This is one of the most controversial and subjective articles I’ve ever written, but after thorough reasoning, I’ve concluded that Jeff Smisek needs to abdicate his title as Chairman and Chief Executive Officer of United Airlines sometime in 2014.
And the sooner he does so, the better.
Nothing personal here, but I think it’s time for the UA Board of Directors to hit the “refresh” button and replace Smisek with a much more effective leader who is capable of steering the World’s Largest Airline towards a consistent path to deliver on all of its promises before the damages become irreparable.
“The Fish stinks from the head” (and yes, I said this once already over a year ago)
United merged with Continental in October 2010. Jeff Smisek, who hailed from the Continental side of the equation, was nominated to lead the combined company at the time of the merger closing. It was chalked up to be one of the largest, most complex marriages in the history of the airline industry, but once consummated, the sheer size and scale of the company would deliver immense value for shareholders and consumers worldwide.
The public wasn’t unfamiliar with the concept of airline mergers, particularly in the United States. Delta Air Lines had merged with Northwest Airlines in 2008, and within a two year span, the combined entity was generating healthy, consistent quarterly earnings, streamlining costs and operations, and making continuous improvements to its on-board product offering, which in turn led to high consumer satisfaction scores and pleased Wall Street analysts.
But something in the blueprint of United’s own merger plan was somehow horrifically flawed, because when the two carriers migrated to a single IT platform in March 2012, all hell broke loose. The aftermath included a year’s worth of system outages, cancelled reservations, unacceptable on-time performance rates, infuriated customers and poorly-equipped front-line employees to handle recovery efforts. United watched its corporate base plummet as its high-revenue paying customers flocked to competing airlines offering elite status matches and other incentives.
As time wore on, Wall Street grew more and more exasperated with the tight-lipped explanations from United’s C-Level personnel, and it became obvious that the entire saga could be pinned on pure management folly to adequately prepare and execute the merger in a manner consistent with what they had promised to the public.
A year ago, I wrote an entry on how United needed to put 2012 in its past and focus on making a comeback in 2013. Twelve months later, that opportunity has come and gone and little has changed.
With respect to its leadership personnel, even then I had a hunch that Smisek wasn’t cut out for this job.
Over time, that intuition has become a certainty.
United’s disappointing Q3 2013 results served as the initial baseline for my reasoning, and the recent green-light to the American Airlines – US Airways merger by the US Department of Justice certainly augmented my stance even more.
However, something snap-fired on Tuesday, November 19 during United’s Investor Day Conference in New York City that pushed me over the edge.
As a United elite for several years, amid all of the “changes” I’ve seen occur consistently at the carrier since 2010, ranging from increasingly common flight delays, dilution of its loyalty product, repeated technical outages, underwhelming fiscal performance and corporate back-pedaling, I discovered, listening to a recorded webcast of presentations delivered by Smisek and his Investor Relations team, another flagrant attribute about the way United runs its business.
Its very own Chairman and CEO simply fails to inspire his employees to strive to make the company a successful business operation.
And he probably, likely, if not most certainly, will never live up to the basic expectations required of a competent CEO to bring United Airlines to that point as long as he’s running the show.
It went off like a light bulb in my head.
In light of his opening remarks during that presentation in New York, he probably has convinced shareholders, and subsequently the Board of Directors as well, that he is no longer adequate for his position.
And like that, boom. Nail in the coffin.
Here is why.
“I think you’ll like the changes you see, as we aim to not fall in last place [again].”
One of the biggest things I strive for, not only as a blogger, but also as an airline/aviation business enthusiast, is to avoid thinking and speaking like an “armchair CEO” (a euphemism for someone who pretends to know everything about how businesses function without truly possessing in-depth knowledge or expertise on how to execute sound decisions in a hypothetical scenario).
However, it doesn’t take years of working in the field or an Executive MBA to listen to Jeffy speak and realize he has largely failed the company as a capable leader. He continues to repeat the same, frivolous crapola while flagrantly ignoring or barely even addressing the periphery of United’s core revenue and costs challenges.
It would be almost funny if it weren’t so frightening and obvious.
Here are some quips that made me cringe yesterday while listening to the presentation via webcast:
“We do the basics well from point A to point B.”
“We’re very focused on increasing efficiency and quality to drive significantly improved earnings.”
“The only way you can differentiate yourselves is through excellent customer service.”
“We have dramatically increased our customer satisfaction scores.”
“We have the best network in the long-haul.”
“We do the basics well?” Pray tell me. How would you feel if ANY CEO made that type of comment aloud to investors? You might as well ditch the new advertising campaign, “Fly the friendly skies” (which is actually not new, it’s just a slogan United has brought back from past years) and change the slogan to “Fly the mediocre skies!”
Put simply, none of the above statements show any indication that Jeff Smisek actually cares about his job, the future direction of the company, or even worse – delivering on shareholder returns. I mean, even the most corrupt of CEOs would at least realize that the task on hand is to convince investors that United is committed to this cause and, as a result of that, would parse in jargon to drive that point home on the spot, even if they were lying through their teeth.
Well, SMI/J, at least you haven’t hit rock bottom yet by getting on your hands and knees begging for forgiveness.
Then again, I’m not sure whether that’s better or worse than ignoring the severity of the situation in which you’ve put the company. In his remarks, Smisek doesn’t even come close to acknowledging that United has let down shareholders consistently quarter after quarter, and, per usual, throws out the classic, “we’re committed to earning a consistent, sustainable profit,” and “running a good, clean, safe reliable operation,” mumbo jumbo, spewing out robotic buzzwords and mundane statements which yield absolutely nothing of importance.
It’s not just frustrating, saddening and disappointing. Frankly, it’s worse than that. It’s just plain irresponsible.
Claiming that your company is committed to delivering “industry-leading unit revenue” does nothing to explain why United has recorded a string of flat unit revenue improvements every three months while virtually EVERY single one of its legacy and low-cost competitors have seen increases over the same periods, including a major one restructuring in bankruptcy. The same goes for yields and profit margins.
United has had no problem monetizing more and more components of the customer experience, even so far as to gouge away at its small, yet ultra lucrative elite population for perks that they’ve rightfully paid for through their business. Smisek can say all he wants about wanting to earn an additional $700M in ancillary revenue each year, but he certainly needs to confess that this has been a habitual tactic United has employed for many years, and the public isn’t stupid about knowing airlines charge for checked bag fees.
While the business logic behind product unbundling is a rational concept, the fact that United’s ancillary revenue earnings aren’t padding its bottom lines is not.
Saying that “anyone can put in Wi-Fi on their planes,” and that you think yours will “be the best in the business” does not account for admitting to shareholders that the Wi-Fi installation rollout on United’s domestic aircraft has a). experienced YEARS of implementation delays and b). essentially put the airline in dead-last place to nearing a completion date amid all of its competitors. Not to mention, it fails to elaborate on c). WHY [Smisek] thinks United’s WiFi will “be the best,” as he claims. Will it be faster than other networks? Will it be offered on more international or overseas flights than UA’s competitors? Will it be cheaper? Do you think your waning corporate traffic will have higher conversion rates?
Nope. Nada. Just words that contribute about as much value as a full fare Lufthansa business class ticket from Chicago to Dusseldorf adds towards your Premium Qualifying Dollar accrual to maintain elite status starting January 1, 2014.
Which is nothing, just for the record. You can read more about the devaluation of MileagePlus, United’s loyalty program, on its website, effective next year.
Finally, and perhaps more infuriating than dodging hoops and fabricating stories is Smisek’s habitual tendency to scrape at the bottom of the barrel to generate enthusiasm over celebrating mediocrity.
Case in point: touting “dramatic improvement” in customer satisfaction scores.
I mean, heaven forbid, I would hope so. United ranked DEAD LAST in 2012 among US carriers for system-wide complaints per 100,000 emplanements, according to calculations by the US Dept of Transportation.
A good leader is fearless enough to admit when and where the carrier failed, and only THEN does it become more credible and acceptable to speak of improvements that have taken place when you’re rising up from the bottom of the stack.
But to make it seem like United is improving in customer satisfaction rankings without any comparative basis is just disgusting. You’re either out of touch with reality, or you’ve really sunk so low that you’ve lost all respect for the key facets of your business operation, your employees, and most of all, yourself.
#FlyerFriendly? More like #LiarFriendly
Truth be told, those examples are just a handful among many, many other structural deficiencies that are looming at United.
I would have really liked to hear Smisek at least admit, even if tangentially, in his opening presentation to investors that United’s revenue and cost challenges were problematic in the Q3 2013 results. It would have actually even been acceptable if he had done so and still mentioned “the dog ate the demand forecast” excuse that has been tossed around in earnings calls. United claims that its revenue forecasting system opened up lower-yielding inventory buckets further ahead in the booking curve, stimulating demand, but at lower revenue streams for the carrier.
At the very minimum, it would have been the accountable and ethical thing to at least touch on this point. We’re talking about relevant discussion topics to be assessed at an Investor Conference in New York, not cool new gadgets to be shown-off at a Social Media convention in New Mexico.
But, alas, Jeff Smisek did not comment on any of these crucial details.
Smisek instead made some jolly remark along the tunes of, “we’ve developed a set of very detailed standards that we’ve borrowed from the hospitality industry” or some frivolous statement like that.
What I would love to hear is how those “standards” are going to fix United’s revenue woes and curb its cost control issues.
I’m curious to understand how those “standards” justify United’s reasons for waging war against its elites by calling them “over-entitled,” instituting minimum flying spend requirements on United metal, discouraging them from flying United partner airlines and overall diluting the value of investing in the United/Star Alliance global brand.
I’d love to know how these “standards” are going to explain why United still trails its competitors operationally. The SHARES IT reservations platform United uses continues to be a nightmare for its employees to use. I still am baffled by how long it takes agents to process passenger records at the airport, and how it’s led me to distrust United on virtually all fronts when I fly because I feel like there is no guarantee that I’m “always connected” to what is happening with my reservation at any stage in the journey.
When I show up at the gate 5 minutes prior to scheduled boarding time, and I discover they are making final calls for “all rows, all passengers,” (which happens pretty much every time my flight isn’t delayed or cancelled), I feel violently ill at the mere thought of what would have happened if I had experienced a 5 minute hold up at security, shown up “on-time” at my flight for boarding and had been denied at the gate for being “late” just because United wants to shove off from the gate ASAP and artificially inflate its On-Time Performance rate to overcompensate for when it screws up elsewhere.
Is that supposed to make me feel like a valued elite? Stressed out and disillusioned because flying United has turned into a giant guessing-game?
#CustomerFriendly my foot, SMI/J.
I’d also really like to know how these hospitality “standards” show how United’s product is really all that special. When I flew transatlantic in EconomyPlus recently on a legacy United 767, all I could think about was how ready I was to get the hell off that plane. The catering, 1st-generation In-Flight Entertainment system and surly crews are nothing for even a Soviet-era carrier to feel proud of. I’ve even flown domestic and international premium on United a few times and believe me, it’s nothing to write home about.
And finally, I’d really want, most of all, to understand why and how United believes that it is a “great place to work for” and where the “system of trust” is truly manifested, other than “in God we trust, and in trust we hate working among each other,” because talk to anyone who works for United, and it’s clear as crystal across the board that there is still an “us versus them” mentality pervasive when it comes to pre-merger Continental and pre-merger United employees working in unison.
Be it front line employees or corporate, it’s always, “their system” and “their policies” and “their people” that receive the blame when failure occurs. Word on the street is that the aforementioned system forecasting scapegoat excuse for lackluster Q3 revenue performance was traced back to a “pre-merger Continental method we tested out” that led to the fallout.
Oh, cry me a river. It’s one of the saddest things I’ve ever seen. Again, it doesn’t take an MBA to learn the mantra that if you’re not part of the solution, you’re part of the problem.
On that end, I’ve yet to hear a single United employee ever say, “it’s OUR problem,” which would represent a huge step towards actually taking responsibility and making a commitment to come to a resolution for the betterment of the corporation, its shareholders and its guests.
But, that goes back to my original point: the fish stinks from the head. If your CEO isn’t going to make such acknowledgements in front of investors, be assured that the same mentality is going to trickle all the way down to your lower-leveled employees, and everyone in-between who interacts with the customer.
In closing: keep Rhapsody in Blue, and Fly the Friendly Skies, but give Jeff the boot
My biggest fear is that United under Smisek is heading in the same direction as American Airlines did under former CEO Donald Carty and Gerard Arpey’s guidances in the 2000s: perpetually becoming a poorly run business, with jaded employees, waning product investments, alienated elites, sub-optimal operational performances and when the P&L numbers don’t stack up to expectations, the quick-fix, unanimous solution is to yell, “cuts, cuts, more cuts!”
Herein the cliche makes its case: the definition of insanity is doing the same thing over and over again and expecting different results every time. Then you trim and slim, churn and burn some more until you self-destruct completely.
American was on this path until almost two years ago to the date, when it filed for bankruptcy on November 29, 2011, replaced Gerard Arpey with Tom Horton, and started moving and shaking. Although I can’t say I am a fan of AA’s new logo and rebranding scheme, at least elsewhere, the company is on a stellar path on its way to exit the court relatively quickly.
As such, American’s momentum is creating a big predicament for United: when a bankrupt competitor is outperforming you and plans to merge with another major competitor to become an even more powerful combined entity, as an inept CEO, your safest bet is to step out of the way when you’ve failed to deliver on promises for over 36 months.
Thanks for all that you’ve done, Jeff. I’m sure you’re a great guy and I would still love to grab drinks with you sometime, but not until I see a new face writing the intro letter in future issues of Hemispheres magazine.
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