Airlines create strategic plans to help codify a business model, plan for growth, or differentiation. One of the most famous was “Continental Airlines”Go forward”, designed by Gordon Bethune and Greg Brenneman. This plan energizes the company and sets clear priorities for many years. Many strategic plans are like mission statements on steroids, meaning a more detailed vision of how the business will operate and what defines its core values.
United Airlines has just released a new plan, dubbed “United Next”. Faced with a massive order for new aircraft that will be used to replace older equipment, modernize regional flights and add growth, the company needed a way to put this order into context. It is a four-part plan, divided into pillars, intended to inspire and rally the company for rapid change and growth in the years to come. However, the plan doesn’t do much to describe in detail how they’re going to do all of this, and instead looks like a simplified plan that’s a retread of the main ideas of any airline plan, like operating reliably and being nice. with customers.
Pillar 1, Fleet Growth
This pillar of the United plan is why the plan exists. United has 500 planes being delivered over the next five years, a huge operational and logistical challenge. The announcement of the plan highlighted how difficult it will be to find the necessary pilots for the planes and how more airport gates will be needed. It’s true, and with an average of two planes per week for five years, it will be a Herculean task.
The withdrawal and probable return of lease of other aircraft during this same period are not taken into account. Additionally, additional rounds of training pilots on new equipment, particularly those leaving regional jets, will mean that a higher percentage of pilot hours will be paid for non-revenue generating activities.
Pillar 2, Operational Excellence
This pillar is primarily focused on punctuality, including being on time, even when connections are at risk of being missed. The weird thing about this pillar, like the next one too, is how simplistic and basic it is. Are United saying they are not aiming for operational excellence today, but rather need to have it in a plan deployed to get their squad focused?
The Ministry of Transport measures airline punctuality and no doubt United, like other airlines, monitors this all the time. They also, again like other airlines, round up their flights with extra time to help look better on this metric. Does that mean they’ll rethink every aspect of turning the plane to the gate, or maybe even revise maintenance procedures to ensure better operations? There are many reasons why airlines don’t operate reliably, and while much of this is controllable, some are not. United performed regularly as a mid-range airlineso does this plan indicate that they will spend more money, reduce usage and use more people to get better or great results?
Pillar 3, Customer Service
Like the second pillar, this one begs the question: aren’t United focusing on customer service today? Here they focus on Net Promoter Score (NPS), a metric created by Bain. NPS asks this question of every buyer of a service; how likely are you to recommend this service to a friend? Responding from 1 to 10, 0-1 responses are considered detractors while 9-10 scores are considered promoters. One point for each promoter minus one point for each tractor gives you your NPS score, which means responses between 3 and 8 are effectively ignored. NPS scores can therefore range from -100 to +100.
There are two challenges with the NPS and the airlines. The first is that NPS has no historical correlation with airline profits. Airlines with lower NPS scores are not necessarily worse off financially. The second challenge with airlines is that NPS scores vary wildly with operational reliability. When the flight is on time, NPS scores tend to be high, but when the flight is late, even on a generally well-regarded airline, NPS scores suffer. Often what separates a reliable airline from an unreliable one is what happens when things go wrong. Using NPS as the primary indicator of customer service ignores many things that customers care about, including attentiveness from flight attendants, shorter airport lines, tastier food, non-payment of a checked baggage, and many more.
Pillar 4, Control of unit costs
The United Next plan focuses on technology as a way to control unit costs, even incorporating hundreds of new aircraft, training many crews, and doing more to operate efficiently and earn higher NPS. The problem with this is that the two biggest costs any airline faces are labor costs and fuel. If they’re talking about technology to replace the workforce, that might make sense as a cost control, but it’s unlikely to be welcomed by a plan to energize the team. New engines in new planes should certainly be more fuel efficient, but these new planes will come with high ownership costs.
Running large hub-and-spoke operations is also not correlated with low unit costs. These types of operations require many doors and maximum utilization of facilities and labor. They also reduce aircraft utilization, or the time the aircraft spends in the air, as many aircraft must be on the ground at the same time and cannot depart until all passengers and baggage have been cleared. moved from other planes. These kind of hubs are good for generating a lot of passengers, but at a real cost. It’s not clear to me how technology significantly improves this.
Four realities not addressed in the plan
Any good plan not only meets stretch goals, but also reflects business realities. The United Next plan, at least as it has been revealed to the public, is missing four key elements United are facing which will make it difficult to achieve their goals. The most obvious of these is work, not just in the form of drivers already mentioned. Airlines use a lot of people, and United’s plan to expand significantly and operate large hubs will mean even more people than normal. This will put enormous pressure on their wages, salaries and benefits, in addition to creating challenges on how to stay staffed during peak periods.
The next issue not addressed in the United plan is the structural change in business traffic. With the latest studies suggesting that up to 40% of business traffic may not return, United’s fleet growth and business market focus may need to be productive with a surge in United travelers. price-sensitive amenities. To be the “biggest and best” airline in the world, as CEO Scott Kirby declares with this plan, may require business travelers all coming back to succeed. Not even meeting this challenge brings skepticism to the plan. A corollary to this is the rapid growth of leisure-oriented low-cost airlines. With the latest IPOs and startups all focused on leisure travelers, it’s this segment of the business that is gaining new investment and growing at an even faster rate than United plans to grow. How United will maintain a price premium, necessary for its high cost structure, is unclear.
The fourth and final reality is United’s lack of price controls at their hubs. Delta, with the lion’s share of resources and schedules in Atlanta, Minneapolis, Detroit, New York’s LaGuardia, and increasingly Seattle, gives them almost no competition for their local traffic, especially among those who will pay for better flight service or non-stop service. Likewise, American holds this strong position in Dallas, Miami and Charlotte. United shares Chicago’s O’Hare Airport with American, has two low-cost airlines battling for traffic in Denver, and operates in Newark which has lost slot protection and seen a surge in passenger capacity. low cost carriers. At Houston’s IAH airport, United has a presence similar to Dallas or Atlanta, but the market isn’t as large and still has the Southwest with a large operation driving up local prices across the city to Hobby Airport. As a result, United competes for travelers at all prices across most of its network. Replacing regional jets with big jets increases this challenge, it does not solve it. Much of the growth could mean a lot of new capital that offers little or no return on investment.
If someone told you that there was an airline with a plan based on reliability, good humor towards customers and cost control, you would first ask “okay, what sets it apart from any other airline in the world? This is the real problem with United’s Next plan. Everything is based on adding 500 aircraft in five years, a challenge that undoubtedly requires a lot of concentration. The plan United really needs would include “rebuilding relationships with all of our employees,” “finding a way to own our major hubs,” “acting like customers don’t bother us,” and “ignoring ULCC’s growth since we don’t. want their paid traffic at a low price anyway. As it stands, United “Next” is more like United “Past”.