United execs vow airline will learn and grow
At beginning of call with analysts about carrier’s financial results, CEO says he’ll be ‘making this right’
After reporting strong financial data, United Airlines’ top executives attempt to reassure investors that the company will continue to thrive as it adopts changes in response to the forced removal of a passenger.
United Airlines executives on Tuesday continued damage control for the now-infamous Flight 3411 incident, in which Dr. David Dao was forcibly removed from the plane, during the company’s firstquarter earnings call with analysts and reporters.
“You can and should expect more from us,” chief executive Oscar Munoz said during opening remarks. “And as CEO I take full responsibility for making this right.”
He then outlined previously announced policy changes before delving into financial information. He said crew traveling on aircraft will be booked at least one hour before departure, and United will not ask law enforcement officers to remove passengers from flights unless it’s a matter of safety or security.
Calling the incident a “system failure across various areas,” Munoz said there was never a consideration of firing an employee over it. United is further reviewing its policies and systems that factor into situations like this and will announce the results by April 30.
United Airlines report-
ed net income of $96 million, or 31 cents a share, for the first three months of the year. That’s down from $313 million, or 88 cents a share, for the same period last year. The first quarter ended before the April 9 incident aboard Flight 3411.
The carrier’s firstquarter performance was affected by higher fuel expenses and labor rate increases stemming from new contracts that were ratified last year.
The earnings call included some positive news for Houston, with revenue from energy-related accounts up 13 percent.
“The energy sector in Houston ... is starting to at least recover from a very low base,” airline president Scott Kirby said.
United’s first-quarter revenue increased 2.7 percent to $8.4 billion. And while an important unit revenue metric was flat, Kirby said it’s expected to be up 1 to 3 percent in the second quarter. That would mark the first quarter of positive unit revenue growth in two years.
This metric, passenger revenue per available seat mile, measures money an airline brings in for each seat that flies one mile. It’s comparable to how much money a retail store or restaurant would bring in per square foot, said Rob Britton, a former airline executive and current adjunct professor of marketing at Georgetown University’s McDonough School of Business.
Houston reported the largest increase among United’s markets in this metric during the first quarter. The increase was partly due to the carrier’s shifting capacity away from Houston, which can be done by changing the size of an aircraft or the frequency on some routes.
“With less capacity and higher fuel and labor costs, United may have raised its fares to and from Houston compared to last year,” Henry Harteveldt, founder of San Francisco-based Atmosphere Research Group, a travel industry research company, said in an email.
He said the higher PRASM, as the industry refers to the metric, indicates that more people are flying from, to or through Houston. And that means the city’s economy may be improving.
“It’s just a question of how quickly it’s going to get better from here,” added Joe DeNardi, vice president of financial services firm Stifel.
The Houston Airport System has seen an overall 3.3 percent decline in passengers during the first two months of this year.
United will also be “rebanking” its operations in Houston starting later this year. Britton described this as fine-tuning the connections available at Bush Intercontinental Airport. This could be done by rearranging existing flights to make connections more efficient, or it could be done by adding or removing flights.
Kirby said that rebanking “will allow us the platform to grow Houston” and further improve PRASM.
For investors, DeNardi doesn’t think the incident with Dao will have a longterm impact on the airline. He believes many customers will continue to book flights based on price and schedule.
United Airlines’ stock closed at $67.75 on Tuesday, down 4.4 percent from the Friday before the Flight 3411 incident. Andrew Coggins Jr., a clinical professor of hospitality and tourism management at Pace University’s Lubin School of Business, said the incident could cause a drop in bookings from Asian markets if United comes off as prejudiced against Asians.
“I won’t say it’s going to last forever, but I think it’s going to have an impact at least in the short term,” he said.
The airline’s botched apologies haven’t helped, said Marlene Towns, social media professor at Georgetown University’s McDonough School of Business. She said the initial attempts “made a bad situation much, much worse.”
Perhaps in trying to stick up for his employees and maintain internal harmony, she said, Munoz failed to recognize the magnitude of the situation and how it was perceived.
When responding to a similar question during the earnings call, Munoz said customers have always been first. But he’s focused on employees since joining the company in 2015 because United needed to regain employees’ trust to truly put customers first.
“Customer service, at the end of the day, is not about a policy or a procedure or a tool,” he said. “It’s about values, human values, and that we cannot lose.”
Harteveldt, who called the incident a “long-term stain” on United’s brand, said the carrier can get through this if it delivers on Munoz’s promises and exceeds customer expectations.
“Nothing motivates improvement like a CEO who is forced to repeatedly apologize for his organization’s mistakes,” Harteveldt said.