What Ails United Continental and How to Fix It (in 5 Slides)

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This is the next installment in my series of Business Strategy presentations. This time I diagnose what is ailing United Continental Airlines and begin to formulate plans on how to fix it. This is accomplished in only 5 slides!! Enjoy and please let me know your thoughts.

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What Ails United Continental and How to Fix It (in 5 Slides)

  1. 1. What Ails United Airlines and How to Fix It Business Strategy in 5 Slides Dexter King May 13, 2014
  2. 2. Who is Jeff Smisek and What is United Airlines? +• CEO of United Continental Holdings • Princeton, Harvard Law educated self- described “Air Force brat” • Spent first 12 years of career working as a lawyer at traditional law firm • Joined United as general counsel • Ascended to CEO in 2010 Sources: PwC Transportation Industry Report, Deloitte Airline Industry Overview, Chicago Tribune, United Airlines Fact Sheet • The world’s largest airline • Over 88,000 employees • Has 9 hubs in US, including hubs in four largest US cities • Flies to 62 countries • Over 140 million passengers • Recently reformed from a merger of Continental and United Airlines United Continental HoldingsJeff Smisek
  3. 3. Numerous business indicators show UAL’s performance is lagging behind its competition and it is struggling with its size and scope UAL’s financials worse than competitors • In Q1, 2014 UAL reported a $600 million loss, the only US carrier to report a loss • Since 2013 UAL’s stock growth +47% has lagged competitors like Delta +89% & Southwest +96% Sources: Fortune Magazine, Bloomberg BusinessWeek, The Motley Fool, Huffington Post, The Consumerist, United Airlines Fact Sheet, Crain’s Chicago Business UAL now considered worst US carrier • In 2014 the American Customer Satisfaction Index rated UAL as the lowest rated US carrier • When Smisek became CEO in 2010 UAL had been rated a most admired corporation for 9 years UAL is struggling with merger integration Jeff Smisek believes... • “...we operate really inefficiently today” • UAL has to get its “operational integrity humming” • and “...our customer service historically since the merger has not been as good as it could be.” UAL is too big and too complex • UAL has too many routes, 58% > Delta and 65% > American, to operate efficiently • In addition to Cleveland, UAL needs to close more of its “poor hubs” like Los Angeles and Denver • UAL increased capacity but experienced declines in occupancy from 84% to 82% • In Q1, 2014 UAL’s corporate booking rose 2%, behind Delta’s 6% UAL’s consumer demand growth is soft
  4. 4. UAL’s poor performance stems from a failure to properly integrate the corporate cultures of the root airlines “A true leader has the confidence to stand alone, the courage to make tough decisions and the compassion to listen to the needs of others.” ---Douglas MacArthur “The poor earnings, the faithless investors, the frustrated employees, the dissatisfied customers, the horrible job United’s PR department’s done in failing to create the persona of a CEO who cares....” ---David Fagin, Huffington Post “Many of the benefits of United’s merger with Continental will kick in after the airline gets its collective agreements with its workforce.” --- Ray Niedl, Maxim Group aerospace & airline analyst Sources: New York Times, Huffington Post United’s real challenge lies in combining different work groups with different cultures, values and ways of doing things. --- The New York Times
  5. 5. Pressures on CEO Passengers have been avoiding UAL to wait out its problems with the merger Stock analysts question the voracity and integrity of CEO’s guidance and leadership Media asking if Smisek is the right CEO for UAL’s integration and have named him to “worst CEO” lists UAL pilots conducting protests about their poor treatment, lack of contract and 40% pay cut Sources: Fortune Magazine, Bloomberg BusinessWeek, TheStreet, Huffington Post, The Consumerist, Crain’s Chicago Business UAL’s struggles have caused multiple constituencies to lose trust in Smisek’s leadership and call for him to step down as CEO of UAL
  6. 6. Smisek’s focus should be broadened to include building trust with his workforce and creating belief in his ability to lead UAL • Has Smisek diagnosed the real problems with UAL? Does he see the need to broaden his scope? • How do you help Smisek believe that the root cause of his problems is his relationship with his employees and that UAL would complete its turnaround if this were repaired? • What are the barriers to completing the collective agreements with UAL’s employees? • How can Smisek show his vision for UAL’s future and create trust and buy-in with UAL’s employees? • How does Smisek capture the hearts and minds of his entire workforce? • Where can Smisek find “quick wins” to implement and create a level of trust in his vision of the future? • What are the 3-5 “intractable”problems that need to be solved by Smisek and how can he utilize his employee base to help solve them? KEY QUESTIONS • Ensure that Smisek truly understands and empathizes with this workforce, especially the unionized groups • Poll employee base for 3-5 “quick wins” that can be implemented by Smisek for the benefit of entire UAL organization. Implement in 12-18 months. • Execute the above idea for UAL passengers. Implement just as quickly. • Establish labs within UAL comprised of 10-15 employees with each lab chartered with solving an intractable problem. Drive them to work against an clear time frame and then compensate them accordingly. • Establish a concrete pathway and clear criteria for restoring compensation levels of UAL pilots in a reasonable timeframe. Tie executive compensation to reaching THESE criteria. • Create empathy: Senior management is required to fly UAL coach class ‘solely’ until airline is turned around. • Create physical manifestations of “UAL of the Future” in all UAL hubs across the US. PRELIMINARY IDEAS Sources: “28 Articles: Fundamentals of Company-Level Counterinsurgency” by Dr. Kilcullen, McKinsey & Co CMO Forum Interviews and Research

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