United Will Probably Never Have to Pay Out On Its New Corporate Operational Performance Guarantee, but We Should Still Be Happy It Exists

First Delta announced it would pay corporate accounts if it ran a poor operation. That seemed reasonable since Delta has been running well for months. Now, United has announced something similar. Say what? United, the airline that has had trouble getting its operational act together since its merger, now is trying to put its money where its mouth is and show that its operational problems are behind it. On the surface, that sounds gutsy and it sends a strong message that United is ready to compete. As with Delta’s program, however, the devil is in the details. This, like Delta’s, was designed in a way that will make it pretty easy for United to avoid ever paying out.

The details of United’s program are posted on the airline’s website in full detail which I greatly appreciate. The basic idea is simple. If United doesn’t outperform either American or Delta, then it’ll pay out. Here are some of the big differences in the program versus Delta’s.

At first glance, it looks like United is putting out a much stronger program. But let’s look at these individually to see why it’s to United’s advantage to structure it this way.

Finish position
Both of these airlines have set it up so that they don’t need to finish first among the big three. They just need to not finish last. So it’s not like United has to beat Delta here. It just has to beat American. It’s like the old joke about the two guys running away from a bear. One says “you can’t outrun a bear.” The other says, “that’s ok, I just have to outrun you.” So barring some epic Delta meltdown, United is going to be targeting better performance than American next year.

Geography
United had a rough go of it internationally the last few months thanks to some labor action, so you’d think it wouldn’t want to include that flying. But the mechanics have a new contract so that’s not an issue anymore. And in general, international operations run on time more than others. I’d say that versus American or Delta, it’s probably more of a wash to include international flying than anything else. So why not?

Operating carrier
Delta’s guarantee only includes mainline flying, but United’s includes regionals as well. Why? Well, Delta mainline is untouchable, so it makes sense for Delta to set it up this way. But the regionals don’t have the same level of outperformance. For January 1 through December 8 (according to masFlight data), United’s mainline arrivals exactly on time (A0) have been 7.93 points behind Delta and 0.27 points behind American. But including regionals, United was 7.48 points behind Delta and 0.46 points ahead of American. United appears to do better comparatively with its regionals, so it’s better to include them.

Delay type
Delta is only looking at delays within its control, but United is looking at all delays. This again makes sense. I don’t have the numbers in front of me, but think about it this way. On controllable delays, Delta is the master. But when it comes to weather or air traffic control, the impact is more even. So if United includes those delays, it dilutes the results it controls, making it a closer race.

Metric
Delta opted to use the standard DOT-published metric of arrivals within 14 minutes of schedule (A14). That’s fine, but it is also what restricts Delta to using domestic flying only. United is going to use arrivals exactly on time which is a harsher metric. This data isn’t published by the feds, but it’s readily available. But why use A0 instead of A14? Well, for one, the optics are better. “We care about being right on time, not within 14 minutes like those other guys.” But it’s also more beneficial. Again looking at stats through December 8 (including regional carriers), if we used the 14 minute metric, Delta would have beaten United by 5.84 points, but American would have beaten United by 0.19 points. So it appears that for A0, United has been outperforming American whereas on A14, it hasn’t.

Compensation
This is the weakest part of United’s plan. Delta will pay with actual credit that could be used for tickets if it fails to perform. In United’s case, it will just give the corporates more service credit. This can be used for things like waiving change fees. So it has real value, but it’s not quite the same commitment as Delta.

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You can see why United has structured this the way it has, but there is one big risk here. American is fresh off its integration with US Airways and it is ready to start ramping up its operational performance. We know American can do it since this is the team that turned US Airways into a perennial top performer. With Delta already doing insanely well, American could make this tough for United.

Then again, there’s always a secret weapon here. If United wants to, it can just pad its schedules more than it already does. Padding is the easiest way to boost your on-time performance, even though it can be costly. If United wants to avoid paying out, it has several ways to make that happen.

Either way, the result for the traveler is good news. The operation has improved, and United is confident enough that it’s going to stay that way. Even if United loses this battle and has to pay (highly unlikely), it’s almost unthinkable that United’s operation would be as bad as it was earlier this year (and before that). We should be looking forward to watching the big three all battle for operational supremacy next year. That’s the kind of battle I like to see.