What ' s wrong with United?

Almost as soon as rumors took off about Delta Air Lines merging with Northwest Airlines, we also heard talk of United Airlines merging with Continental Airlines. It wasn't just speculation. The two carriers confirmed talking. As recently as last week it was widely assumed that the deal would come together rapidly. Over the weekend, however, Continental CEO Larry Kellner, in a letter to employees, said Continental had unique financial, organizational and cultural advantages in the industry which merging would put at risk. Most analysts would agree, and in less diplomatic language:

• Financial -- Continental lost $80 million in the first quarter. United lost six times that. Continental avoided post-9/11 bankruptcy. United emerged from its lengthy Chapter 11 with financing that requires it to meet specific financial targets, and its CFO Jake Brace says "the trajectory of our covenant coverage is downward," which means UAL is getting closer to missing those targets as jet fuel soars.
• Organization -- Continental has an industry reputation for being well-managed by executives who really understand the airline business; United's CEO Glenn Tilton never worked for an airline before and hadn't flown commercial in years when he was tapped to head the company. Wall Street knows these things, and the New York Times said if the merger had gone through the CEO would have been Kellner.
• Cultural -- Continental has better labor relations than United does, and is seen in the industry as being more nimble than most other carriers because of this.

Continental loses less money and is widely regarded as being better run, but it's harder to run United well due to its size (though still-larger American is losing less). It is interesting to note that the only other major U.S. carrier with a reputation for being as well run as Continental, is the only other major U.S. carrier to say it's not interested in merging at present -- Southwest. Glenn Tilton could make millions by marrying United off, because his compensation is tied to stock price. I don't think he is motivated by that; I shall credit him with wanting to do what he considers best for UAL. But I think chief executives in general, and especially chief executives hired from without who don't have the knowhow to closely manage operations, tend to be overly attracted to "the big deal," leaving the post-deal details to lower-ranking executives, distracting them from day-to-day operations and tactical thinking. This is all a concern for Hawaii. United still flies more seats to Hawaii from the U.S. mainland than any other airline. In normal times it would never even consider reducing its Hawaii airlift, if only because it's the most popular route for frequent fliers to burn up frequent fliers. But these are not normal times and the fuel bills on such flights continue to mount.

Comments

[Tracy]

What's wrong with United? Crappy service! They are in the service industry and they stink! Compare a first class or coach fare to the mainland and Continental does it better... Even Hawaiian has great service to the mainland although limited I highly recommend them. United is really blowing it! Fuel prices have nothing to do with the way you treat people!

[Chuck Connors]

Yes, and the poor service seems related to really unhappy staff. But why shouldn't the be unhappy? Lost pensions, etc...

Last time I flew to the mainland a United stewardess yelled at me when I asked if they had any room in a refrigerator for my diabetic supplies. Really. Too the point that after she left the other passengers around me all commisserated and told me how bad the felt for me.

But this stewardess looked as tired as I was, and maybe like she wanted to retire 4 years ago, and now can't.

United would have been better of hiring a CEO with a better labor relations track record.