Editorial: Glenn's gotta go at United

There has been a lot of stuff out there written about United Airlines, and most of it isn't positive. We're all familiar with the United Breaks Guitars video (the second of three is out on YouTube, by the way), and the infamous "Untied" complaint website has been a thorn in the airline's side for many years now. I was on the website of United's Association of Flight Attendants the other day when I came across an account of how AFA members picketed the airline's 2008 shareholder meeting. I figured that it would be another story about angry union protesters, but then the last part of the article caught my attention:

The worst part of the meeting was when Los Angeles Customer of the year, James Anderson, stepped up to the microphone and respectfully addressed [United CEO Glenn] Tilton as a shareholder and a loyal customer who spent $100,000 at United just last year. Employees clapped and cheered for Mr. Anderson. He explained to Tilton that he felt caught in the middle of all of this and expressed concern about the discord at the meeting and the state of employee morale at the airline. He questioned whether he should continue to buy tickets on United Airlines. Tilton shrugged his shoulders and told him it was his prerogative if he wanted to take his business elsewhere but that it was going on at every airline in the industry - so where would he go? There was a shocked silence from the room and Mr. Anderson seemed bewildered at having been so easily dismissed. He paused before quietly stating, "What I’m trying to say is that I’m concerned about this. You talked about aircraft enhancements in your presentation – and they’re great – but they don’t put smiles on the faces of your employees.”

I haven't been able to independently verify the above story, and an email I wrote to the AFA requesting further details remains unanswered. But if the story is true (and I have no reason thus far to believe otherwise), then Tilton should be ashamed of spouting that kind of crap. First of all, it's not going on at every airline in the industry. And secondly, what kind of CEO, airline or otherwise, tells one of his best customers to go ahead and shove it? Maybe if you're Michael O'Leary, CEO of Ryanair. But O'Leary can do so because his airline's fares are so low that people will always come back, regardless of service. If the price is right, service doesn't really matter. But United's no Ryanair, and the airline can't afford to alienate key customers (let alone the rest of us).

That's the attitude that Glenn Tilton conveys - we don't really care about you. And you know what? Chances are that attitude is going to trickle down to the rest of the employees. And while I know that there are thousands of United employees that take pride in their work and do their best, I've also experienced a lot of less-than-stellar service on United. And you can't really blame them too much, either. I'd probably be pretty cranky, too, if my pay and benefits were slashed while Tilton & Co. raked in the dough. A great article over at Forbes, entitled "United Airlines Shows You How Not to Run Your Business," has this to say regarding employee morale:

United's workers... have had their wages, pensions and benefits cut even as the chief executive officer has been paid nearly $20 million dollars over the last five years (despite United's stock dropping 43% during his tenure)... All employees share the pain equally. If there are big cutbacks anywhere, senior management should take substantial pay reductions and limits on its privileges, such as fewer business class flights and trips on private jets. The troops look to senior management for direction. If those troops see the top brass caring for itself at the expense of others, the spirit of the entire organization erodes.

And there you have it. It's no secret, Glenn - perhaps you should look across the Pacific at another airline that's in trouble. JAL has been bleeding red ink as of late (posting a $1 billion Q2 loss). But their CEO takes the city bus to work and gives himself just $90,000 a year in salary (less than the pilots make), as CNN reports:

United's long-running financial troubles show no sign of abating. Tilton's strategy has been to try to polish up the airline enough to sell it off or merge it. Delta was always seen as the likely choice, but it opted for Northwest. And Continental figured that it would be better to just "remain good friends" with United (as evidenced by the new alliance between the two airlines) rather than a full merger. Nobody wants United, and that throws a wrench in Tilton's plans. United's fleet of planes is starting to get a little long in the tooth, and despite the airline's recent talk about shopping around for a big airplane order, it's clear that the airline would have a difficult time obtaining financing. As is pointed out in this Chicago Business article, United has billions in debt, and Tilton's already burned most of the furniture already. There's not much left.

Which means, quite simply, that it's time for Glenn Tilton (and probably a lot of the rest of UAL management) to go. I don't want to play armchair CEO, but it's clear that whatever's going on in Chicago needs to change, and change soon. Times are tough, sure, and everyone's hurting. But United has consistently been a loser in many categories - financial performance, customer service, etc. Firing Tilton wouldn't fix all of these problems overnight, but it would be the first major step on United's much-needed road to strength and stability.

Edit 8/26 7pm: I managed to get in touch with Sara Nelson at the United AFA, who provided me with the following: We do not have a video clip of the meeting. However, Mr. Anderson, himself wrote about his experience on FlyerTalk. And, he appeared again at this year's Shareholder meeting. I personally witnessed both meetings and his interaction with Glenn Tilton. This year Chicago Tribune reporter Julie Johnsson wanted to meet the man Tilton had dismissed and hurried to greet him once the meeting was over.

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Baltia Air Lines, the 20 year old startup

A few weeks ago, I stumbled across a press release that said that a New York-based startup, Baltia Air Lines, had signed a letter of intent to purchase a Boeing 747. Who the heck is Baltia? I did a little research (mostly in the form of 10-Q filings with the SEC) and turned up some basic history about the airline.

Baltia was founded on August 24, 1989 (that's right - a startup airline older than I am) with the goal of connecting New York-JFK to the then-Soviet Union. In June 1991, the carrier received permission from the DOT to start flying between New York and St. Petersburg (then Leningrad). They also were to fly between JFK and Riga, Lativa, and from there serve Kiev, Minsk, and Tbilisi, Georgia. That same month, Baltia expressed interest in grabbing two Boeing 767s to fly to Riga and St. Petersburg, as well as some 737-200s to use on connecting flights to the three other destinations from Riga. That was all in 1991 - and then the news articles about Baltia stopped, until just recently. It was as though Baltia just dropped off the radar for the better part of the last twenty years.

So now for the obvious question - why, twenty years later, are they still in the startup process? What's taken them so long? In a nutshell: lots of financial problems. Let's take a look at the timeline (which has some holes in it, but should be helpful nonetheless):

• 1991: The airline's "financing efforts were destroyed" as a result of the August 1991 attempted coup d'état in the USSR, according to an SEC filing. "Subsequently the route authorities terminated for dormancy."
• 1995: Baltia reapplies for the JFK-St. Petersburg route.
• 1996: DOT reissues JFK-St. Petersburg route authority to Baltia, "based upon reexamination of the Company's operating plan and fitness as a US air carrier." By then, the airline had apparently dropped plans for Riga and instead focused on serving St. Petersburg with a single Boeing 747.
  
• 1998: Baltia makes a $100,000 down payment on a Boeing 747-200 owned by Cathay Pacific.
  
• 1999: Baltia finally "had all the variables" needed for flight operations in place, except for enough working capital. The airline was supposed to raise the cash through an IPO, but that failed, and the DOT revoked its route authority, telling it once again to come back when it had the money.
• October 2007: Baltia files once again for non-stop service between JFK and St. Petersburg. The third time must really be the charm, because it's granted by the DOT.
  
• December 2008: DOT declares Baltia "fit, willing and able" to fly.
• Currently: Baltia is "conducting the FAA Air Carrier Certification process under Part 121. Upon completion of the Air Carrier Certification, Baltia intends to commence scheduled non-stop service from its Base of Operations at Terminal 4, JFK... to Pulkovo II Int'l Airport of St. Petersburg."

I called up Barry Clare, Baltia's VP of Finance, to ask him about his carrier's long, long history. Why has it taken so long, and why will this latest attempt be the one that works? Clare said that the airline had many setbacks raising capital in the 1990s, and part of that had to do with the fact that the airline wanted to launch with several airplanes. The latest attempt, Clare notes, will see Baltia starting out with only one airplane, a Boeing 747 purchased from an American carrier (since the deal is still in the works, he could not divulge which model or from which airline it was purchased).

"It was always a lack of capital, not a lack of know-how... it's been a bunch of fiascos with Wall Street professionals who make promises and never delivered," he said. "This time around, we went out and raised the capital that we felt was necessary to launch, even before we submitted our application to the DOT in 2007. We raised $2.7 million... it looks like this time around, Baltia Air Lines will fly." Clare expects that the first flight will take off before the end of the year, and that the airline is seeking to codeshare with a "major American airline" to provide some feed into JFK.

Baltia's planes will be configured in a four-class layout: Voyager Class (coach), Super Voyager (what Clare calls a "step up from regular coach), business, and first. "Service aboard the plane will be second to none," says Clare, noting that there will only be 296 seats on the main deck of the 747.

The airline plans to gradually ramp up its schedule. Baltia is only planning on flying one round trip between JFK and St. Petersburg for the first month; the second month will see three round trips per week, to be increased to five trips by the third month. After the first four months, the airline plans to take delivery of a second 747 and start service to Moscow and start with the same schedule frequency, to be followed by Minsk, Kiev, and so on. "Within a two year period, we'll have five aircraft in the air servicing the Baltic region, generating close to $500 million in revenue."

As for finances, Clare claims that one 747 will generate $40 million in profit off of $100 million in revenue annually, even with a 64% load factor. Voyager tickets will be between $800 and $1,200; Super Voyager seats will be around $2,000 apiece. Business class seats will go in the range of $4,000 to $5,000, while first class seats will set you back a slick $16,000. "First class has only twelve seats," explains Clare. "It's sort of a gimmick because we want to show that we have that kind of service available. Even though service will be superior throughout the entire aircraft, first class service will really be far superior. The entire upper deck... will be dedicated as a first class lounge, with a bar and gourmet chefs, live entertainment, strictly for the first class passengers... If the [first class] seats get filled, great; if not, it's there to show that Baltia Air Lines has that kind of service." The airline is hiring "stewards" from "fine restaurants, not flight attendants who work for other airlines that have bad habits. The experience will be incredible... like the grand old ocean liners."

But I've got a feeling that this isn't the best time to be starting up a premium-travel carrier. Remember that whole slew of premium transatlantic carriers a couple years back? Silverjet, eos, MaxJet? They're all gone, and BA's OpenSkies is on life support. Baltia may not be business-class only, like those airlines, but it's clear that they're going after the upscale traveler here. Premium travel has taken a huge hit, and it's not likely to bounce back anytime soon. And while the airline understandably touts its non-stop New York to Eastern Europe service, is it going to be able to compete with the likes of Lufthansa and Air France, which offer frequent connecting flights to the same destinations that Baltia will serve? It's trying to be a niche carrier, but I'm not sure that that niche is big enough, even for a small carrier like Baltia.

(Oh, and you'd think that an upscale airline would choose a better name for its frequent flyer program than Freeloaders, but that's what Baltia's done. Not kidding.)

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Southwest lands in Boston

I had known that Southwest Airlines was going to start service from Boston for a while, but it wasn't until my good friend Dan at Things in the Sky talked more about it that I started thinking about how I could go and see it happen. Dan kindly sent a last-minute email to the wonderful Paula Berg at Southwest, who put me on the list of attendees for the weekend's festivities.

On Saturday, Dan and I showed up at Terminal E at Logan Airport. We got our gate passes and wandered over to the Southwest gates, which used to be the old Northwest gates before they made the move over to Terminal A with Delta. Having used those gates before, I can say that Southwest certainly did a good job of sprucing up the place and adding a bit of color.

We waited around for the ferry flight from Dallas' Love Field to arrive; Southwest flight 8500 touched down around 4:30 on Saturday afternoon and received a water cannon salute as it pulled up to gate E1A. Unfortunately, we weren't allowed to join the folks down on the ramp.
Cheering Southwest employees and friends of Southwest streamed into the terminal, and Southwest PR Manager Paul Flaningan made a short speech. Then Southwest's Boston station manager, Brian Kunkel, told the crowd, "Five years from now... it's going to be one if by land, two if by sea, and if by air, Southwest it will be!"
Next, it was off to the House of Blues (right near Fenway Park) for dinner with a wonderful bunch of both Southwest employees as well as a few great Southwest fans from FlyerTalk. Paula Berg and Christi Day, both from Southwest's Emerging Media department, were there, as well as Ginger Hardage, Southwest's SVP of Culture and Communications. They all exuded Texas-style hospitality, even though I was the 'local'. Dinner was followed by some fantastic karaoke.
I got up bright and early the next morning to meet up with Dan and Drew (curbcrusher on Twitter and FlyerTalk) to take the subway over to Logan. By the time we got to the gate, passengers were already boarding the very first Southwest flight from Boston - flight 1309 to Chicago Midway, a Boeing 737-700. The plane pushed back shortly thereafter, and took off around 8:40.
We also stuck around for the first arrival, which flew in from Baltimore/Washington late that morning. In the meantime, Southwest had put out quite the breakfast spread near the gates, handing out pastries, bagels, muffins, and coffee. I observed quite a few passengers saying how excited they were that Southwest was finally coming to Boston - it's an airline that really knows how to build up a solid fan base.

Monday morning I ventured over to Logan one more time for the airline's press conference, which was held outside of the airline's check-in area in Terminal E. The nice thing about this area is that Southwest is the only domestic airline there. Because all of the other carriers are international, their flights (with the exception of the morning BA flight to LHR) all leave starting in the mid-afternoon, meaning that the terminal is pretty empty for a good part of the day. Matthew Brelis, Massport's Director of Media Relations, was kind enough to take me from Terminal E over to the water taxi stand, where Southwest employees and the news media had gathered. A Massport fire boat switched on its sirens and started spraying water as soon as the boat carrying Southwest CEO Gary Kelly (you can see him in the picture below, waving) came near.
Once everyone had disembarked from the boat, we walked over to where a duck boat was waiting for us, complete with Southwest banners on the sides. I was lucky enough to grab a seat in the back. The boat (really an amphibious tour bus) drove us over to Terminal E, but the driver, unfamiliar with the layout of the airport, accidentally took us on a brief detour on the highway. But we pulled up in front of the terminal soon enough, and the "Lexington Minute Men" were there, playing drums and flutes.
Here's a video with a few clips from the duck boat ride (note the driver asking Gary if he's really in charge of Southwest) and one from inside the terminal, where the airline was presented with an official citation from the Commonwealth of Massachusetts.

Inside, Ginger Hardage, Massport CEO Tom Kinton, and Gary Kelly all addressed the assembled crowd, which was mostly comprised of the media and employees (although I did notice a few curious passers-by who stopped to watch, too).
Southwest also handed out some delicious clam chowder and iced tea following the speeches, and I even had the opportunity to have my picture taken with Gary himself.

I had never been to an station opening before, and it was really a wonderful experience. I met a lot of great people who were both Southwest employees as well as those who were just Southwest fans. I was able to observe first-hand the immense brand loyalty that Southwest has, and based upon the incredible company culture that I saw, it's not difficult to figure out why. The employees are genuinely excited to be working at Southwest, and it shows. The airline also extends a welcoming attitude to bloggers like myself, which is quite refreshing. Right after he got off the boat at Logan, Paula introduced me to Gary as an aviation blogger. Gary put his hand on my shoulder and said, "We're glad you're here" - not something that I expected from an airline CEO. A big thanks to all of the folks at Southwest who worked hard to make the opening weekend here at Boston a successful and enjoyable one!

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US Airways and Delta work out a trade

Some interesting news today - US Airways has announced that it is going to swap slots with Delta and get some international routes from them as well. Under the terms of the deal, which is still pending regulatory approval, US Airways gains 42 pairs of slots at Washington's Reagan Airport and will be able to start flying to Sao Paulo, Brazil from Charlotte and Tokyo from Phoenix. In return, Delta will get 125 pairs of slots at New York's LaGuardia airport.

US Airways was quick to point out that the slots that Delta is getting are currently being used by the US Airways Express operation, and that mainline US Airways service (including the Shuttle) won't be touched. Still, it's possible that mainline traffic could take a hit if there's less traffic being fed into LGA by the Express carriers, which will stop flying to 26 destinations from LaGuardia. And there will be around 300 layoffs at the airline's Piedmont regional subsidiary.

But the airline also gets some interesting assets in return. US Airways will start serving some major destinations from Washington DC (Cincinnati, Montreal, and Miami, among others) as well as smaller cities (Savannah, Pensacola, Ithaca, and more). The airline also noted that it would boost the number of seats that it flies to Washington by using "larger dual-class jets." And the deal also gives US Airways two key international routes. US Airways currently does not fly to Asia, and the airline has repeatedly delayed the start of Philadelphia-Beijing service. But Phoenix-Tokyo, which will be flown by Airbus A330s but not until 2012 at the earliest, would be a great way for the airline to offer another international connection at its western hub. US Airways will also launch Charlotte-Sao Paulo service next year.

Let's look at Delta, which already has significant domestic and international operations across town at JFK. The airline's press release notes that the airline will "build a hub operation at LaGuardia that will increase the number of customers served... without increasing congestion." It'll do the same thing that US Airways plans to do at Washington - operate larger planes. "In every slot where US Airways operates small turboprops today, Delta will operate larger jets," said Delta. "These new markets and larger aircraft would allow more than two million additional passengers to transit LaGuardia each year without increasing the total number of takeoffs and landings... Many small- and medium-sized communities throughout upstate New York and New England will benefit from service upgrades where Delta will operate larger regional and mainline jets."

The airline also plans to spend $40 million on a project to upgrade and rebrand the US Airways and Delta operations at LaGuardia, so it's clear that they're planning on making this a hub. At the same time, "Delta will continue to invest at its hub at New York's leading international airport, John F. Kennedy International," the airline said. So now the airline will be pursuing a rather interesting strategy of operation two hubs in the same city, one of which is primarily international and the other domestic. This could pose some interesting challenges; what happens to passengers seeking to connect between the two airports for an international or a domestic flight?

For more information, check out the US Airways press release here and the Delta release here.

photo by ChrisI1024 on Flickr

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United's wheel of fortune

I didn't know about this until it was pointed out to me yesterday (thanks to @derekwhit and @melissaiscool on Twitter), but it seems that for the last couple of months, United Airlines has set up a 'spin the wheel' setup at key airports. More after these pictures from FlyerTalk:
Apparently, you can spin the wheel and claim your 'prize', which is either one of United's new "Travel Options" or a promotional item:

• An Economy Plus upgrade for all of your flights that day
  
• a Premier Line pass (you get to use United's Premier check-in and security lines as well as priority boarding)
• A Red Carpet Club pass (clever clever - they won't actually give you a pass, but instead stamp your boarding pass - that way you can't sell the pass)
• A 'game book' (crosswords and Sudoku puzzles)
• A bottle of water
• Playing cards - this one surprised me; I thought that the days of airline playing cards were long over.
• There's also a "luggage tag" event, where United laminates one of your business cards and on the back throws in a promotional Economy Plus message.
  

Judging by the wheel, the most likely option that you'll land on is Economy Plus. People might be asking why United would give away more seat upgrades than bottles of water, but it all comes down to price - if there are available Economy Plus seats available for a flight, the cost to United to give it away is nothing.

At first, I thought that this 'spin the wheel' was kind of dumb - after all, it's nothing more than giving away a few cheap freebies and promoting the various ways that United can take more of your money. And it really only benefits existing United customers (after all, someone traveling on American isn't going to be able to take advantage of the game, unless they win a bottle of water). But I had a change of heart, and now I think that this could be one of United's rare good marketing ideas. United isn't focusing on passengers on other airlines; nor is it focusing on its highly-valued "elite" travelers, who probably already have those benefits. Instead, United's targeting the casual flier by giving them a 'free sample' of one of their Travel Options, with the hope that they'll 'upgrade' more often. The cost to them is very little (giving away an otherwise vacant Economy Plus seat, letting another person into the Red Carpet Club, etc.), but if it convinces a good number of passengers to start upgrading their Travel Options more frequently, it would be a marketing accomplishment that United could be proud of.

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JAL loses $1 billion in second quarter

You thought Delta's second quarter loss of $257 million was bad? Or even American's $390 million loss during the same time? Even perennial money-loser Alitalia's financial performance pales in comparison to Japan Airlines' whopping $1 billion loss between the months of April to June, which is larger than the amount it lost for all of 2008 (only $35 million). As a result, the airline has announced that it will reduce flying or switch to smaller planes on 25 international routes, although I'd think that more cuts will have to follow in short order.

Can JAL sustain these heavy losses? The airline got a $1 billion bailout from the Japanese government in June, although it asked for twice that amount. The government will probably end up ponying up more cash to keep JAL afloat. It's true that JAL was hit pretty hard by swine flu fears earlier this year, not to mention the ongoing worldwide recession. Even Singapore Airlines, usually a rock of financial stability, has warned that it could post its first full-year loss since 1972, the year it was founded. But JAL is in much worse shape than its arch-rival ANA, which lost almost $300 million during the second quarter. While everyone's hurting right now, JAL clearly has some problems of its own that it needs to clear up quickly. Traffic (especially business traffic) isn't going to rebound anytime soon, and while JAL has made some progress at cutting costs, it's going to have to do much more if it wants to stick around.

photo by St Stev from Flickr, licensed under the Creative Commons

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Lufthansa's rainy day fund

Never mind Lufthansa's current financial difficulties, which I wrote about yesterday - the German carrier is intent on keeping clouds out of the picture with its new "sunshine guarantee". If you're on vacation and your day's a washout, don't worry - Lufthansa will give you 20 euros (approx. $30) for each rainy day of your vacation, up to 200 euros. "If the sunny stay hoped for by many is spoiled by rain, maybe 20 euros compensation ...will brighten the mood," the airline said, quoted by AFP. In order to qualify, the German weather website wetteronline.de must show at least five millimeters of precipitation at your vacation destination (one of 36 eligible cities), and your flights have to be booked between now and August 18 and must be flown from Germany between September and October.

Some of the destinations - Abu Dhabi, Tel Aviv, Dubai, Cairo, Madrid, Barcelona - all seem like pretty fair weather cities, so the money that isn't spent there can be spent on other cities that are also covered in the deal, like New York and Washington, which have a lot more rain (especially this summer!) than those other cities.

photo by So Cal Metro from Flickr

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Lufthansa allowed to purchase Austrian

German carrier Lufthansa recently got the go-ahead from the EU Commission to purchase Austrian Airlines, but maybe it will have reason to re-think its decision in a few months. After all, Austrian recently reported a 78.5 million Euro ($113 million) loss between April and June, and has lost 166.6 million Euros ($239.8 million) for the first half of the year. Lufthansa, on the other hand, managed to obtain an operating profit of 8 million euros ($11.5 million) from January to June, although it also posted a net loss of 216 million euros ($311 million). The EU Commission has approved the takeover, and although a final decision is expected in a couple of weeks, the deal's pretty much as good as done. Of course, Lufthansa had to make some concessions in order to avoid running afoul of the European antitrust policies, giving up some prime take-off and landing slots at Vienna's airport.

Some remain optimistic about Lufthansa's financial future. "We remain optimistic from a mid-term perspective," said one analyst. "Lufthansa has impressively demonstrated that it is able to reach a small profit even in a disastrous environment." "Based on its superior financial strength and its anti-cyclical approach to acquisitions, we expect Lufthansa to emerge as a long-term winner from the current global economic crisis," said another. Yet it's clear that in the short term, Lufthansa faces some serious struggles; not only does it have to cope with the weak demand for travel, but also the purchases of Austrian, bmi, and Brussels Airlines. Austrian, for its part, has been quickly racking up debt - almost two billion euros of it, which is over five times its equity.

Still, Lufthansa apparently thinks that it can turn around Austrian and make it profitable. And while this isn't an unrealistic expectation (and it helps that a new cost-cutting program was introduced at Austrian last week), this particular acquisition poses some interesting challenges. Two of Lufthansa's earlier purchases, Swiss and Brussels Airlines, are relatively new airlines, having been formed in the past decade. They were both created out of the ashes/assets of two historic but loss-making carriers, Swissair and Sabena, which both failed in 2002. This allowed Lufthansa to take over some choice assets without dealing with the incredible debt burden that caused the two airlines to collapse.

Austrian, as I mentioned before, has almost two euros in debt, and that number isn't likely to shrink anytime soon. A 200 million euro government bailout earlier this year is the only thing keeping the airline afloat, and it's already burned through two-thirds of that cash. Niki Lauda, founder of Austrian subsidiary Lauda Air and now founder of budget airline flyniki, has claimed that the deal is the "biggest catastrophe [for Austria] since World War II." "It takes no skill to give away an airline and then still pay 500 million euros on top of that," he said, referring to the fact that the Austrian government has agreed to absorb a third of Austrian's debt.

Still, Lauda got some good slots at Vienna thanks to the deal, so he can't be all that upset. And Lufthansa, if it manages to get Austrian's house back in order, could end up profiting from Austrian's extensive Southern and Eastern European route network. So it will take quite a bit of work, but that's something that Lufthansa and its CEO, himself a native Austrian, is willing to put forth.

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