Free advice for United: Enough already

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Here’s some unsolicited advertising advice for United Airlines’ parent, UAL Corp., as it struggles through its Chapter 11 proceedings: "Shut up," says Al Ries, chairman of branding consultancy Ries & Ries Inc.

Ries is referring specifically to a United print ad that ran in The New York Times and other major newspapers in the wake of UAL’s bankruptcy filing on Dec. 9. The ad featured the headline, "Chapter 11" with one numeral crossed out to read "Chapter 1." Fallon Worldwide, Minneapolis, created the ad.

The ad served no purpose but to draw attention to United’s struggles, many observers argue. "You might as well put a ‘keep out’ sign on the airline," said Michael Boyd, president of Boyd Group Inc., an aviation consulting company.

United shouldn’t advertise on a broad scale again until it has arrived at the strategy that will take it out of bankruptcy, Boyd and others said.

"Branding alone will do nothing unless something changes," said Robert Duboff, senior VP of DecisionQuest, a consulting firm. "You can’t market your way out of no strategy."

Elk Grove Township, Ill.-based United is said to be mulling plans to launch a new branding campaign this spring. A lackluster campaign, coupled with no significant changes in the business other than the financial concessions that United is trying to extract from its unions, could doom the airline, some observers fear.

"If this company is going to survive in any form, it’s going to have to become a different company," said Larry McNaughton, COO of CoreBrand, a branding consultancy. "They have to do something dramatic, and quickly."

Cracks showed in 1999

As early as 1999, some cracks were showing in United’s strategy. It failed in its merger attempts with America West and US Airways. Then, in the summer of 2000, the airline was hit with a debilitating labor action by its pilots, leaving many of its customers stranded and fuming.

But it wasn’t until after the Sept 11, 2001, terrorist attacks that UAL’s flaws became obvious. United was a company for which the growth of the airline industry was an article of faith. When that growth stopped—passenger traffic for the industry was down 5.9% in the first 11 months of 2002 compared with the same period of 2001—United’s losses began spiraling out of control, approaching $20 million a day.

Beyond the devastating impact of Sept. 11 on the industry, United must grapple with several trends that have hurt the large traditional carriers. In particular, the rise of low-fare airlines such as Southwest Airlines and JetBlue has created several marketing problems for traditional carriers.

First, these discount airlines are taking away traffic, particularly lucrative business traffic. A survey conducted in November by the National Business Travel Association showed that 66% of corporate travel managers were considering using discount airlines, up from 22% in March 2002.

To compete with low-fare carriers, United and other major airlines have discounted prices, particularly for advance-purchase leisure travel tickets. Over the long term, the practice has eroded value.

"They really put themselves in a position where people don’t know what a seat is worth," said Laura Ries, president of Ries & Ries. "It’s just like in the fast food industry. After a while, people begin to think a Whopper must only be worth 99 cents. It takes a while to see the effects of discounting, but [those effects] absolutely are here."

Another fallout of discounting is that business travelers often sit next to leisure travelers who have paid 20% less for their tickets. "One of the things business customers have been screaming about for years is, ‘I’m your best customer, and you’re absolutely screwing me,’" said CoreBrand’s McNaughton.

United’s options now

Observers differ about what steps United needs to take to counteract its marketing problems and to stem its losses. They also disagree about what new strategy is best. United didn’t return several phone calls for this report, but the company has floated several possibilities in the media.

United has said it plans to create its own discount airline. But such a plan is an invitation to disaster, many observers said, pointing to recent high-profile failures such as US Airways’ MetroJet and United’s own Shuttle on the West Coast. "That’s one of the very stupidest ideas they could do," Boyd said.

A key problem with starting a low-fare airline is finding low-cost employees to operate it. Even with salary concessions, United’s pilots and other employees rank among the industry’s highest paid.

Another problem is that United’s discount airline would have to take on Southwest, JetBlue and others that are already established brands.

"The analogy that I’ve been using is to relate Southwest Airlines as the Wal-Mart of the industry, and JetBlue is the Target of the industry," said Tim Claydon, JetBlue’s VP-sales and business development. "I’ll leave you to figure out who the rest of the players are."

Consultant Boyd said a recent move by United makes more sense than starting an airline within an airline. On Jan. 6, United announced it was discounting walk-up business fares at its hubs in Chicago and Denver by as much as 40%. "The fare thing was a good step in the right direction," Boyd said. A simplified, sensible fare structure is essential for the airline’s survival, most observers agreed.

In a statement, Chris Bowers, United senior VP-sales and reservations, explained the move: "These new fares are a boon for customers because they can obtain more affordable fares. And United benefits from increased revenues by attracting additional business customers."

Business customers key

The business customers United hopes to attract hold the key to the airline’s future, said Henry Harteveldt, a senior analyst with Forrester Research. Harteveldt, a former airline executive, said that while United must discount fares, it doesn’t have to drop its fares as low as Southwest’s. At the same time, the airline must maintain its amenities, he said.

On the same day it announced its lower fares, United said it would no longer serve food in first class on certain short flights. That’s a mistake, Harteveldt said. United should focus on business customers and provide them with a higher level of service that differentiates the airline from Southwest, even if its fares have to remain higher—sometimes significantly higher—to support it, he said.

"They should do something like L’Oreal, [which brags] ‘We cost more but we’re worth it,’ " Harteveldt said.

Forrester conducted research that showed that the economics of courting the business traveler over the leisure traveler make sense. For instance, 34% of leisure travelers also travel via air for business, while 99% of business travelers take pleasure trips via air. Business travelers have a higher household income than leisure travelers—$86,000 vs. $53,000.

The bottom line, Harteveldt concluded, is that while JetBlue may claim to be Target, United could gain by presenting itself as Nordstrom’s.

Bill Oliver, an analyst with Boyd Group, agreed that United should focus on the business customer. "The business customer is their bread and butter," he said. "That’s their mainstay. They have been reluctant to take better care of this group of people. They seem to have not been able to find the right formula to make a more streamlined price structure work for this group."

American Airlines is already focusing on the business customer. The Dallas-based airline has removed seats in coach class and is heavily promoting the fact that there is now more room in coach.

"We’re viewed as a premium, full-service airline, but we also have lower fares that compete with low-cost carriers like JetBlue and Southwest," said Tim Kincaid, American manager-corporate communications. "It’s the same price, but you’re getting more: more room in coach, boarding passes, assigned seating, airport clubs, all the different things you’d expect from a full-service airline."

Plus, American seems to be a step ahead of United in branding, according to some observers.

Whatever marketing strategy United decides on, it’s clear the clock is ticking. "They’ve got to really formulate a marketing point of view," CoreBrand’s McNaughton said. "And they’ve got six months to make something happen."

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