United Still Committed to Low-Cost Unit

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On 2/10/2003 10:34:43 AM casual rat wrote:

I'm just wondering where the "fresh set" of employees is going to come from....BTW Segue, if uh, you ever read a business publication, it seems like most businesses are cost cutting in an almost 'trendy' fashion--thereby creating downward pressure on prices. I'll argue that cost cutting in this manner, negatively affects productivity with you any day! I'll admit that some cost cutting does achieve what you say, but the level currently being employed by 'bonus hungry' managers, might be a wee too much. Hey, I'll buy your home off you for 30% less than you paid for it--I mean if you're going to champion lower prices, you might as well jump in first! You're happy, I'm happy!
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Nope - you can't buy my home 30% less than I paid for it. What I paid for it is irrelvant because its in the past. But if I was selling it, you could pay what I list it for which would be my real estate agent's assestment of the current market value, which would based on the supply and demand for comparable houses where I live.


But I will agree that the KERP is soooo politically incorrect at this time, but if I was Tilton I would not know what to do - I mean who in the managment world would come to work at UA if everyone left? The risk/reward balance would be so unattractive that you could only get the hard-core unemployed. Then, it would REALLY be a rudderless ship.

 

[Segue]

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Sure, Walmart cuts costs. But they also simultaneously grow revenue from the same business model. Walmart represented 25% of the national productivity increase over the past five years (source: TIME) and they didn't accomplish that just by cost-cutting.

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To run any business, you have to focus on both side of the equation - cost and revenues.

Walmart grew revenue by selling goods at a lower costs than their competitors do. They did this because they use state-of-the-art distribtution technology including highly automated, centralized warehouses. New efficient business processes - and pass the savings on to the consumer.

When I go to Walmart, I know that my cart full of goods will be among the lowest cost anywhere. Although I may find blow out bargains at other stores, I can go to Walmart with confidence that I'm not over-paying.

The appeal to the consumer is really not that much different with Southwest Airlines.

Now, my question - do you think that either company would be where they are now if they did not have a cost advantage to leverage?

 

[KCFlyer]

United Chicago - how does running two airlines really cut costs?

 

[UnitedChicago]

Folks:

As I see it...your union leadership can either negotiate to get the best position/compromise possible in the new low-cost carrier within UA to compete head-to-head with Southwest, etc. The mainline wages would be higher obviously - but of course reduced from the contract level.

Or, you can say no to the low-cost airline within the airline and watch wages across the entire operation be reduced to compete with Southwest.

Which would you prefer? Because cost have to come down folks - UA has to be able to compete. And when I say costs...I don't mean just cash. Changes have to occur to the work rules. United is at the bottom of the pack in terms of productivity.

Also...everyone is ripping Tilton for his plan. Let me ask...what would you propose? Anyone, anyone? We're not rocket scientists...but go ahead and share your thoughts.

 

[UnitedChicago]

Well...United has a global route structure. In numerous domestic markets and routes...they compete head-to-head with low cost carriers. They are losing money head-to-head.

Costs (again...not just cash her per say...work rules) have to be on par to compete head-to-head. They currently are not.

So, you can create the LCC within United with costs the compete head-to-head with Southwest, et al. The mainline costs go down - but are still higher than Southwest, et al. because they will target the premium business traveler. Despite all the doom and gloom - they will return once the economy improves. Not willing to pay the absurd fares of the past - but willing to pay a premium.

If they don't do this, then the whole UA operation has to reduce costs to compete with Southwest, et al.

In the end - it would appear that the work force would be better served to allow a LCC with lower costs than agree to across the board lower costs to compete.

In my mind the LCC should have a seperate collective bargaining agreement. Otherwise, the lower costs will evaporate during the next contract negotiation...much like what happened to UA Shuttle.

Sorry folks...CH11 is ugly. No two words about it.

 

[Flydrive1]

OK, I've just had a drink so I'll take the plunge.

Like many others, I feel that "Operation Starfish"(or whatever the heck they're calling it) will be just one more bloody, self-inflicted wound...many more of which we can't survive!

United, as usual, is trying to be all things to all people(low-fare titan tailored to discretionary leisure flyers(white trash, if you will) and a premium network carrier capable of commanding extortionate fares from corporate clientele. It failed at both. It will fail at this also.

Tilton himself has been pounding home the fact that we compete against low-cost carriers in over 70% of our markets. Which of those markets will we launch the LCC in? We might as well convert our entire domestic system! How will you divy-up a city like PDX between these two entities? Ultimately, I believe these two distinct carriers wll command more manpower and resources than as a single unit, as well as potentially cannibilize each other.

To my mind, we must reduce our wage structure(somewhat[img src='http://www.usaviation.com/idealbb/images/smilies/15.gif'] ), while at the same time make ourselves as productive as our compatriots at Southwest: We must figure out a way to do more WITH LESS! To do that we must simplify our product.

During the 90's we threw manpower indiscriminately at problems to put bandaids on the operational nightmare we were running. Upgrades, downgrades, misconnections, oversales, sector loading, ramp transfers, wing-tip narrow-body flying, etc... are ALL manpower intensive. Now, we've slashed capacity since 9/11, but have been unable to slash manpower accordingly.

Unfortunately, I don't think we can cut manpower as much as we might while our product is so needlessly complicated. Besides scheduling our fleet as efficiently as possible(rolling hubs, high-utilization, aircraft-crew pairings ala AA), I firmly believe it is time to cut multi-cabin service domestically. That's right: One Class Service!(But NOT Second Class as the old Southern Airlines use to advertise).

The key to doing more with less is SIMPLICITY. Simple--but reliable, friendly, and value-priced-- service is what ALL passengers are looking for, and I believe UA can craft and sell such a product. The size of our network means we can never simplify as much as a one-fleet-type carrier such as WN can, but there are other advantages that UA has BECAUSE of its size that we can use to compensate for that.

Long before be tenure with UA, the late, great Bill Patterson tried to do this in the mid/late-1960's with "Standard Class". Tested on the 727 and 720 fleets, it was one class, FIVE-abreast seating(and legroom...it was the 60's! [img src='http://www.usaviation.com/idealbb/images/smilies/9.gif'] ). Unfortunately, it was ahead of its time and failed. While we don't have the money --right now--to reconfigure that radically, I believe Mr. Patterson's idea is finally ready to take wing! I wish our "leaders" had the courage and imagination to truly TRANSFORM(@#$%! I'm tired of that word!) United instead of hacking it apart with a cleaver[img src='http://www.usaviation.com/idealbb/images/smilies/8.gif']

This just briefly touches on my thoughts, but I do believe that WHQ is making this more difficult and complicated than in needs to be. They brag about our network, and then turn around and want to throw it in the shredder. Whatever we end up doing, SIMPLIFICATION and FOCUS is the key to making it a success.

OK, my fingers are tired...[img src='http://www.usaviation.com/idealbb/images/smilies/9.gif']
Flame away! [img src='http://www.usaviation.com/idealbb/images/smilies/2.gif']

 

[Segue]

I think Starfish is a great idea. To really emulate a LCC, you need match the business model 100%. Yes, keep it simple, from distribution to fare structure, utilization, revenue management, crew, fleet - everything. You can't do that by running it in conjunction with the mainline ops. This was proven out with Shuttle. No rocket science or secrets here as the Southwest model has been working for years. Just that if you do it, you gotta do it all the way.

 

[GGpillow]

I for one, am really sick of hearing blanket statements, applied to all work groups.

To the poster who said if we didn't negotiate a good deal, then we would be forced down to WN's pay/work rule structure. For me, that equals better work rules and a raise. So I guess Cust Svce shouldn't negotiate anything.
I understand a pilot on our 737's going to the WN model would be quite different from what they currently get.
All I'm saying, is these grand plans, and sweeping statements, get noone anywhere, as it applies in different ways to UAL's different work groups.
Someone else mentioned that we haven't been able to slash the workforce appropriately, to keep up with our capacity reductions. I don't know if I can agree with that. Some groups within UAL may still have padding. Mine definately doesn't. I see rampies loading 57's with 3 people, so I don't see it there. Cleaners are cleaning widebodies in 16min with 3 agents. F/a's are at min FAA staffing. Maybe their are a ton of pilots and f/a's sitting out reserve? I don't know the answer to that one.
Our other mba's and armchair ceo's cite "productivity" as the key issue. Perhaps it is. In all but the Pilot-f/a ranks, which are goverened by FAA imposed restrictions, the company has carte blanche to do whatever it wants to change productivity. Their are no rules stating they can't work us hard. Their are no rules stating certain amounts of agents need to be assigned to specific tasks. Want one ramp agent to load a guppy by himself? Hey, that's the companies call. Nothing in IAM's contract says they can't do it. (although, the thought of seeing that, with 2 supv's watching would bring up that canoe race thing )
Myself, I will go to work, and in all likelyhood board 6-7 aircraft by myself. Very seldom do we have 2 agents at a gate anymore. I will get 30min for lunch, unpaid of course, as our contract states. My two fedrally mandated 15min breaks? Won't see those. Those don't get schedualed, we have always been told to take them between flights. Course, their is no more "between flights" but that seems to have been overlooked. I will in all likelyhood, get all of my flights out ontime, barring weather mtc issues. I will bust my ass to do it, and still try to smile and make nice with each person I talk to, no matter how ticked they are that they didn't "get the whole can", and no matter how many "A middle seat, no wonder you're going bankrupt" 's I get. How could I possibly be more productive? Believe me, I have asked myself this, as, I DO want to see this company survive.
At the end of the day, I will have a supv, trying to justify their job, come over to me and ask why it took me 2.5 min to put a loading bridge up to an airplane, instead of the "Goal" of 2min. I will be told how "unacceptable" this is, and that I need to learn to "budget" my time. As if ANY manager with UA knows the first thing about a budget.
If it's payday, I get to open my check, and say to myself, "Ouch, pass charges came out, guess I shouldna taken that flight to LHR, (even though it's the one benefit I have left). Guess I'll need to pick up a couple of x-tra shifts this week." Then I go to my gate and have a pilot walk up and OMC on an empty flight so he can avoid paying the same fees I do. And have the audacity to TELL ME that's why he's doing it!
Then I sign on to this board to see what's cookin, and I see that I'm not productive enough, my work rules are inefficient, and everyone should strive to emulate WN.
Maybe some groups have more padding. All I know, is mine doesn't, and I would ask all here to consider if what you are saying would apply across the board, or are regurgitated Boyd_isims, meant for the USA Today masses.

 

[GGpillow]

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On 2/10/2003 1010 PM Segue wrote:

I think Starfish is a great idea. To really emulate a LCC, you need match the business model 100%. Yes, keep it simple, from distribution to fare structure, utilization, revenue management, crew, fleet - everything. You can't do that by running it in conjunction with the mainline ops. This was proven out with Shuttle. No rocket science or secrets here as the Southwest model has been working for years. Just that if you do it, you gotta do it all the way.
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The intention is to use the LCC to feed our hubs. We will not be emulating WN's point to point system. The only difference between LCC II and Shuttle will be the lack of F class. This information was provided in a Senior Officer - employee meeting that was transcripted and posted on Skynet, for those with access.
If we were gonna use the new LCC to emulate a succesful enterprise like WN I could bite on it, but that is NOT what is being proposed.

 

[kcabpilot]

GGpillow:

Nice vent. Many of us throughout the system are in a similar situation and feel the same way.

This company has way, way too much management. After reading the transcripts from the WHQ meeting in January I truly believe that they do not consider anyone involved with "labor" to be a part of this company in the human sense. We are nothing more than a faceless piece of equipment to them. That would explain why not a single one of us has ever had our knowledge or input solicited in regards to this grand new transformation strategy.

Now, does anyone know where I can get a picture of a dried up rotting starfish?

 

[Wild Onion]

GGPillow:

Wonderful post. As a gate agent for AA, I can feel your pain in many ways. We are working flights on our own. Our 15 mintue breaks are a distant memory, too.

It is the hard workers like yourself and those that work for both UA and AA at my station that make me fear for what the future holds for all of us. Good luck.

 

[KCFlyer]

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So, you can create the LCC within United with costs the compete head-to-head with Southwest, et al. The mainline costs go down - but are still higher than Southwest, et al. because they will target the premium business traveler. Despite all the doom and gloom - they will return once the economy improves. Not willing to pay the absurd fares of the past - but willing to pay a premium.

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So - create a "mini southwest" to feed the hubs for the international flights? Because to cater to the LCC crownd AND the "premium business traveller" seems like it would increase costs. Exapmle - MCI-Chicago. Southwest has a lot of flights every day. Does UAL offer only a "Low Cost" flight between MCI and ORD? What about the premier passenger in MCI who is flying to London? He'll get all the amenities of his "low cost" trip to ORD and his F class trip to London, or will he Just opt for first class all the way on AA? If it's the latter, you've just lost his business...not a good thing to have.

Or will UAL offer a "low cost" flight followed by a "full service" flight from MCI-ORD? That is an increase in costs because of duplication of effort. Not a good thing.

Cutting the costs within the USA means that some cities are going to be classified as "low cost" cities. What about the premier passenger who expects (and pays) more for the entirity of his trip? Chances are good, you'll lose them to your competitor. Again, not a great strategy.

 

[Segue]

KCFlyer has a good point - you need to keep the segmentation very clear. UA's problem has been trying to be everything to everybody in every market.

I see the segmentation like this - focus the Mainline NONSTOP service for the high yield passenger with regional jets serving thinner markets, connections with LCC for all others. LCC connections with Mainline can be an interline or feeder relationship. Problem is you can't schedule a LCC operation for connects without seriously diluting utilization.

Quite frankly, I don't see that much justification for a United LCC revenue premium over other LCCs with the exception of Mileage Plus.

An interesting thing to note the other business model that is working even in this tough environment is the regional carrier which operates with UA acting as the "merchant" to fill the seats and feed the rest of the system.

 

[casual rat]

Hey, I just came up with an idea that will save the Industry! It's going to involve cloning and slavery though....uh, on second thought, never mind!

 

[FrugalFlyer]

Since everybody is putting in their $0.02 about what is needed to turn UAL into profitability again, I might as well also add my $0.02.

UAL needs leadership, and sadly it doesn't seem to have any. It needs a CEO and a management team that has a plan. Not the same old - redue the wages, cut capacity, add service charges to customers - it's not working.

The creation of a new LCC is an idea, not a new one, but hopefully UAL will learn from the mistake of others (metrojet) and learn from the limited success of some (AC Tango, AC ZIP). I think if a LCC is managed properly, it may work to compliment/support/feed mainline, if not properly managed then it will cannabolize/destroy mainline UAL.

UAL also needs a CEO and management team that labor can trust. Right now I don't think it is there. Ofcourse, it is a two way street, the labor unions need to stop the BS and work with management. Easier said than done I guess.

In terms of leadership UAL should use its leverage in the * alliance to get the most out of it. UA needs to remind LH (and others) that without UAL * is nothing and use this levarage to its advantage. I don't have the numbers but it seems to me that other * alliance airlines are getting more out of * alliance than UAL. That needs to change.

UA also needs to focus on what routes are profitable, and drop non-profitable ones ASAP. Again, I don't know the numbers, but for example if LHR/Europe is not profitable then don't fly there only for the sake of flying there. It is better to be a profitable #2 or #3 in a given market than to be #1 and lose money. For the routes/markets that are profitable, well focus on them!

UA also needs to focus on what customers want. Sadly, UAL doesn't seem to understand what people want. Right now UAL and most of the other majors think people want ultra cheap fares. So they have ultra-cheap buy in advance super restricted fares - say $129 fares, plus 25 other fares topping out at say $1299. What UAL needs is a simplified fare structure that people will preceive as VALUE. Drop the outrageous differences between the restricted and unrestricted fares and you will see more people flying UAL. This will increase UAL's REVENUE. I'll use the Walmart analogy: I know when I go to Walmart to purchase an item that I'm not being gouged. Sure, some store may run a weekend sale and have the item cheaper but I could walk into Walmart any given day and find things I need reasonably priced (value).

UAL would be quite successfull if they adopted this strategy - their revenues would increase. I know, people will say you can't do it because the other airlines will not go along with you. So what? Screw them! You want people to talk about flying UAL not because they offer the cheapest tickets but because they sell a product that is best value for their money.

UAL also has a great opportunity to use chpt.11 to reorganize its labor contracts. By this I don't mean reduce all wages to minimum, but to reasonable - reasonable that the workers can still make a living and the company make a profit. More importantly, UAL should be looking at changing work rules so that workers are more productive. Surely, there must be some things that can still be improved - everything from staffing ticket counters to aircraft utilization, etc.

In summary, UAL needs is 1) leadership 2) focus 3) labor-managemnt trust 4) fares system that will increase revenue.