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.

Delta United
Finish position 1st or 2nd 1st or 2nd
Geography Domestic only Worldwide
Operating carrier Mainline only Mainline and regional
Delay type Controllable Delays only All delays
Metric Arrivals within 14 minutes, cancellations Arrivals exactly on time, cancellations
Compensation Credit for future flights Funds for waiver/favors

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.

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.

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

  1. David SF eastbay says:

    Businesses including airlines only do something if it benefits them, but make it seem like it’s good for the public. If UA does have to pay out, it’s only in the form of waivers such as change fees, so they aren’t going to being opening their wallet to pay company’s, just not getting extra money. And surprise, airlines have been waiving things for big companys for years, so it’s not like this is anything new for United.

  2. ptahcha says:

    In addition to contract compliance, DL also requires a corporate traveler to be on one of the delayed flights before they’ll pay out, and the payout formula only considers corporate travelers who were on delayed/cancelled flights within DL’s control.

  3. Doug Swalen says:

    Too bad this won’t mean diddly for the HNL-GUM route. I got stranded in GUM because United was late getting there and I watched my connector to Palau taxi from the gate as my plane arrived. UA won’t hold that flight under any circumstances, nor will it hold a flight to Manila which takes off at the same time.

    There were about 15-20 of us who had to overnight in Guam unexpectedly because of this. In talking with the desk people three things came out:

    1) They can’t hold the flights. That’s Chicago’s decision and Chicago doesn’t understand what’s going on out there (their words). I sense some Continental Micronesian resentment here.
    2) This is a frequent problem.
    3) How frequent? The desk people relayed to me that they have around a 40% blown connection rate for flights going on to Palau and Manila on the days when the connection is an ultra tight 45 minutes. Some days of the week the connection time is longer to Palau because the flight departs later. But at least 50% of the week it’s the short connection time version.

    I did this leg in 2013 without a problem (if by “not a problem” I mean I got off one plane walked down three gates and my connector was already boarding) but I got hosed last month thanks to ground delays in HNL…caused by waiting over 40 minutes for more Cargo to be loaded. Oddly enough my SFO-HNL flight was delayed by an hour at SFO for “maintanence” so we were late into HNL and then late into GUM. So two delays on different planes at different airports on the same day started me wondering if the “work slowdown” Brett chronicled earlier in the year was back in action again.

    Anyways, my point is United knows it’s got a bad connection time issue going on in Guam and it has had it for years. And it’s not going to do anything about it apparently.

  4. Noah says:

    It is a great idea in theory, and nice for corporate procurement departments, but the real question I am curious about is for those of us who actually do the flying. Will we get anything? Or is this just a big check / fee credit given to my employer.

    • CF says:

      noahkimmel – It’s for the corporate budgets, but it can impact the traveler. Sometimes those funds can be used for Economy Plus seats or other customer-friendly things. It would be up the company to decide how to use the funds.

  5. Zaphod says:

    The “Mechanics” don’t have a contract…they don’t even have a TA…just an AIP…

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