Of all airlines, United has by far had the most dire predictions for the arc of the COVID-19 pandemic. President Scott Kirby rightly set the tone early by sounding alarms when others thought it could still just be a quick economic dip. We now know that this is going to be the kind of downturn that some generations never see. If any airline comes out of this without filing for bankruptcy protection, it will be a victory. And the key to avoiding bankruptcy is to have a whole lot of cash.
To that end, United quickly became singularly-focused on preventing cash from leaving the company. This was a wise move, and United had a jump on other airlines in that regard. For this, the team at United deserves praise… to an extent. The quest to conserve cash is important, but it can’t be allowed to blind a management team from looking toward the future. What will happen when this crisis passes? In United’s case, that doesn’t seem to be a concern, and it could result in serious heartburn down the line.
Throughout this crisis, United has employed the “shoot now, ask questions later” strategy. Moving fast is important, but if you move too fast without considering the consequences, you could find yourself in big trouble. United has had to backtrack several times recently, so instead of keeping cash in the company, it’s just making customers and employees alike rather angry.
You likely remember the schedule change policy debacle that United created for itself since it’s been in the news repeatedly for about two months now. As this crisis began to unfold, United realized that there would be a whole lot of flights canceled, and that meant a whole lot of money would be flowing out of its coffers and back to customers in the form of refunds.
The airline has some sharp minds that quickly realized that if United could alter its policies, it could find a way to keep a whole lot more cash in the company. So, instead of allowing refunds after a 2+ hour schedule change as the original policy allowed, United moved it dramatically to a 25 hour threshold. This meant anyone who would have been impacted by a schedule change of between 2 and 25 hours would now be stuck with a voucher for future travel.
The backlash was swift and relentless. United caved by bringing the policy back down to 6 hours, still well beyond the original allowance. But it threw in another devilish twist. The airline said that for international travel, where the big money lies, changes of over 6 hours were eligible for a refund but only once the ticket validity period expired one year from the original date of purchase. This would at least prevent outflow from happening all at once. The problem here is that this expressly violates Department of Transportation (DOT) rules which require prompt refunds for significant changes. United was forced to backtrack again and begin issuing refunds for changes more than 6 hours.
More recently, United has found another clever… and sneaky… way to deprive people of their money. It used to be that the airline would automatically refund ancillary seat purchases when a ticket was refunded. Now it has reportedly shut that off and only issues refunds when customers request them directly. This will, at the very least, delay refunds for seat purchases. But there will be some people who lose track of these credits, and United will get to keep them.
The moves United has made have made not only a weary public skeptical about the airline but about all airlines. The airlines need travelers to feel safe that they’ll be treated fairly. United is making that difficult.
This isn’t just something that customers have experienced; it’s impacting employees as well. You’d think an airline that just received billions of dollars in government aid would be happy to have the cushion, but United is already assuming it won’t be enough. And you know what? United is right.
Through at least September 30, United is required to serve every metro area in the US that it served before this crisis. It also must keep everyone employed and not cut pay rates in order for it to be able to hold on to the money. That means it’s running a bigger airline than it should be running, and it’s losing more money than it could if not for that massive stimulus.
Taking the stimulus money was the right move, but it means we’re all moving toward an October 1 that could become known as the “airline industry massacre” if prospects haven’t improved. All airlines realize this, and unsurprisingly, United isn’t mincing words.
This snippet was in a letter from Chief Operating Officer Greg Hart,
…even with a federal government grant that covers a portion of our payroll expense through September 30, we anticipate spending billions of dollars more than we take in for the next several months, while continuing to employ 100% of our workforce. That’s not sustainable for any company.
No, it’s not, but while others nervously await the end of September and quietly put contingency plans in place, United has decided not to wait. In a separate letter to management and administrative (M&A) staff, United laid out its plans for them.
- They had to take 20 unpaid days leave between May 16 and September 30, effectively cutting down from a 5-day to 4-day work week.
- Vacation days cannot be rolled over into next year. The airline is requiring that employees take 50% of their paid vacation days between now and September 30.
- Employees are encouraged to participate in the “Voluntary Separation Program” which will include “robust” benefits like pass travel. If they don’t take it now, then employees will be informed in July if they will be laid off on October 1. To try to put even more pressure on people to jump ship, United is removing all severance for those who are laid off. Volunteer, you get taken care of. Don’t, and you get nothing.
As stated, United agreed not to lay anyone off or cut pay rates through September 30. Now it was proposing to cut total pay by forcing unpaid leave and pressuring employees to quit or risk losing everything later. This, needless to say, did not go over well.
Was this even legal? That is apparently up for debate, but it doesn’t matter. Backlash was swift and brutal. American CEO Doug Parker said this was not allowed, further stoking the fire for unknown reasons. There are several ways to interpet this comment.
- Doug and Scott continue their feud and are just taking it public for the moment
- United is crossing a line here and should be smacked publicly for it
- American isn’t doing enough to conserve its cash and is just trying to divert attention
Chances are that all of these things are happening, but let’s not stray too far from the point.
After hugely negative responses, the airline once again backed down. It now says it will just ask for volunteers to reduce hours instead of making people take unpaid leave. If it can’t get enough, however, it’s holding this over people’s heads that it may need to come back to the well.
Update 5/11 @ 827a: I mistakenly noted that United backed down from forcing unpaid leave on management and admin staff. This is not correct. It backed down from cutting hours for some front line groups after a lawsuit was filed. The cuts for management and admin appear to still be required.
Selling the Future for the Present
What United is doing here is systematically alienating its customers and its employees through these aggressive measures. The goal of conserving cash is noble, but the airline is overstepping. In its rush to roll out changes, it continues to make mistakes and is forced to backtrack. Each time it does, the trust between the airline and both its customers and employees erodes further. And since United has to backtrack, it doesn’t get the cash benefits.
United may have enough cash on hand to avoid being the first to fall into bankruptcy, but that doesn’t mean it can escape it altogether. Regardless, once this is all over, then what? Will United’s customers and employees come back to trust the airline again? United and its employees have almost never had positive relations, but things had been on quite the upswing the last couple of years. The employees that had opened up to trust the airline again have now been reminded why they have been so reluctant to do so. Customers are also feeling wary after the dizzying number of unfriendly changes.
United needs to bolster its cash position without question and employees generally want to rally around their company to save it. Customers are willing to bend to help companies they love to an extent as well. United just isn’t making it easy for people to want to do that. Over the last several years, there has been so much talk about this being a different industry than it used to be, but moves like this make it seem like it’s still the same old business.