United Airline’s Multi-Million Dollar Decision

United Airline’s Multi-Million Dollar Decision

You can’t fly through life without encountering decisions.

Perhaps you entered a grocery store and must decide between:

  1. Buying regular apples
  2. Buying organic apples

Perhaps you unexpectedly need to transport crew members on an already-full flight to Louisville and must decide between:

  1. Incentivizing passengers to voluntarily give up their seats by offering compensation
  2. Cancelling another flight because you cannot transport the crew members
  3. Forcibly removing a passenger from his seat, incidentally knocking his head against an armrest, and pulling his limp body down the aisle of the plane

Tough decisions can be a drag, and the wrong one can cost you– just ask United Airlines.

On April 10, 2017, United Airlines needed to remove four passengers from the plane to accommodate crew members needed on another flight.   To do so, they chose Option “C” (also known as “Customer Re-accommodation”).  But what was the cost of that decision, and how does it compare to United’s other options?

Option “A”:  Voluntary Passenger Compensation

United offered a $400 voucher for volunteers to give up their seats.  Crickets.

United then offered an $800 voucher for volunteers to give up their seats.  Crickets.

A passenger then volunteered his seat for a $1,600 voucher.  Crickets.

Every passenger has a price tag, but United prefers bargain shopping.  United refused to raise their offer of compensation above $800. The U.S. Department of Transportation limits the eligible compensation amount to $1,350 for involuntarily bumped passengers.  Federal laws do not, however, limit the amount airlines can pay passengers who volunteer to give up their seat.

Option “A” Cost: $1,600/voucher

Option “B”:  Flight Cancellation

A United spokeswoman says if the crew members missed their flight in Louisville “there could have been a ‘domino effect’ that impacted other customers because another United flight was in danger of being canceled.”  Cancelling a flight may sound dramatic and expensive, but statistics say otherwise.  According to masFlight, a data and analytics company focused on aviation operations, the average cost to cancel a domestic flight is $15,650.  This considers maintenance costs, crew salaries, parking fees, and passenger refunds & accommodations.

Option “B” Cost: $15,650/cancellation

Option “C”:  Customer Re-accommodation

United couldn’t entice volunteers with their $800 voucher so they selected four passengers to involuntarily remove from the boarded plane.  Three deplaned peacefully but the fourth, David Dao, refused to leave.  Enter Option “C”.

The public watched shocking videos of the re-accommodation event, and United watched its stocks plummet.  United shares dropped in value by 5.1% immediately following the incident.  Dao wasn’t the only one that took a beating.

As Uber can attest:  PR mistakes aren’t cheap… but their effects don’t last forever.  Uber recently enraged public consumers by seemingly undermining a political protest.  Customers started to #deleteUber and embrace the pink mustache.  Lyft recorded more downloads than Uber on iOS for the first time in the United States.  Lyft welcomed their surge of customers with surge prices. The problem: consumers are usually more loyal to their wallet than political activism.  No surprise that Uber has since regained its leading position ahead of Lyft in the iOS market.  Full disclosure: I used Uber yesterday.

Outraged public consumers threaten to never fly United again—but how much in savings are consumers willing to forego to keep to their morals?  Hint: airline choices are not abundant.  Four days after United’s incident, its stock price has already rebounded by 3%.  Still, this price decline has knocked $569.5MM off United’s market capitalization this week.

Costs United won’t recover?  See below:

Expense Details Estimated Cost
Legal Fees Dao was hospitalized for injuries he incurred from the incident. A legal expert claims Dao could sue for assault and battery, intentional infliction of emotional disturbance, and may also have grounds to sue under various civil rights acts. $2M
Public Relations United must hire PR professionals to help handle press conferences and public interactions (although whoever approved CEO Oscar Munoz’s public apology should be fired). Executive leadership is now unable to focus on their standard business operations, and all employees must be trained on handling public communication. United must respond to the uproar on social media and onslaught of clever #NewUnitedAirlineMottos. Marketing and rebranding strategies must be evaluated and implemented. $3M
Refunds United announced that the 70 passengers aboard Flight 3411 will be compensated for the cost of their tickets. An average United ticket price from Chicago, IL to Louisville, KY is $230 including taxes and fees. $16.1K


Option “C” Cost: $5M+/re-accommodation

I bet United thinks Option “A” looks decent after all.

The airline faces a long journey ahead to restore customer confidence. The CEO likely won’t collect his $500,000 bonus tied to United customer satisfaction surveys. As a Customer Experience consultant, I offer this advice to Oscar Munoz: reevaluate your customer touchpoints—and I mean that literally.

Phone: 312-602-4000
Email: marketing@westmonroepartners.com
222 W. Adams
Chicago, IL 60606
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