Mike Boyd on UAL''s Transformation Plan

Part Two: The Creditors' Presentation - More Strategic Questions Than Answers

By now, it's been circulated to more e-mail boxes than those annoying Viagra ads.

We're referring, of course, to United's 1/31 "Plan For Transformation" provided to to its creditors, a veritable Cecil B. DeMille production containing a whopping 270+ slides -
truly the War And Peace of the PowerPoint set.

One could wonder if United's real "strategy" is trying to bore creditors to death. Dig the math: If they dragged these creditors into a room to view this thing, and spent just
three minutes on each slide, it would run longer than the Sundance Film Festival. Like, it would be almost 14 hours of nonstop arrows, boxes, charts, and enough arcane,
off-the-wall buzz-terms to choke a B-school library, all presented in a format more effective than barbiturates in putting people to sleep.

The presentation raised trendo-babble and buzz-phrases into the realm of an art form. Some actually appear to apply to industries other than aviation. Repeated slides
using terms like, "compelling customer value proposition" and "price driven occasionalist" sound more like a description of late night negotiations on a 'Vegas street corner
than a plan to move United out of Chapter 11.

Who Was The Real Audience? Nothing in the report was new. It droned on and on, mostly outlining all the things United management has discussed in the media.
Things like: A low-cost internal airline. The theory that to survive United needed to look more like Southwest. More "regional" jets outsourced to small jet providers. All the
things we've heard already. But that's not necessarily what comes across. Curiously, the whole thing seemed to have the flavor of United building a case to convince itself
that that the plan would really, really work.

The Low Cost Carrier Issue - Hard Numbers For A Soft Concept. Over two months into Chapter 11, there's a lot of issues that United needs to clarify, and soon,
regarding its strategic direction. First, outside of United's management, and the carrier's expensive outside advisors (like, maybe including those noted above,) there is,
unfortunately, virtually nobody who gives much credibility to United's LCC concept. United's explanation of the need and the application of this as-yet un-named entity is
mostly confused rambling supported by seemingly endless comparisons to Southwest. More concerning is the fact that the LCC really has no form, at least in the way UA
has described it.

The idea seems to be that the LCC product - as yet undefined and undeveloped - will be injected into markets where a low fare carrier competes with United. But that
indicates a strategy that is merely a reaction to competitive events. From that perspective, there'd ultimately be almost no United mainline out of Chicago on key
high-density routes, because virtually all will be also operated by Southwest or ATA from Midway. So, the question becomes one of where does the LCC stop and mainline
United begin? They don't seem to know. In fact, they seem to indicate that there is no line.

Fuzzy Math. Over the past six months, it is unfortunate that United's management has had a credibility problem with numbers. First, the ATSB found the data in the
United loan-guarantee application to be unconvincing, and United's own data issued immediately after the ATSB rejection seemed to validate that conclusion. This
perception isn't improved by the LCC concept outlined by United. They claim it'll have costs of 7.1 cents a mile - well under Southwest's 7.4 cent costs, and it claims it'll
achieve this within a hub-and-spoke model. Aside from the fact it's hard to believe such numbers when even United admits it's not sure the exact size, scope, and structure
of the LCC, it's pretty clear that the success of whole enchilada is dependent not operational efficiencies, but on slashing labor costs by as much as 40%, and maybe 50%
below those of today. The message is that the strategy is based on making money almost solely by low labor rates.

So, What's The Alternative? United's management has a tough job ahead of it, and nobody is saying that the path to getting United out of this mess will be easy. But it's
pretty clear - and widely agreed - that the current path isn't going anywhere positive. United's management may want to look to Continental and American - both losing
money, but both are focused on building on their strengths, while cutting costs and pursuing new mainline operational efficiencies. (And, to be sure, getting labor
participation, too.) There are enormous - and fixable - operational inefficiencies that still exist, many of which have been identified by various folks in United's rank and file.

One thing is certain. Implementing bad strategy will be lethal to United.

Just like it was for Sabena and Swissair.
Need I say more
" it's pretty clear that the success of whole enchilada is dependent not operational efficiencies, but on slashing labor costs by as much as 40%, and maybe 50%
below those of today. The message is that the strategy is based on making money almost solely by low labor rates"

2.6 bil plus LCC concept would have to be worth over a bil a year easily maybe 2 so lets say 4.0 bil a year savings on labors back, I think I just strained my back

Now my contract, (for the time being) is better than that of any UA pilot. Good Luck!, on trying to get ahead of me again. I say that because with your contracts coming backwards ours will never ever go foward again.

I am proud of the one statment where Boyd says that CO is at least working on there strengths. Wasn't there UA people in here recently bad mouthing Gordon about Management skills? Thats sure the "pot calling the kettle black".
Lack of vision and the ineptitude of current management will drive this airline into the ground.

I guess when all is said and done, they'll blame it all on the consultants. Sounds like a royal (and expensive) "cover your ass" strategy by Tilton et al.

On 2/24/2003 9:08:05 AM copilot wrote:

I am proud of the one statment where Boyd says that CO is at least working on there strengths. Wasn't there UA people in here recently bad mouthing Gordon about Management skills? Thats sure the "pot calling the kettle black".

People weren't bad mouthing Gordon's management skills. UA would love to have Gordo managing us. What they were angry about was Gordon actively trying to torpedo our ATSB loan application.
I've been agreeing with more and more of Boyd lately... however, I am tired of his badmouthing tactics.

In previous articles about the ATSB application, he says United is in "la la land" in its cost figures... which is completely correct. However, when United admits all of this in its "transformation plan", he criticizes the very acknowledgement.

His badmouthing of United is beating the dead horse... he could be a little more credible by proposing solutions instead of just slamming everything to come out of WHQ.

If he has the answers to everything, why not even the slightest hint of a solution to United's basket case situation?
I agree - too much criticism and too little solutions.

How about this one:

Per the UAL creditors board deck, United can command a revenue premium over LCCs and yes the hub and spoke system still works.

With that in mind, focus on lowering costs accross the system until your cost gap (relative to LCC) is less than your revenue premium.

Focus more on rationalizing work rules and less on pay rates.

Incentivize employees for real this time. Lower base pay, but combined with REAL profit sharing paid out on a quarterly basis. ALL employess share in the pain of a downturn, and wealth of the up cycle.

Clean out the old leadership. You need fresh thinkers.

Outsource almost everything you can. Sell the maintenance bases and flight training center. You can get up front cash and cost savings down the road. The engine, airframe and flight simulator OEMs would eagerly buy them. Use the cash injection to make it past the 1-2 years until the economy gets better.

There you have it.
Howdy all.

I recommend you email Boyd and share your feedback. His email is [email protected]

I emailed the following to him and he actually responded (with more self serving blabbing and no actual advice):

"Perhaps Mr. Boyd could tell us all what HE would do to restructure United? I mean HE hasn't even read the full restructuring plan and he's already dismissed it as "glub glub city". Such articulate, smart words from Mr. Boyd.

I suspect that anything United did to restructure would still be chastised by Mr. Boyd. I mean praise certainly wouldn't get him quoted as often in the press."
Actually, if you read what Mike Boyd has had to say in the past, it's clear that (1) he doesn't believe that United's employees are the problem, but rather United's management and (2) he's not critical of everything put forward by every airline. He actually believes that Delta's plan for Song (in spite of the name) could work, and he contrasts United's preparedness in bankruptcy to US Airways (which he believes does have a plan). He's certainly right on the mark that the PowerPointless presentation has enough management babble-speak to put most people into a buzzword-induced daze.

His criticisms of United's "plan" are quite specific and to the point. There's nothing in the plan which says how United will get its LCC CASM below Southwest's (especially when operating from congested hub airports) aside from slashing employee pay (never mind that WN owns most of its fleet, hedges fuel, and has lots of newer, fuel-efficient planes). Frankly, the Starfish CASM number is unrealistic. Moreover, he's completely right in calling the LCC reactionary. It goes only in markets that have a WN, F9, B6, FL presence. What does United do as the real LCC's continue to grow and encroach on more markets? Simply expand Starfish until it's the entire domestic system? As it stands now, UA doesn't serve *that* many more domestic cities with mainline than WN.

And he does suggest alternatives for United -- looking at what AA and CO have been doing to make their operations more efficient while focusing on their core competencies. Look at AA's experience with de-peaking ORD and DFW; it's probably something that would work for UA, too. I'm not sure what else you expect, aside from cheerleading?
You make some good observations of what Boyd observes/puts forth.

I'm surprised to see that he would think Song might work. If UA succeeds in a seperate entity or with a seperate CBA for Starfish...the chances of costs creaping back up are less. I'd be curious to see his thoughts on that.

And in terms of UA's preparedness for BK compared to U...the blame lies on management and union leadership. They both bought into a flawed business plan. Don't forget the pilots and IAM have a fudiciary responsibility to do what's right for the business.