UAL Back in the Black...

Thus screamed the headline of 'The Rocky Mountain News' this morning, alluding to the fact that United Airlines had their first profitable quarter in the last 7, heralding their return from bankruptcy. I fly frequently for work and chanced upon an article in United's in-flight magazine a couple of months back which summarized the key changes that United had rung in, in order to turn the corner. In an era where 'low fare carrier' seems to be buzzword, I was impressed by the approach that United (a major 'legacy' network airline) took to get out of the red.

UAL realized that their key customer base was the average business traveller. And, hence, chose to focus on that segment of their market, rather than completely jump onto the bandwagon of other low fare carriers or other bankruptcy ridden airlines that were trying to unsuccessfully emulate the business model of, say, a Southwest.

They asked themselves (and presumably, their key customer base) : What does the average business traveller value? Obviously, the answer was : Great Service! Here's a list of things that UAL did to reel people back:

1. Remodelled their planes, such that the first 8-10 rows of economy had greater leg room. They called it 'Economy Plus' and provided such seats only to their valued frequent fliers.

2. Introduced P.S (premium service): Coast to coast service that included, plush (almost) lie flat seats in Economy (of course, for a price!). Essentially, they upgraded the whole of economy class into a quasi-business class!

3. Provided the ability for customers to buy relatively inexpensive upgrades from economy to economy plus and to business class. Let's face it : $ 135 for an upgrade to first class on that 3 hour flight from DFW to SFO is worth it (for a frequent flier)!

4. Increased the # of destinations that they served, while rationalizing the frequency of some of their less profitable routes.

5. Rationalized the # of types of aircraft that they use, thereby reducing maintenance costs, training costs, etc. etc.

6. UAL did go through some lay-offs and ended up trimming their workforce to the optimal amount

7. Of course, in addition, they did the usual re-negotiating of contracts with a slew of their employee unions.

8. Purchased and put in service new regional jets (yes, those itsy bitsy planes) that had business class seats upfront.

9. Introduced a 'low fare airline', called Ted, that provided point to point service between select vacation destinations and helped to reel in some of the cost conscious travelling public as well.

On the other hand, the US's largest airline, American Airlines (who are, by the way, the worst airline in the country!), chose to stop providing pillows on flights, thereby reducing 3-4 million dollars of costs a year. Compare that to the billions in revenue that American makes. What purpose did that move serve??? Umm, lemme guess: irritate and alienate some of their customers?

Essentially, they turned profitable not just by cutting costs, but by improving their margins through innovative products and services. That's what I find exciting about United's return to good health!

Congratulations, United Airlines!!!