When United and Continental announced their merger a few years ago, they trumpeted something like $2 billion in savings that could be realized from combining the two companies. Fast forward to the 1st quarter of 2014 and the airline lost a half billion dollars in the quarter. That’s obviously not the direction they want to be going, so they’ve set out to find other cost savings.
One of the ways that they’re working on saving money is by outsourcing operations at 12 additional airports in the US. Quoting from the WSJ article:
United Continental Holdings Inc. UAL +2.38% said Monday it will outsource jobs at 12 U.S. airports in cities including Buffalo, N.Y., Charlotte, N.C., and Detroit on Oct. 1 to vendors who will perform the duties at lower cost. The jobs currently employ about 635 workers in areas including check-in, baggage-handling, and customer service.
Given, these aren’t major stations for United, but there aren’t many instances where outsourcing provides an increase in the service levels (though, given how sullen some United employees are post-merger, you never know). One of my least favorite outsourced stations is Los Angeles. Typically, they’ll have one or two United employees who can resolve conflicts with your reservation serving somewhere in the neighborhood of 20 kiosks. The rest of the employees are contract folks who really can’t do much more than tag your bag.
To be clear, outsourcing alone isn’t a recipe for poorer service. As the article notes, American Airlines has a lot of outsourced employees who do a good job. I frequent some outsourced stations for both American and United and it’s generally a better experience from the Envoy employees that serve American Airlines counters.
A recent experience for me at an outsourced United station had me worried about 1 of our family’s 5 checked bags, a stroller. Due to some kinks being worked out in a new baggage system, the stroller had to be handled by a United employee. I alerted someone from the ticket counter to my bag and they said they’d take care of it. I was pretty worried that bag wouldn’t make the plane. In the end, United didn’t mis-deliver our stroller, they actually left all 5 of our bags off one of our flights, despite the red priority tags attached to them.
That’s an isolated instance and certainly not the norm. The larger point here is that United hasn’t done a great job training their existing employees to maintain service standards. Outside contractors can be harder to manage, in that you’re generally a bit further removed from the day-to-day management of those employees when you outsource.
It doesn’t have to be that way. United used to have a regional carrier named Atlantic Coast Airlines that operated a sizable regional jet network for United out of IAD. Alas, when United cut their compensation too far, they branched out on their own to form Independence Air, ultimately failing on their own.
A recent comment from my wife is illustrative of the average person’s response to United’s service levels. She doesn’t fly United anywhere near as often as me, but hasn’t seen much to be impressed by. When discussing an upcoming trip we had booked on Lufthansa, I told her that United had opened up 4 seats to Rome on a nonstop flight for us to snag as opposed to flying Lufthansa and connecting in Frankfurt, arriving 4 hours later. Her response?
“Lufthansa treats the kids so much better. They’re less likely to lose or ruin our suitcases. And, the United employees just aren’t friendly. But, I guess we should take the direct flight. Hopefully, it won’t be too bad.”
Not a condemnation, but you can’t just sell network. Customers want a product that gets them there happy and on-time. They might not be able to get that all the time, but when the competition is offering a better experience, they can’t blame folks for having a wandering eye.
United strikes me more as a plane without a pilot right now as opposed to a company realizing synergies from a massive merger. They’re focusing on bulk ketchup and garlic bread while service levels continue to fall, losing them key corporate clients. There’s no doubt in my mind that drastic changes are needed when you lose half a billion dollars in 3 months. And, all of these moves may be the right financial decisions for United to make, just like they’re de-hubbing of Cleveland. But, shrinking an airline to profitability isn’t something that has a great history of success. Scrambling for these maneuvers also takes United away from the task of making a better airline.
In the words of their CEO, Jeff Smisek, these don’t strike me as changes we’re going to like.