that of UAL's. A lot of that can be attributed to the better relationship Continental management has with their front-line. If this holds, then the merger will be a good thing for the front-line at United. A lot can happen though, and Mr. Smisek has a tough job ahead to be able to successfully integrate two disparate work cultures.

UAL shareholders are getting screwed this transaction. Had UAL been better managed, its market cap would be upwards of $5 billion rather than the $3.6 billion it is trading at now. I guess Mr. Tilton thought that the stars would never be more aligned than they are at this time. I wonder how much more aligned they would be today had Mr. Tilton listened to what his employees have been trying to tell him for the last 8 years. As a UAL shareholder I will vote "no" to these terms, but there a bigger fish who will be glad just to get out and the merger will go through.

I am also struck by how juvenile this all seems to have played out. The press all kept quoting "sources close to the situation." Management of the companies all declined to comment. Give me a break, all of this news leaked by these "sources" was planned. Mr. Tilton was not about to let this chance to shine get away from him. All those detractors criticizing him over the years would be proven wrong. He was going to get his merger. His legacy is in place. Some legacy - leaving behind an undervalued shell of a truly great company.

That said, UAL employees are entering a new and exciting chapter. Now the world's largest airline, the United name can once again be a source of pride. However, it is not just about being biggest, it is about being the best. That will only come if management has the support of the front-line. With over ten collective bargaining agreements now amendable from both companies, labor from both sides has more leverage than ever. They have to hold firm, stay unified, and look out for each other. They need fair contracts with compensation that reflects their real value, and work rules that will ensure the safety of the traveling public. Without the cooperation of labor, management teams from both sides are going to find it difficult to get major shareholders to approve the combination as it has been laid out today.

So to all United and Continental employees who might be reading this, stand firm and listen to what your union leaders are telling you. They are looking out for your best interest. They are correct in saying that this merger is not a done deal yet. A lot can happen. Management needs you now more than ever to make this deal happen. Hold to that, take pride in that. It is now time for the "shared rewards" promised by Mr. Tilton so many years ago.

Like I said, a lot went through my mind as I was driving home. I have tried to do all I can to support United and its front-line. It did not get Mr. Tilton fired, but the efforts were not wasted. Is my job now done? That remains to be seen, but I am looking forward to the new possibilities. Before a trip a couple of years ago, a Global Services rep at LAX, who I now consider a very dear friend, asked me why I do what I do to show my support. Why all this energy? Why was this so important to me? In all her years with the company she has never seen such support from a customer. The only answer I could give her was "because it is United Airlines." She understood that answer. Nothing more had to be said because she, and every United employee out there keep doing their job "because it is United Airlines.

As a post-script to my point about all of you staying unified and positive in your contract negotiations - the next annual shareholders meeting for UAL Corporation has been scheduled for June 10, 2010, 9:00 AM, at the Training Center in Elk Grove. Mr. Tilton will be in his glory with this big announcement of the merger that he has sought for so long. I am sure Mr. Smisek and other Continental suits will also be in attendance. I cannot think of a better time or reason for all United and Continental employees to come out in another "Day of Action" just to make sure the suits do not forget who helped them get there.

Defeated...but looking forward

2010-04-15T15:47:00.001-07:00

This last Monday, April 12, while passing the time at the Red Carpet Club before my flight back to Los Angeles, two United Airlines 777's pulled up to gates C16 and C18 there at O'Hare. I had a seat next to the window in the lounge situated between the two gates. The first one that pulled up to Gate C16 was United's N774UA, and within a few minutes at Gate C18 there was N777UA. A smile came over my face as these two particular planes have special memories for me.

N774UA was the very first 777 I ever rode on. This was back in 1996. I had purchased a First Class Seat in this new jet now offering three cabins of service. That was a memorable flight, and the service provided in First Class back then was certainly a measure above what is offered today. It was a different time though.

N777UA was the very first 777 United put into service. This was special because United pilots, flight attendants, mechanics and other employee groups were given the chance to offer input on its design. They christened this ship "Working Together." This moniker appeared right below the front doors, on both sides of the plane. Sadly, those words have long been painted over. Some very nice memories came back when I saw those two majestic birds. Memories of when the employees were proud to be part of United Airlines, and the customers had their own pride just being able to take a ride in the "Friendly Skies."

That Monday morning I had the privilege to be able to sit down with John Tague, President of United Airlines, for a face-to-face discussion on the direction of the airline, my concerns about employee morale, and the stalled contract talks with SIX of the employee unions. I was asked to come to this meeting in response to a Shareholder Proposal I submitted to be put on the agenda for this year's annual shareholders' meeting.

Citing United Airlines' below industry average performance; the delay in the roll-out of the International Premium Travel Experience (after hundreds of millions of dollars that had already been committed); the embarassing state of employee morale; and the stalled labor contracts (with the very real chance of work stoppages or strikes); this proposal I submitted was going to ask shareholders to cast a vote of "no confidence" in the leadership of Glenn Tilton and John Tague. My meeting with Mr. Tague was arranged to discuss my concerns and convince me to withdraw the proposal. If the proposal were on the agenda, it would have been public record, and open discussion about the proposal would have to be done during the regular meeting. It was a drastic step, but it seemed to be the only way that my concerns were going to go on record, and that UAL management would have to address them.

When I arrived at WHQ, right there on Wacker Drive, I was met by a very nice young lady from the legal department. She escorted me to the 8th floor where we were met by Tyler Reddien, the new Managing Director for Investor Relations at UAL. We went to a conference room with a great view of the Chicago River to wait for Mr. Tague.

In advance of the meeting, I was provided with some press releases and an analyst briefing all with positive news about UAL, especially in the first three months of this year. I could not argue those points, and they could not deny that performance measures in 2008 and 2009 were below industry average, so I moved the discussion on to employee morale.

I told them about something that happened while traveling to Chicago on Sunday. As it happens, on that same day, three different employees from customer service to in-flight, all explained how they felt the message they were getting from WHQ was that "they should feel lucky they have a job." As I was relaying that message, Mr. Tague walked in to the conference room, and after introductions I had a chance to repeat what I had just said. He of course said that such a message is regrettable and that there is a problem if this were true. He also did say that he felt some of the blame fell on union leadership for propogating any such message.

So this started the conversation between Mr. Tague and myself that lasted for about an hour and 15 minutes. I cannot give you every detail, and I have to be careful as Mr. Tague did tell me some things in confidence, and I do not want to betray that. I will give you some key points that came out of all that though.

Management at UAL does not feel that all unions are negotiating in good faith. Mr. Tague did say that talks are going much smoother with other groups than they are with the pilots and flight attendants. No one wants to argue that, and if indeed management is working things out with those other groups, then as a shareholder and customer I am relieved. He did say that because of provisions in the Railway Labor Act, negotiations can go on for years. That fact is not very comforting.

As far as the pilots and flight attendants, management's impression is that they will not accept anything less than what they had back in 2002 and that is hard to work around. I corrected him in that the underlying issue behind the disagreements is that Mr. Tilton made assurances that if they gave him the concessions he needed to restructure the company, once it was profitable again, those concessions, if not in whole, in part would be restored. I told Mr. Tague that when the company posted profits in 2006 and 2007, hundreds of millions of dollars were paid out to executives and shareholders, while none of the front-line employees got a raise. They got a little something extra in their 401K, but it was pennies compared to what they gave up. I told Mr. Tague that the number one issue he has to work around in these negotiations was that the front-line employees feel they got screwed by Mr. Tilton.

Regarding the International Premium Travel Experience (the "IPTE"), Mr. Tague did say it was back on track now with the 777's being converted (one done so far). There was an article in the Los Angeles Times recently stating that these upgrades would put United on par with carriers such as Singapore or Emirates. Mr. Tague said he is committed to seeing it through and I believe him, but where we seem to disagree is again the issue with the front-line employees. I told him that they would never be able to compete with Singapore unless they were willing invest more in the employees so that they can offer that all-around "premium" experience. Mr. Tague said they need to focus on getting the new seats and video systems installed, and then they can focus on all the other aspects. I countered by disagreeing and said that with the help of the front-line he could deliver a premium experience before those new seats go in.

Mr. Tague moved on to discuss how that with the fuel price spikes in 2008 and the severe recession that set in, UAL management was forced to make some very difficult decisions. No one can disagree. Their job was, and is not easy; and they took some big risks. Out of those risks though they set in motion a new model for the industry that most of their competitors have copied. Baggage fees, up-selling premium items such as Economy Plus, Priority Check-in and Security Screening, and one-time passes to the Red Carpet Club have all contributed to revevenues. Even Continental has started charging for food in economy on domestic flights. Mr. Tague's point is that, regardless of what happened in the past or what promises were or were not made, the company and its employees have to look forward.

With mixed feelings, I withdrew my proposal. They did honor the condition I laid out for its withdrawal by giving me the opportunity to sit down and discuss my concerns with senior management. It was first suggested that I would be talking with both Mr. Tilton and Mr. Tague. I knew it would not happen with Mr. Tilton. Whether Mr. Tague takes anything I offered seriously remains to be seen. Even before the meeting I knew I would be withdrawing my proposal. It would have only been controversial and added to the already tenuous relationship between UAL management and the front-line employees.

This month, the Proxy Statement will be going out for the annual meeting of shareholders for UAL Corporation. This Proxy Statement will lay out the agenda for this meeting and votes will be taken for any other shareholder proposals properly submitted. One item that will be on the agenda is for shareholders to ratify the selections for the Board of Directors. This is where we still have a chance. Last year, this measure passed by only 64%. This is quite unusual and I am sure it did take the Board members and UAL management by surprise. This year I encourage all shareholders out there, especially the employees, to take this opportunity to vote very seriously and cast your vote against this slate of members for the Board of Directors (one of which is Glenn Tilton). Do not waste this vote. Tell everyone you know that holds shares, and if they cannot vote, them make sure they give their proxy to someone they trust will cast the vote they want. Based on one really ugly thing Mr. Tague did say, I still feel strongly that this management team is not looking out for what is best for the long-term for this company. Their paychecks cloud their vision, and it is obvious that the Board does not share my feelings, as they pretty much rubber stamp their approval on whatever is put in front of them. If there were time I would encourage readers to go out and buy some UAL stock jus to cast their vote against this Board, but the cut-off date has already passed. If you are not a shareholder by now, you are unable to vote at this year's meeting.

If you still want to have some say, then there will be another chance as any merger has to be approved by the shareholders. There is no way they will be able to come to some deal for the regular annual meeting, so a special meeting will have to be called and proxies will have to go out to shareholders. Unless labor agreements are settled, shareholders on both sides would be foolish to approve any merger. For my money, the better merger situation is with US Airways. It would be cheaper to acquire, and if the idea of consolidation is to reduce capacity and reap the benefits of lower overhead, then US Airways is the better choice. The upside potential is greater. Continental can be a valuable alliance partner, and they have a proud management team and workforce. The last merger talks fell apart because of disagreements over leadership and where the company would be headquarted, and unless UAL management is more willing to bend over (money does make us do strange things), this time will not be any different.

As for me, I still feel defeated, but I do realize the need to look forward. As I sat there in the Red Carpet Club last Monday reflecting on a better time, I turned to look inside the club. What used to be a haven for members only, the RCC's are now crowded with everyone and anyone with an extra $50 they are willing to spend that day. Seating is scarce, tables are not cleared promptly, and are littered with dirty glasses and napkins. The din from the noise of the TV's and people talking on their phones makes it difficult to work. Pre-packaged snack offerings have been replaced with open plates of fresh cheeses, broken crackers and a mash of cookies. The cheeses and vegetables are not refrigerated properly, patrons make their selections with dirty tongs, and the carpet in front of the snack table is dirty with food droppings. I would hate to think that all of these items that were previously offered in individual, sanitary packages were done away with so that customers could not take them on the planes. When I landed at LAX that night, the newly remodeled men's room at that Red Carpet Club had no paper towels or working hand dryer.

So back to looking forward - do I want to put up with this anymore? My biggest expenditures on United are the First Class seats on the Premium Service flights to New York. This service has definitely gotten worse since it was first started (they have to cut costs). Will it get better? The one thing I did get out of the meeting with Mr. Tague is that I alone cannot effect the changes I think should be made. They are set on their course. I was encouraged by one thing I did read this week though. It was a quote from Gerard Arpey, CEO of AMR (American Airlines). He disagrees with the prevailing idea that consolidation is needed for the legacy airlines to succeed. I agree - get a workforce that supports you and wants to give the customers the best experience they can, and stop the never-ending excessive compensation of executives that awards short-term performance, then success is possible. Look at Southwest Airlines.

For now I will keep supporting the front-line employees in any way I can - "Whatever it takes."

"systematic failure to earn our cost of capital.."

2010-03-16T15:49:00.001-07:00

There was an article published on February 16, 2010 in the Financial Times (of London) titled "United Remains Keen on Consolidation." Reading into it, the writer quoted a talking point that Glenn Tilton has used repeatedly that "the airline industry had been marked by our systematic failure to earn our cost of capital and achieve any level of consistent financial resilience." This sounded familiar, and I remembered he has used this same talking point in earnings conference calls and at shareholder's meetings. Of course, when you disect this statement, it only goes to follow that if you do not achieve any level of financial resilience, your cost of capital is going to be high. Think about it, the higher risk you present as a borrower, either no one will lend you money, or if they do, the interest rate will be higher.

Why are the U.S. legacy carriers unable to "achieve any level of consistent financial resilience?" Ask any executive at those airlines and they will place the blame in three areas:

Volatile fuel costs.
High labor costs locked in by collective bargaining agreements.
Excess market capacity preventing the carriers from raising fares to more profitable levels.

So, how do airlines respond? How do they re-tool their business in order to improve their cost of capital? Simple, get rid of the capital. Why commit working capital into assets, tangible and intangible, when someone else will do it for you?

Sunday, March 28, 2010 marked the first day of United's new service from its Washington-Dulles hub to Madrid. This is an important European capital that United had not served in some time. United's main competitors, Delta, American and Continental all have non-stop service from their U.S. hubs, either direct, or in the case of American, through their One World partner Iberia. Until this week, United customers wanting to go to Madrid were faced with changing planes in Europe with any one of their Star Alliance partners.

Here is what is different about United's service - it is not being done on United planes or with United crew members. The flight is sold and marketed by United, but customers will find themselves boarding an Aer Lingus plane with Aer Lingus crew members. So we have a U.S. carrier selling flights to Spain's capital on an Irish airline. Very multi-national. I'm trying to hear in my mind what Spanish sounds like with an Irish accent.

The only commitment United has made is to market the flight and provide ground crew at Dulles. They share in the revenue and a portion of the fuel, labor and equipment costs. Any net profit comes without having to commit any real capital to the venture. This is what Mr. Tilton is talking about. It is this type of business model that he envisions for United.

Sounds good right? Shareholders should be happy, right? No-there are many things wrong with this venture. First of all, Aer Lingus is NOT a Star Alliance partner. United customers used to certain benefits they receive through United's membership in the Star Alliance will not carryover to this service.

Second, in terms of security and safety, who is responsible? Will this service have oversight by U.S., Irish or Spanish aviation authorities. If, gods forbid, something should go wrong, which airline will step up to the plate to take responsibility. Frankly, I see a lot of finger pointing, one at the other, if there should be a security or safety incident.

Third - what happens to the United brand? I will go back to 2008 when Mr. Tilton convinced shareholders that the capital being committed to the International Premium Travel Experience (IPTE) was the right thing to do. Hundreds of millions of dollars, borrowed at extremely high costs of capital, have been spent on new seats and other enhancements. Shareholders would realize a return on that investment through higher yields because United was offering a product the other U.S. carriers did not. How does Aer Lingus fit into this IPTE? It does not. Its customer service rankings are among the lowest for European carriers, and it does not offer First Class service.

Fourth - this clearly violates the spirit of the labor agreements United has with its pilots and flight attendants. These groups agreed to limited alliances as a way to help the airline increase the breadth of its service and these groups had no problem with the formation of the Star Alliance. Being outside the Star Alliance, this venture with Aer Lingus does violate those agreements and it is clear United management has taken this step to avoid using unionized pilots and flight attendants with United.

Fifth - here is where I have the biggest concern. United enjoys anti-trust immunity in its partnerships with Lufthansa, ANA and other Star Alliance carriers. What this means is that the U.S. government will allow limits to competition across the Atlantic and Pacific, which benefits United, puts up barriers to entry by other U.S. carriers. This is particularly true on routes only served by United, or the Star Alliance. Through ever evolving "Open Skies" agreements with European Union countries, the U.S. is allowing foreign airlines to serve cities from the U.S. to other countries that are not their home country. This is how Aer Lingus is able to offer non-stop service from Washington, D.C. to Madrid. So United is taking advantage of a loophole they see in these "Open Skies" agreements in order to offer service to Madrid without having to commit any new resources. So what does United want, anti-trust immunity, or "Open Skies" agreements? They cannot have both, and the U.S. government will soon question this. This will come to light faster if complaints are filed by other U.S. carriers who do not have the anti-trust immunity United enjoys. The unions have also promised to bring their grievances on this matter to the courts. As quickly as the U.S. government granted anti-trust immunity, they can take it away. There goes the A++ service across the Atlantic that United, Continental and Lufthansa are excited about.

In another post I can write about United's use of regional carriers on domestic routes. This is another way United management is lowering their capital commitment and still offer service to their customers. At what cost though? Again, I will go back to the IPTE that Mr. Tilton was so excited about back in 2008. How is it a premium experience when you are shoving your connecting passengers on to narrow cramped planes, with inexperienced and fatigued crews, for flights across two time zones, after they have just endured a ten hour flight across the Atlantic?

Mr. Tilton, businesses are built on real investments in real assets and experienced human capital. Those who have tried to take shortcuts and quick profits with minimal investment have found themselves in trouble. Case in point, the recent financial mess in the mortgage market. Lenders were willing to lend to anyone because they had none of their money tied up. As soon as they wrote the loans, they were packaged by the Lenders and sold to bondholders on the secondary mortgage market. Well the bondholders got screwed, capital markets came to a halt and Lenders had to take huge write-downs on their own investments putting them in danger of going out of business.

Mr. Tilton, you try to turn United into solely a marketing vehicle, and it will come back to bite the shareholders. Just because United is reducing the capital it is committing to planes and people, it does not become a better airline. In fact, it becomes worse. You have brand erosion because you have a put together a group of airlines all with different goals and resources. What happens if one of those regional carriers you use finds itself in trouble like Mesa or Colgan? How are you going to serve your customers with any consistent level of PREMIUM service when the airlines you contract with all have their own training and service standards? What about maintenance? Can United make sure the planes are being maintained to the highest standards of safety? And just because the customers are not on United planes, you are not mitigating any liability on the part of United. If something should happen on any of these flights, the only thing a court will concern itself with is who sold the ticket.

Next Tuesday, April 6, 2010, United's AFA Members will be holding their next "Worldwide Day of Action." Just like the event on January 7, United flight attendants, pilots, other employees and supporters will all take part in informational picketing at all airports with flight attendant bases. Last time, over 2,000 showed up at airports world-wide to get the message across to United management that things will change. Like last time I will do all I can to show my support, and I urge all United customers to do the same. These are good people that deserve a fair contract.

On Bloomberg radio this afternoon, the host was interviewing airline analysts about their view of the future of U.S. airlines. One of the analysts echoed what I have been trying to get across to Mr. Tilton and his senior management for the last three years. This is a service business and your most valuable asset are those individuals on the front-line. Treat them poorly and with disregard, and they are going to do the same to their customers. This same analyst brought up how Continental was in the same place as United is now. 15 years ago, employee morale at Continental was at all-time lows. Customer service rankings were dismal and the airline was in bankruptcy. The Board finally ousted the leaders who were following the legacy of Frank Lorenzo, and brought in someone who knew this business was about the employees. It took a few years, but by just focusing on the morale of the front line, Continental turned itself around from near failure to becoming a world-class carrier. I find it funny now that United management has hired Continental managers to come in to WHQ and consult on how to do things. I thought all this highly-paid talent already on United's payroll was supposed to know what to do. Now shareholders have to pay the salaries of executives, and pay for consultants, while those that are the heart of this airline are discounted. It is time to do "Whatever it takes" to make sure positive changes come to United.

2009 Results - WOW! US Airways way to go!

2010-02-07T13:31:00.000-08:00

All the major U.S. carriers have posted their unaudited operating results for the year-ending December 31, 2009. I took some time to analyze and compare the results of the six largest carriers - Delta, American, United, Continental, US Airways, and Southwest. I focused on key unit operating data that translates across all carrier:

1. Yield = Passenger Revenue per Revenue Passenger Mile
2. PRASM = Passenger Revenue per Available Seat Mile
3. RASM = Revenue per Available Seat Mile
4. CASM = Costs per Availalbe Seat Mile adjusted for special items, fuel and taxes.
5. Net Unit Earnings = RASM less CASM.

All carriers have had difficult times the last two years. Its a tough environment; however, I think it important to still look at how these carriers perform against their competitors. It helps shareholders guage how effectively management has responded to the challenges. As a UAL shareholder I wish I could say their performance was admirable, but I cannot.

As far as declines in yield, United saw a year over year drop of 13.16%. Only Delta and Continental performed worse; however, I need to point out that United INCLUDES baggage fees in passenger revenue numbers whereas their competitors do not. Take out those ancillary revenues, and the declines in yield at United would be above the average for the comparitor group. And at Southwest where "Bags Fly Free," their average yield was 2% above what United realized, and the year over year percentage decline was half of what the other carriers experienced. Good old US Airways, go figure, but they had the highest yield at 13.52 cents.

With PRASM numbers, again Delta and Continental experienced greater declines than did United. We have to remember that United's PRASM numbers include ancillary fees that the other carriers classified as other revenue. Nonetheless, United's decilne in consolidated PRASM was 12.28%, against the 11.85% average for the comparitor group.

When we get down to RASM numbers we can make a fair comparison, and sadly the declines experienced at United were the worst among the six carriers analyzed. United saw a 12.58% decline in RASM from 2008 to 2009, with the group average down only 10.60%. That rate of decline for United is over 18% higher than the comparitor group average.

Shareholders should be very disturbed by this performance especially when you consider that United also cut capacity at a rate greater than their competitors. With those capacity cuts, United should be faring better on the revenue side. Thisis a clear indicator that United has experienced losses in market share, and I would go further to say that there have been a lot of defections of premium customers.

United executives will be the first to brag that they have held costs in line. In fact, they were able to bring adjusted CASM numbers down from 2008 while their competitors saw increases. That is good, but what really counts are the Net Unit Earnings or RASM less CASM. Because United did so poorly on the revenue side, even though they kept costs in line, United ranked 4th among the six carriers for Net Unit Earnings performance. The year over year decline in Net Unit Earnings was over 34% against the comparitor average of 32%. Even US Airways with costs among the highest in the group (only American's costs were higher), still managed to eke out Net Unit Earnings that rivaled United's and the year over year decline in this number for US AIrways was just over 30% (vs. 34.37% at United).

Looking at consolidated traffic data for the six carriers, and the percentage each carried in 2007 vs. 2009, I see a full point loss in market share for United. It does not sound like much, but that translates into almost 6.7 Revenue Passenger Miles. At an average yield of 13.5 cents over those two years, that is loss of revenue totalling almost $900 million. This is not revenue lost because of the downturn in business, this is revenue lost because of losses in market share and greater than average yield erosion. This is $900 million that customers have taken to other carriers. This is $900 million that would not have been borrowed, or better still, this is $900 million that could have gone back to the employees. This is $900 million that United shareholders did not have to lose.

I will say that US Airways is kicking some a**. Who woud have thought? In the last two years they have picked up market share, and their international traffic is up 14%. Across the Atlantic their traffic counts are up 17% since 2007.

This week I am submitting a Proposal for this year's annual Shareholders meeting that, if approved, will send a message to UAL's Board to take closer look at those tasked with running this airline. The numbers I have just analyzed paint the picture that Mr. Tilton and Mr. Tague are not as effective as they should be, especially in this challenging environment. It will be a fight to get the proposal on the agenda, and if it does, it will be a lot of work to get the votes needed. If the proposal gets on the agenda, I will post the details. I wil then be needing your help to get the word out and get the votes in.

"Day of Action" Follow-up

2010-01-13T16:39:00.000-08:00

Wow - what a day! The turnout at LAX was awesome. Darren, Karrie, Scott, Lynn, German and so many other United-AFA Council 12 members really came through to organize such a turn-out. I am humbled and honored to have been a small part of such an important event. I only wish I could have personally sent my thanks to all the bases, stations and members that were able to get out this overwhelming message that all the employees are, and will remain “United” in their commitment to secure better contracts.

It remains to be seen how management at WHQ will respond. In their defense, their job is not easy. They are under constant pressure from creditors and shareholders to improve the bottom line; however, their offices in downtown Chicago are a long way from the customers and employees in the airports that help them keep their jobs.

What is sad is the perception that I and other customers have of the arrogance that seems prevalent among the suits at WHQ. Many have shown that they truly are disconnected from what is important to the long-term success of United Airlines – the customers and employees. For us customers there have been many program and service cutbacks that have only been reversed after WHQ can see the numbers showing real defections of premium customers. By then it is too late. Traffic and yield statistics can back this claim. We also see the changes being made at the airports among the staff we have gotten to know. I understand these are called “collateral reassignments” to improve operations, but we notice these changes and many have only led to a decrease in quality of service. On the other side, it is the front-line employees who are on the receiving end when customers express their unhappiness with these changes.

My last trip was back in December – a PS flight to JFK and back. Before the flight, while waiting in the First Class lounge I was introduced to a very nice lady. She is one of the top-tier Global Services customers that WHQ cannot help but notice through the numbers they look at. It turned out we were seated next to each other on the flight so we had the opportunity to talk more. The Purser came by to offer a beverage before take-off and this now seat mate commented how regrettable it is that the front-line does not get the respect they deserve. She told me how the changes have bothered her and frankly, she has taken nearly $60,000 a year in international travel alone to British Airways and Lufthansa. She just could no longer justify paying the fares United was asking for and at the same time put up with service cutbacks. She then told me the story of how on one flight from ORD, at the last minute, she was booted from her confirmed First Class seat to make room for Mr. Tilton. She and I both agreed that we would never think of doing the same to any one of our customers.

She then began to tell me about the worst story she ever heard about Mr. Tilton. A flight attendant had told her of the incident where Mr. Tilton had effectively told a customer at a shareholders’ meeting that he could take his business elsewhere. I had to tell her that I was that person and we talked for quite awhile about that incident. At the end of the flight she thanked me for being a voice for the customer.

Last week’s “Day of Action” was not just about getting a fair and just contract, but these individuals and all of United’s front-line employees realize that this is also about the customer. It just makes sense that to be the best airline, you need the best employees. We need each other for the long-term success of this carrier, and I will continue to do “Whatever it Takes” to see that positive changes are made.

Thanks again to all of you -

2010-01-05T13:30:00.000-08:00

In today’s Los Angeles Times, was a re-print of a news wire report that the new President of Continental Airlines, Jeffery Smisek, will refuse to accept his salary or annual bonus until the company makes a full-year profit. This follows along with the same sort of sacrifices made by his predecessor, Lawrence Kellner, as well as executives at Delta and American. No such news has come out from United Airlines’ World Headquarters in Chicago.

On Thursday, January 7, 2010, members of the United Flight Attendants union will be conducting “informational picketing” at all of their bases. Customers traveling on that day should not be affected; however, they will not be able to miss what is going on. It may be difficult for many out there to understand why United Airlines employees are airing their grievances with upper management in such a public manner. This is especially true given current economic conditions where many of us are grateful to be employed. We have to realize though that the front-line employees at United have been making sacrifices long before any of us were impacted by recent events.

These are all dedicated professionals who have devoted their lives to this airline, and back in 2004, when there was a real chance for United to actually go under, all of the employees gave up BILLIONS in wages, health, travel and retirement benefits to not let the unthinkable happen. The mantra coming from United’s CEO, Glenn Tilton, back then was “shared sacrifices, shared rewards.” When United finally realized a profit after emerging from bankruptcy, Mr. Tilton and other United executives were paid hundreds of millions of dollars in compensation and bonuses, yet none of the concessions made by the front-line have ever been restored.

In 2008, United lost billions of dollars due to fuel prices and bad hedging strategies, and the big drop-off in premium business travel, especially international. Still, Mr. Tilton, Mr. Tague and other executives were paid millions. Their peers at Continental, Delta and American, as a show of solidarity with their front-line, deferred or refused to accept their bonuses. At the annual meeting of UAL shareholders last June, I brought up my concerns to Mr. Tilton about the very public displays of employee grievances and how they only stood to prevent United from becoming a premium international carrier over and above any other U.S. carrier. Mr. Tilton’s response and view was that the employees were only exercising their right to “voice a difference of opinion.”

To finally get to my point, January 7, 2010 marks the day that the contract for United Flight Attendants becomes amendable, and they are rightfully going to hold firm and send a message to Mr. Tilton and Mr. Tague that it will be management that will be making the sacrifices this time. As a shareholder, I would like to see them both lose their jobs, but the Board does not share the same view; however, I will do all I can to show my support for all front-line employees at United. Not just the flight attendants, but the pilots, ramp, customer service and many others, they have all given up a lot to keep this airline going. After all, it is by their efforts that I am able to feel safe and comfortable when I travel. I urge all United customers to do all they can to support these dedicated individuals. If you are flying United that day, just take the time to really say “thank you” to all of the front-line employees you encounter. If you are not traveling that day and are in one of the cities where there will be picketing, take a drive out the airport. As you pass in front of the terminal building, honk your horn in show of support.

September 11

2009-09-10T09:07:00.000-07:00

When I started this blog, my most pressing concern was being able to keep it up to date. Sure enough, I see my last posting was on May 6, 2009. My apologies for letting this slip, it has been a hectic summer.

Tomorrow marks the eighth anniversary of the terror attacks of September 11, 2001. For many, this will be another reminder of family, friends, or co-workers lost on that awful day. For most of us, we will remember where we were as we watched the events take place on live television. If you are like me, you will remember when word first reached you, what the weather was like on that day, the tears, the horror, and how the world seemed to just stop and watch.

There will be many services, memorials and other rememberances tomorrow. Depending on how that day affected them, individuals around the world will have their own tradition or way of bringing some honor to that day. For me, as I a have every September 11 since 2002, I will get on a plane.

The attacks of September 11 brought a three-day halt to the nation's air traffic system. Four planes from the fleets of the two largest U.S. carriers were used as weapons. On all four flights, crew members and passengers did what they could to stop what was happening. Most notable are the efforts of those on United Flight 93. Air travel would never be the same again. By selecting planes from the U.S's largest carriers, and setting targets such as the World Trade Center and Pentagon, the hijackers were successful in conveying their message that the U.S., and its model of free-market capitalism, had to be brought down.

Why do I get on a plane every September 11? Because, no matter what happened on that day, I still can. This is important to me for a couple of different reasons - (1) ever since I was young I had a fascination with planes and the airlines and always vowed I would work for an airline, and (2) I was fortunate to have been a flight attendant for a U.S. carrier. Twenty years ago, working for an airline was no picnic, but post 9/11, all airline employees must now be prepared for new types of threats that would keep them from their jobs of transporting us from one point to another safely and comfortably.

In addition to threats of more terror attacks, the nation's airlines, and their hard-working employees, have also had to deal with severe economic setbacks as a result of those attacks on 9/11. Many have lost their jobs and their pensions. All have had to take cuts in salary so that the airline they work for can stay in business. Even with all those sacrifices, several U.S. carriers still face the real possibility of going out of business.

In a conversation with a D.C. based flight attendant for United a few years back, we were talking about uniforms. I am not sure how we got on that topic. He mentioned they were making uniform changes, but he still did not have the new ties. He was waiting for the 'clip-on" versions to come out. I asked why - and this response hit me hard, "because an attacker can choke their victim with a conventional tie." Now, how would you like to go to work with the haunting fear that a part of your uniform can be used as a weapon to kill you? This threat is on top of 50% cuts in salary, loss of pension, cranky demanding passengers, and the real possibility that the airline they work for will go out of business. Makes it hard to want to go to work, doesn't it?

So, tomorrow I will get on a plane as a way of showing support for all those hard-working airline employees. It will be a quick trip to New York and back on the same day, but no matter what happened on September 11, 2001, I can still get on that plane and make that trip. There will be experienced, under-paid, under-appreciated pilots getting that plane load of passengers across the country safely. There will be hard working, under-paid, under-appreciated flight attendants doing their best to make my trip comfortable and enjoyable. There will also be under-paid and under-appreciated gate agents, customer service agents, ramp workers and mechanics on the ground all working hard to make sure all goes well with my trip. All of these individuals will do it because they are dedicated and love their jobs. Even though it cannot begin to make up for what they have given up so that I can travel safely tomorrow, I will hand out $10 Starbucks cards with a small note just to say thanks. After all, we cannot travel as we do without all of them.

Whatever you do tomorrow, just make sure to take some time for a quiet moment to remember that awful day and if you believe in a higher power, pray for those that lost their lives, their families and friends, and the soldiers in war zones now fighting to make sure the evil that showed itself on 9/11 is eradicated.

April Traffic Data is now in and the winner is....

2009-05-06T14:31:00.001-07:00

NOT United. I have been arguing on this and other forums that United has been losing market share to their competitors. April traffic data is now coming in for the airlines, and when you sit down and really look at the numbers, you can find the evidence to prove this claim.

Lets look at the domestic or North American market. I looked at the data for the 6 top carriers: Delta, American, Southwest, United, US Airways, and Continental. From April 2008 to April 2009, all 6 carriers reported lower traffic in terms of Revenue Passenger Miles (RPM's). The year over year drop on the average for these 6 carriers was 9.15%; however, the drop at United in the same period was 11.99%, 2.84% above the average.

Just looking at market share and how each carrier did - Southwest was the clear winner by grabbing an additional 1.34% from all 5 of the other carriers. Of those that lost market share, United did the worst at .46%. It may not sound like much, but for a full year, this can mean a loss to United of nearly 1.8 billiom RPM's which are picked up by the competition. At a yield of 13 cents, that translates into a revenue loss of over $230 million a year.

United executives will blame their compounded troubles by the fall-off in international travel. For this market I looked at United, American, Delta, and Continental. For all 4, traffic for the first four months of 2009, compared to the first 4 months of 2008 dropped 9.61%. Poor United, they were right, they were hit especially hard experiencing a 16.44% drop.

United also goes further to say that it is the drop-off in travel over the Pacific that hits them especially hard. Again, looking at United, American, Delta and Continental, there is a 13.68% drop in business in this market year over year. For United; however, they are seeing a 19.89% drop in business. When you look at the market share for these 4 carriers over the Pacific, United has lost over 3% to American, Delta and Continental. Actually American picked up some of the business by increasing capacity.

So they all lost international traffic, but of those still traveling on the 4 carriers, 1.72% have left United and switched to American, Delta and Continental. Continental fared the best picking up 1.03%. This loss in international market share translates into nearly 3.2 billion RPM's annually. At 13 cents per mile (a very low yield number for this market and these carriers), that is a loss of over $410 billion a year in revenue that has gone to the other carriers.

So, lost revenue that is going to other carriers is expected to be at least $640 billion in 2009. How much revenue is expected from the "unfriendly" charges for checked bags, and in-flight meals. I know it will not be near the $640 million from the business lost to the other carriers. I will argue that the decision to start charging customers these "unfriendly" fees is driving business away, especially in the domestic market, where Southwest is taking away business from all the carriers. Southwest is the only one advertising themselves as a value carrier without all the extra charges.

There are other reasons beyong the "nickel and diming" for United's losing business including many years of poor service, additional service cutbacks, and low employee morale. There is also a phenomenon happening in 2009 that the carriers do not like, and I am not sure they expected it. The big drop-off in airline travel is largely from business customers. In an economic slowdown, travel is one of the first areas cut. Add to that the massive layoffs in the financial and automotive sector, and you have a loss of business that will take years to recover from.

Here is the "phenomenon" part - for those road warriors still able to travel, many are not able to travel enough to retain their elite status in the carriers loyalty program. This opens a window for that traveler to try another carrier to see if it is a better experience. For example, Mr. Smith has 1K status at United in 2009, but he will not travel enough to keep that status for 2010. Mr. Smith has also been disenchanted by poor service experiences, and service cutbacks at United. He is also a little put off by the low employee morale, especially the "Glenn's gotta go" mantra coming from the front line workers. He's tired of cranky Red Carpet Club hosts, he's tired of fighting with customer service over rules on making changes and upgrades, he's tired of off-shore phone centers, he's tired of surly underappreciated flight attendants. He's tired of being told "No." Since he knows he will not make 1K for 2010, he can try Delta, American or Continental. He has heard good things about both Delta and Continental, and both serve cities that he needs to get to. Now if Mr. Smith has a good experience on that other carrier, and given that they have status match challenges that would afford him elite status on their carriers right away, he will be lost to United for a long time, if not for good. In the international travel market, in just the first 4 months of 2009, and assuming each international traveler averages 12,000 miles per trip, United has lost approximately 85,000 passengers that took their business to American, Delta and Continental.

Last year, I expressed concern at the shareholder's meeting over the loss of business to other carriers, especially in the light of the very public protests calling for his ouster. Mr. Tilton told me that I and other customers were free to try the other carriers but would find much of the same experience. Well, Mr. Tilton, the customers are finding out for themselves, and obviously they are finding better experiences. I dare say they are finding a better value and a lot of them are not coming back to United. In this precipitous drop in business all airlines are experiencing, United is faring the worst. It is not because of their exposure to any one market, traffic data shows they are losing market share to their competitors in all markets. Those fancy new First and Business Class seats that cost hundreds of millions of dollars are not paying for themselves. This will be the first time I have said these words publicy, but Mr. Tilton, you, Mr. Tague, Mr. McDonald and Mr. Lovejoy have all "gotta go."

To get it off your chest - try writing a letter

2009-05-01T19:02:00.000-07:00

If I didn't get this letter out, I would never have been able to focus on work. It is long, but there is a lot to say, and I feel better for having said it. Will they listen? Who knows?

************
May 1, 2009

Mr. James J. O’Connor, Lead Director
UAL Board of Directors
c/o Corporate Secretary’s Office - HDQLD
UAL CORPORATION
77 Wacker Drive
Chicago, Illinois 60601

RE: 2008 Executive Compensation

Dear Mr. O’Connor:
Thank you for your services on behalf of the shareholders for UAL Corporation. We place a lot of trust in you and your fellow directors to look out for the best interests of us shareholders. 2008 has proven to be a difficult year for all industries; however, for airlines the year was made especially difficult with the economic slowdown and highly volatile fuel prices. Let us hope that 2009 becomes a turnaround year.

UAL’s Proxy Statement came out last week, in advance of the annual shareholders’ meeting set for June, and it proved to be very informative. I do recognize the value of key executives running a corporation, and they should be comparably and fairly compensated for their efforts to increase the value of my investment in the company. However, you will understand that when I reviewed the compensation for UAL’s top executives, especially when compared to their peers at other airlines, I became very disappointed.

I reviewed the Proxy Statements that came out for AMR, Delta, Continental and Southwest. I also reviewed their annual reports, especially key unit operating data that translates across all carriers to evaluate their performance. Here is what I found to be troubling:

1. In comparing unit operating data 2007 vs. 2008, and into the first quarter of 2009, of the five carriers, United performed the worst. United is experiencing the greatest decline in Yields and PRASM, and the spread between RASM and ex-fuel CASM is narrower at United than the other legacy carriers. From the first quarter 2009 data, the greater PRASM and Yield declines at United than at the other carriers, is a clear indicator United is losing market share to their competitors.

2. 2008 compensation for 4 of the top executives at United was greater than what was paid to comparable executives at all of the other U.S. carriers. As Ms. Mikells has been CFO for part of the year, having replaced Mr. Brace, I could not make a fair comparison at this level.

These two points are contradictory and have this shareholder very confused. How can UAL’s top executives be the highest paid among the airlines, when the airline they are running has performed the worst?

Here are some other facts that stood out from the different Proxy Statements:

1. The top two executives at AMR, Delta and Continental did not receive any payments from their respective companies short-term cash incentive plans. They also took cuts in their base pay, or have stopped taking a salary until their companies turnaround.

2. The “Human Resources Sub-Committee” for the Board of Directors at UAL listed only AMR as the other airline in the “comparator group” of companies in order to evaluate executive compensation. Continental, Delta and AMR all listed the top 8 U.S. carriers, and at Delta, they used only airline holding companies in their comparison analyses.

3. and to quote from the Delta Proxy Statement –

"There were no payments to executive officers under Delta's 2008 annual incentive plan because frontline employees did not receive a payout under Delta’s broad-based profit sharing program since Delta was not profitableIn that year."

“There were no across-the-board salary increases for officers in 2008 because frontline employees have not achieved industry standard pay levels.”

Nowhere, in UAL's Proxy Statement could I find any acknowledgment by the executives for the contributions of those on the front line.

Mr. O’Connor – as the Lead Director, you are charged with looking at issues of ethics in terms of the Board and UAL Executives, and making sure both groups are looking out for the best interest of the shareholder. You are also a member of the Human Resources Sub-Committee which is charged with evaluating executive compensation. The only question I want answered is “what is the justification for the compensation that has gone out to Messrs. Tilton, Tague, McDonald and Lovejoy, do you not see an ethical problem here?”

As a shareholder my only input is to vote “Yes” or “No” to keep the current Board of Directors in place. You will understand that my vote will be “No,” but I do not control enough shares to make a difference. As a customer my only input is to take my business to another carrier. Not only do I have concerns about United and its viability; I have a real moral problem in continuing to spend money on premium fares when I now see it only benefits the executives. The loss of the $25,000 or so I spend at United every year will not be missed by management. It does hurt to think of going to another carrier, because I have gotten to know some very good people who work on the front lines and have devoted their lives to the Friendly Skies.

The shareholder meeting last year was contentious and marked by very public protests from angry employees. At that meeting, I tried to bring my concerns about employee morale to the attention of Mr. Tilton, but they were summarily dismissed. I am just one person with one voice, and this year I will try again to get answers to my questions at the shareholders’ meeting. My big worry as a shareholder is about the number of voices that will not be heard by the UAL Board - voices of customers who got tired of poor service and low employee morale. The declining performance numbers at United suggest that a lot of those voices are now being heard and listened to at American, Delta and Continental.

Thank you again for your service, and thank you for your attention to what I have to say. United has a rough road ahead, and all signs are pointing to the sad reality that UAL’s future will depend on a merger or acquisition by another carrier. Even sadder is that that will only happen in a bankruptcy court and the shareholders will once again be left with nothing. I can only hope that the United name will survive and that some very wonderful people who are the heart of the airline will still have a job.

Yours truly,

What is a shareholder to do?

2009-04-29T13:27:00.000-07:00

Proxy statements are starting to come out in advance of annual shareholder meetings this spring. These proxy statements are important as they detail how much managing executives were compensated for their leadership in the last year. UAL's proxy statement came out last Friday, April 24. You can find a copy of it at http://www.united.com/. Just click on the "Investor Relations" tab.

When discussing Executive Compensation, the Proxy Statement will describe how the Board of Directors will determine payouts based on recommendations made by consultants. These recommendations come from surveys of executive compensation from a "comparator" group of companies that are similar in size in size and operations. This survey helps the Board of Directors to make decisions on compensation for top officers that have skills and talent that could be transferred to these other companies. For UAL, the "comparator" group is comprised of 37 companies, with only 1 airline holding company within the group, AMR Corporation, the parent of American Airlines.

With only one other airline in UAL's comparator group, my job in comparing compensation for executives was easy. I went to American's web site and found their proxy statement. Here is an important point to note - for AMR's "comparator" group, not only does it include UAL, but 7 other U.S. carriers.

American is the larger of the two airlines having carried more passengers and having 20% more capacity than United. If you go to this link http://www.terraent.com/jimual, you will find a PDF file with a worksheet of some key operating statistics comparing the two companies, as well as 2008 compensation figures for top execuives and directors.

From the worksheet, when comparing unit data (revenues vs. costs by available seat mile) you will see American performed better year over year from 2007 to 2008. For example, RASM, or Operating Revenue per available seat mile increased by 4.57% from 2007 to 2008 at United, while at American their revenue performance improved by 7.31%. This is even more significant in that American 's capacity reduction was less than that at United. Check out the Yield numbers - at United they were able to improve passenger yields (this is revenue per available seat mile from paying, non-discounted passengers) by 6.93%. That is good, but at American they were able to improve this performance measure by 8.55%.

2008 was a tough year for all the airlines, but UAL shareholders lost $42.21 per share in 2008 vs. AMR shareholders who lost only $7.98 per share. In fact, UAL shareholders lost more per share than at any other publicly traded U.S. carrier. On the Balance Sheet, UAL looks better having a negative book value at the end of 2008 of $2.5 billion vs. $2.9 billion for AMR; however, AMR's balance sheet has nearly $4.8 billion more in pension and post-retirement liabilities. UAL dumped most of most of their pension liabilities while in bankruptcy. AMR could have easily done the same, but they have been able to continue operating without the benefits from a bankruptcy reorganization. In terms of market capitalization, as of today's close, AMR is worth nearly $5 billion, while UAL is only worth $730 million.

When you look at the two years, 2008 vs. 2007, and the two airlines, AMR is the better run company, yet when you look at compensation for the 4 top executives, UAL executives received in cash over 93% more than their counterparts at AMR. In terms of total compensation, Messrs. Tilton, McDonald, Tague and Lovejoy made 76% more than their peers at AMR. When you compare the heads of the two companies, Mr. Tilton was paid nearly 90% more than the man running AMR, Gerald Arpey. In fact, among the top 8 U.S. airlines, Mr. Tilton was the highest paid leader.

I also wanted to look at how the Board of Directors for both companies was compensated for their services. The Board is supposed to be independent and in place to look out for the interest of the shareholder. The 13 independent directors at AMR, on average, received just under $45,000 for their services in 2008. At UAL, the 9 independent directors received an average of nearly $69,000.

It is no wonder UAL shareholders and employees are angry. As a shareholder, my only input is my vote against the same Board of Directors that decided how much Messrs. Tilton and his suits should be paid for their poor leadership. I will vote "No" to the proposal to keep the same Board in place, but I doubt that vote will make a difference. I can only hope those shareholders holding larger stakes will see what I see, and vote to send these so-called "Independent" Directors packing.

Of real concern to me is that contracts are up in January for the pilots, flights attendants, and ramp workers. These employees gave up a lot in terms of compensation and pension, and yet Mr. Tilton makes nearly twice as much as his counterpart at a better run airline. AMR employees also have their pensions and have not had to make nearly the same concessions UAL employees have. Financially, UAL cannot afford to restore all the pay concessions that were made in the bankruptcy, but how can a management team that is rewarded for their poor performance convince these groups that that pay raises are not in the picture for them? Worse yet, how can United convince its customers that there will not be disruptions or poor service in store for them because line employees are not being treated fairly and may strike?

The next annual meeting for UAL shareholders will be on June 11 at United's training center in suburban Chicago. I plan on attending. If this year's meeting is like last year's, tensions will be high. There will be a few who will get a chance to voice their anger and frustration, but it is doubtful that the Board will hear what they have to say. It is sad because for this shareholder and customer, this Board of Directors is not keeping to the responsibility to which they have been entrusted. It is even sadder to see that this Board has no interest or regret that their decisions are allowing for even more erosion to the brand value of United Airlines.

Where is the LUV?

2009-03-29T17:51:00.000-07:00

The Wall Street Journal recently published an interview with Southwest Airlines chief Gary Kelly. The point of the article was to bring up that even Southwest is not immune from the current economic pressures all airlines are facing. There are two points from the article that struck me - one, Southwest carries more passengers within the U.S. than anyone else, and two, Southwest "remains steadfast against charging customers for checking in suitcases and using pillows..." Oh - I will add a third, Southwest has booked 36 straight years of profit and is the only U.S. airline to have an investment grade credit rating.

Why so successful? This is an airline that does not offer hot meals, first or business class, assigned seating, priority check-in, or priority security screening. My experience with Southwest is limited having about 6 trips, give or take, largely due to the fact they were the only carrier to have non-stop service from LAX to either Albuquerque or Salt Lake City. All 6 times were before 9/11, so clearing security was much easier, but the stress for me was getting the gate early for my card to be able to board in the first seating group. I need an aisle seat to stretch out the long legs, and I don't like to disturb the other passengers when I need to use the lavatory. I will say that from those dozen flights, what I found, and the primary reason for Southwest's ongoing sucess is CONSISTENCY in the level of service. Southwest made no promises they could not keep. I found all the employees to be very friendly. The seating was no less comfortable than economy on United. I could purchase alcohol for a reasonable price, and they would give me a whole can of soda. Some complimentary peanuts or pretzels were thrown in, and before you know it, we're landing and my checked luggage arrives with me. Every Southwest customer enjoys that same level of service time and time again, and most of those customers have chosen Southwest because they know they are going to be treated right by employees who are treated right by their management. By virtue of the brand they have established and maintained at a consistent level, Southwest remains successful.

I have posted on flyertalk.com and glenntilton.com my displeasure and regret of United's decision to start charging for checked luggage, and the very short-lived decision to charge for meals in economy on transatlantic flights (I still have a beef about charging for meals on any flight, but I digress). Southwest has found that this "nickel and diming" chases away customers. Why is the "nickel and diming" bringing in millions of dollars revenue for United and other carriers? Hard to say - my first thought is the success of mileage loyablty programs and how those can keep a customer close. The other reason is what remains of the demand for international travel, and travel to those U.S. cities Southwest does not serve. United may be bragging about the millions of dollars in additional revenue from the "unbundling." However, demand for travel on United, on a percentage basis, has dropped more than what Southwest is experiencing. How much revenue does that incremental drop in demand represent? This information is not made available to shareholders, so I have to formulate my own opinion. From a hypothetical scenario for a trip from LAX to Denver, United is losing 1.3 cents per available seat mile. Right now, United has 10 non-stops daily to Denver. If the average aircraft size is 150 seats, 75% load factor, 365 days a year, that 1.3 cents translates to just under $500,000 in revenue per year. Here is how I got to the 1.3 cents.

On a recent trip connecting though Denver, I was struck by how large a presence Southwest had there. There were 6 planes at the C concourse, and I noticed what looked like new construction to expand that concourse. So with Denver in my mind, and knowing that United and Frontier both have a hub there, I wanted to see how Southwest compared as far as schedule and pricing.

First stop - Expedia.com. Not only can I compare fares and schedules, but they have this handy chart which also shows all the add-on fees the other carriers are charging for checked bags, snacks and drinks. Expedia showed the lowest fare being offered by Frontier at $173 (including taxes and security fees). Now if I add $25 for two checked bags, $3 for a snack mix, and $7 for one alcoholic beverage, that totals $208.

United is showing $199 as their lowest round-trip fare. Add-on $25 for two checked bags, $3 for snack mix and $9 for cocktail, the total comes out to $236. If you want a seat assignment add $14. If you do not want a middle seat, add more.

Now the Southwest web site - they don't affiliate with Expedia, Travelocity or other travel web sites. You have to be careful here, when you put in your trip request, they don't come back with round-trip fares, the fares are broken down as one-way. Of the selections, the cheapest total came out to $221, round trip. They only charge $4 for an alcoholic beverage, there is no charge for checked luggage or snack mix.

Mr. and Mrs. Smith want to go to Colorado for a ski trip. They are not frequent fliers, and do not have any loyalty to an airline or mileage program. The flight is a short 2 hours. Which one are they going to choose? History would show they would choose Southwest. This is one group of traveler Southwest markets to, and their product is designed around all travelers, frequent business or leisure, seeking the best value. Southwest heavily markets that they do not charge to check their luggage, Mr. and Mrs. Smith have heard that United does. They do not know much about Frontier, and there are not as many options as far as scheduling.

Here is where the light bulb went off, and how I figured the lost revenue opportunity for United. If you compare the lowest fares (before add-ons) available for this trip - $199 for United, and $221 for Southwest, the first question I had is why doesn't Southwest match the $199? Because they do not have to. Demand for seats on Southwest has dictated at this point in time they can get at least $11 more per seat. This adds 1.3 cents to their PRASM (based on 862 miles for the trip). This is an opportunity United is missing out on. Why? - because they have turned off potential customers with all the add-on fees that Southwest aggressively advertises they do not charge. With Southwest the customer knows what they are getting and more often than not they will be greeted by friendly employees, who do not have their hand out for the privilege of having your luggage go with you, or a bag of pretzels, and are happy and proud to be associated with Southwest rather than wearing wristbands calling for the ouster of their CEO.

I doubt that it costs Southwest more than 1.3 cents per seat mile to carry the luggage and a give away a bag of pretzels. If United wants to fill the seat, they have to do it for 1.3 cents per seat mile less than Southwest. If they carry an elite flier, they still can only charge the $199, and there is no additional revenue for the checked luggage or assigned seat. There has to be some additional fixed costs for all the administration and programming needed to handle processing all the add-ons. Those fixed costs have to be spread across all available seat miles.

Southwest has a powerful marketing tool by making sure the public knows they will not get "nickel and dimed." How much business has United lost because those seeking the best value chose Southwest? For this hypothetical Denver trip, $22 per seat, round trip. When you perform the same analysis on all routes where United and Southwest compete, I would argue the lost revenue opportunity is not made up by the add-ons United is charging. Southwest is filling seats, and charging more for those seats, that are going out empty on United all because Southwest has successfully communicated they are the better value and better brand. United has also lost on the opportunity to get and keep a new customer.

"Economic Realities"

2009-03-13T15:32:00.000-07:00

Did you ever have a feeling that you were not being told the whole story, or that nagging "intuition" that something is really wrong? Maybe is that feeling that is driving my desire to get behind the scenes at United.

Let's start out positive - I had a chance to review their 2008 annual report on the infamous "Hair Do" trip last week. When you look at the numbers you can see improvement in key components of their financial performance.

There are 3 key unit measurements when evaluating airlines - "RASM" or Operating Revenue per available seat mile, "PRASM" or Passenger Revenue per available seat mile, and "CASM" Operating Cost per available seat mile. What are "ASM's" - this the product of multiplying the number of seats avaiable for sale multiplied by the number of miles those seats will travel. The goal is to create the greatest spread between "RASM" and "CASM" to increase your contribution margin which then goes to support non-operating costs (debt service, taxes, executive compensation, rent, dividends, etc). Operating costs are things such as crew member salaries, fuel, food, depreciation, repairs and maintenance, any cost that can specifically be identified with the operation of an airplane. "RASM" includes all revenue that the airline earns (cargo, mileage programs, "travel options") in addition to what they charge us passengers for a seat on the plane, whereas "PRASM" is what they charge us for a seat on the plane.

On the positive side - United has shown improvement in these measures when looking at 2008 vs. 2007. Even better, their growth in "RASM" and "PRASM" was greater than the year over year growth in "CASM." That means a greater spread available to cover all the other costs, and hopefully mean a profit for shareholders.

United's 2 main competitors are American and Delta, so they offer the best comparisons when evaluating financial performance. Here are the RASM's and CASM's (excluding fuel) all 3 realized in 2008:

United: RASM = 12.69, CASM = 7.85, Spread = 4.84
American: RASM = 13.01, CASM = 8.15, Spread = 4.86
Delta: RASM = 13.19, CASM = 7.10, Spread = 6.19

The first question that comes to mind is what did Delta do right? Hard to say without really getting into the details. In may have to do with the added synergies that emerged from their merger with Northwest.

American's RASM was 2.5% higher than United's. Their CASM was 30 cents higher, but American has not gone through a bankruptcy restructuring and their employees still have pensions. United no longer has that obligation. Delta and American have shown they are more successful in driving revenue from their customers, and they both carry more customers than United.

Capacity
----------
The economic downturn has been especially hard on the airlines, and they have been forced to quickly reduce capacity. Its too costly to have seats go out empty, so they have to reduce the number of available seats. This is done by retiring planes, and furloughing employees. Where these 3 airlines saw the biggest drop in demand was in international travel - markets they were focusing on for growth and improved profitability.

United has led the industry in reducing capacity. Here are some statistics that bother me though - the Wall Street Journal this week published an article discussing how the airlines are having to deal with a bigger drop off in demand than expected. When you look at the figures quoted, here's what stood out, and these are statistics from February: American's international traffic fell 13%, but United's fell 22%. Why so much greater? - part of it has to do with United's presence in Asia which saw the biggest decrease in demand; however, closer inspection does show United's international business has declined at a greater pace than its competitors. This is especially bothersome given the amount of money, time, and focus spent on the new first and business class seats, and the poor decision to charge for meal service on Atlantic flights (a decision that was quickly reversed). They have also cut back on service provided to premium customers on domestic flights (not only in meals, but number of flight attendants), and these domestic flights are big feeders to their international business out of the hubs.

Economic Realities
-----------------------
In the earnings conference calls, and at the annual shareholders meeting, Mr. Tilton kept using this veil of "economic realities" as an excuse for the company's poor performance. Yet, their competitors face these same economic realities, are performing better, and have not seen their traffic drop off as much as United. In the JD Power survey for the April 2007 to April 2008 period, United was tied for worst in overall customer satisfaction along with Northwest. Here is what is nagging me - United has lost a lot of good customers due to poor service, and poor decisions for more service cutbacks coinciding with capacity reductions. It costs more to get a new customer than it does to keep a good customer, this is common for all businesses. United management has reversed some of their decisions, and they are just now making an effort to reward employees for improving performance. Is this going to get the customers back? - this shareholder hopes so. Based on my experience last week, I saw no real improvement in service. In fact, I felt cheated. Its funny, but this experience had me surfing the Delta web site to research my next trip (I felt dirty). My 2008 PRASM was 65 cents, 5 times greater than the average - will they miss my business? I doubt it. Given as much business as they lost in 2008, I'm only a drop in the bucket. To the suits at WHQ, there is no face associated with this number.

"Isn't the Customer supposed to be right?"

2009-03-09T15:19:00.000-07:00

In the last post, I mentioned attending the 2008 Annual Meeting of Shareholders for UAL Corporation. It was held last June at the Marriott in Woodland Hills, California. I had always wanted to attend a shareholder meeting, but they were always in faraway locations at times that I could not get away. This time, it was being held only 10 minutes from my home, and I did not want to miss this opportunity.

I got to the hotel early to already find employees had geared up for their protest from the park across the street. With huge, parade sized balloons in the shape of a pig and a rat, this was looking ugly. UA employees had flown in from across the system, many in uniform. I ran into a DCA based friend and gave him some Starbuck's cards to pass around. I also ran into Customer Service and Global Services managers I knew from LAX.

The meeting was started by Glenn Tilton, Chairman and CEO of UAL Corporation and United Airlines. He introduced other senior managers and the Board of Directors. Mr. Tilton reviewed the results from 2007, discussed the challenges the airline was facing, especially rising fuel costs. Throughout most of this presentation, Mr. Tilton was interrupted with questions from employee shareholders in the audience. A video was then shown with customers praising the new First and Business Class seats being introduced into the fleet.

Shareholder Proposals on the agenda came next. The most significant was the "Say on Pay" proposal. It was introduced by Greg Davidowitch, President of United's Flight Attendants union. This proposal was expectedly defeated to the boos and disappointment of the employees attending. What was encouraging though was that 20% of the votes cast were in favor of the proposal. This is unusually high for shareholder proposals, especially when 95% of the shares are controlled by creditors. After the proposals were presented and voted on, Mr. Tilton closed the meeting and opened the floor to comments and questions.

A long line formed, all employees, except for me. They all brought up their concerns over cutbacks, layoffs, loss of pensions, etc. It was clear that there was no love for Mr. Tilton, the Board of Directors or Senior Management. I had a lot of questions to ask, but when I got to the microphone, I asked Mr. Tilton if he was not concerned that this very public discord between employees and management would drive their premium frequent flyers to another carrier. I emphasized that it is the customer that is caught in the middle of the fray, and I had serious concerns as a shareholder. I closed my point by stating that while I thought the new first and business class seats were very nice, they are not putting smiles on the faces of the employees.

As I do not have transcripts or a recording, I will paraphrase Mr. Tilton's response - it went something like this - given the "economic realities" facing the industry, I and other customers were free to choose another carrier, but would find much of the same as what is going on at United. The employees were shocked at the response, and many came up to me after the meeting to thank me for my business and hoped I would return. The next day I received calls from LAX customer service, and a pilot who all wanted to thank me. I received several E-mails, and on every flight I have taken since then, there has been at least one employee who was there or knows of what happened at the meeting and will take the time to thank me and express their regret over Mr. Tilton's response.

Did Mr. Tilton intend to tell a good customer to take their business elsewhere? No. Given that he had been hammered by employees all throughout the meeting, my question, and my being there just as a customer and shareholder probably caught him off guard. The problem is that Mr. Tilton and his senior management will not acknowledge that their employees are very unhappy, and it is seen by the customers. Customers are going to question whether or not they will have an enjoyable experience and will think twice about taking their next trip on United. As a shareholder, I do not think it is prudent for management to discount what is happening, it is affecting return business, and the company cannot afford it.

For the next time - "Economic Realities."

"How I long for a time when the Skies were truly Friendly"

2009-03-07T15:25:00.000-08:00

The first posting – I’m not sure who will see this blog, but I hope they find it entertaining and insightful. I also hope I have the time to stay consistent with the postings.

I was not sure what to write about first, but then an incident happened on a flight this week that I had to share. I was on United’s Flight 947, from Washington-Dulles to Los Angeles, seat assignment 1A. I love the 777, I like this flight – more often than not the crews on this trip are fantastic. This week was an exception.

For those of you that know United’s 777, seat 1A is a sleeper suite in the first row, by the window next the bulkhead that separates the First Class cabin from the galley, and access to the front lavatories and cockpit. This particular crew rushed the cabin through the dinner service so they could take their break. I looked at my watch and when my dessert plate was cleared, we were only 90 minutes into a 5 hour flight. The 2 gentlemen working First Class grabbed a jumpseat and the USA Today and sat down for their break. Within about 30 minutes, 2 other crew members came up to the front to join their colleagues. There are now 4 of them sitting there, chatting up a storm and
ignoring the passengers in the First Class cabin. Being in seat 1A, the noise was especially bothersome while I was trying to work.

So they are all there chatting, gossiping, giggling and laughing; my water glass is dry and I look up to see one of the flight attendants back-combing (my mother called it teasing) the long blond hair of another flight attendant. I guess the joke was to see how “skanky” they could make her look. This was all in front of a high fare paying passenger, trying to work, thirsty, feeling neglected and watching all this long blond hair being thrown around the area near the galley. All of this revelry lasted about two hours. It was gross and disheartening.

So why this incident as the first post? My intent with this blog was to put down in writing my desire and efforts to see United Airlines survive. Like Coca-Cola, McDonald’s, Maytag, Sear’s and so many others, United is one of those brands that stands above the others in representing U.S. capitalism and ingenuity. Yet their current management, supported by their Board of Directors, keeps making short-sighted decisions that are only successful in alienating and chasing away the customers they want to fill their seats. Customers, like me, paying premium fares to be able to sit up front, and get a little extra attention which helps take away some of the stress that comes with air travel these days. With the current recession and even more poor decisions by management regarding fuel hedges, United is on the brink of another bankruptcy or going away altogether. This U.S. citizen does not want that to happen.

Some years back, seeing the frustration and worry on the faces of the employees over a bankruptcy, the losses of their pensions, pay cuts, colleagues killed by terrorists on September 11, 2001, and the cranky traveling public, I started giving out $10 Starbuck’s gift cards to pilots, flight attendants, customer service, ramp and any other person in a United uniform that I came across. I cannot afford to thank all United employees in this manner, but I do try to get something out on every trip. In the gift cards is a thank you note to assure them that there are still loyal United customers who value their training and hard work. The cards are well received and I have made many friends at United. These are extremely dedicated people who have devoted their lives to this company, and they feel powerless in the face of current management and conditions. Last year, in June of 2008, I attended the annual meeting of shareholders in Woodland Hills, California. I handed out Starbuck’s cards and spoke on behalf of the employees there who are angry over what they had to give up, yet their senior managers are taking away hundreds of millions of dollars from a company already losing money. In another post, I will tell more about that experience and Glenn Tilton telling me I was free to take my business to another carrier.

Back to this week’s incident – if I were to describe how it made me feel, it would be hurt and embarrassed. As a shareholder and customer I have put a lot of money into showing my support for United and its crew members, yet to have 4 of these “professionals” acting like school “girls,” very un-professionally, and without regard for those high fare paying passengers sitting in that front cabin. It made me think about why I am doing this. Why am I spending so much money, when these 4 individuals were exhibiting behavior that made it appear that the customers are not that important to them? I know that was not their intent. I know their job is hard, and I also know how poorly they are treated by senior management. So can I blame them? Yes – they have to understand that to have any impact and any ability to affect change, they all have to stand together as professionals, show the customer they are important, and more importantly show management that without their extended efforts, customers are going to defect to other carriers. These 4, or rather actually all 8, flight attendants on this trip are the exception to the rule when compared to all 17,000 flight attendants. United’s AFA leadership needs to get the word out to straighten up. They are about to start contract negotiations and in this economy, it is going to be hard to negotiate getting back some of what they gave up in the bankruptcy.

The blame does not stop here – any business person knows this all falls back on management. Why would management put up with employees not doing their job, or offending customers? More importantly, how bad is the leadership that it breeds such anger by the employees? Why is that leadership still in position? This is leadership that guided a company to lose $5.2 billion in 2008 (over $42 per share on a stock now trading at less than $4). As a public company, the final responsibility falls squarely on the Board of Directors who allows this leadership to keep their jobs and get paid obscene salaries to mismanage a company. Further, 95% of the UAL shares are owned by creditors or other institutions, so it is their vote that carries. That is who United’s management is really trying to satisfy, and they are all riding together in their proverbial First Class cabin. Customers, employees, and minority shareholders all have to sit in the back. Until next time…