Source: Keeping the Skies Friendly
Author: Jim Anderson

This last Monday, April 12, while passing the time at the Red Carpet Club before my flight back to Los Angeles, two United Airlines 777's pulled up to gates C16 and C18 there at O'Hare. I had a seat next to the window in the lounge situated between the two gates. The first one that pulled up to Gate C16 was United's N774UA, and within a few minutes at Gate C18 there was N777UA. A smile came over my face as these two particular planes have special memories for me.

N774UA was the very first 777 I ever rode on. This was back in 1996. I had purchased a First Class Seat in this new jet now offering three cabins of service. That was a memorable flight, and the service provided in First Class back then was certainly a measure above what is offered today. It was a different time though.

N777UA was the very first 777 United put into service. This was special because United pilots, flight attendants, mechanics and other employee groups were given the chance to offer input on its design. They christened this ship "Working Together." This moniker appeared right below the front doors, on both sides of the plane. Sadly, those words have long been painted over. Some very nice memories came back when I saw those two majestic birds. Memories of when the employees were proud to be part of United Airlines, and the customers had their own pride just being able to take a ride in the "Friendly Skies."

That Monday morning I had the privilege to be able to sit down with John Tague, President of United Airlines, for a face-to-face discussion on the direction of the airline, my concerns about employee morale, and the stalled contract talks with SIX of the employee unions. I was asked to come to this meeting in response to a Shareholder Proposal I submitted to be put on the agenda for this year's annual shareholders' meeting.

Citing United Airlines' below industry average performance; the delay in the roll-out of the International Premium Travel Experience (after hundreds of millions of dollars that had already been committed); the embarassing state of employee morale; and the stalled labor contracts (with the very real chance of work stoppages or strikes); this proposal I submitted was going to ask shareholders to cast a vote of "no confidence" in the leadership of Glenn Tilton and John Tague. My meeting with Mr. Tague was arranged to discuss my concerns and convince me to withdraw the proposal. If the proposal were on the agenda, it would have been public record, and open discussion about the proposal would have to be done during the regular meeting. It was a drastic step, but it seemed to be the only way that my concerns were going to go on record, and that UAL management would have to address them.

When I arrived at WHQ, right there on Wacker Drive, I was met by a very nice young lady from the legal department. She escorted me to the 8th floor where we were met by Tyler Reddien, the new Managing Director for Investor Relations at UAL. We went to a conference room with a great view of the Chicago River to wait for Mr. Tague.

In advance of the meeting, I was provided with some press releases and an analyst briefing all with positive news about UAL, especially in the first three months of this year. I could not argue those points, and they could not deny that performance measures in 2008 and 2009 were below industry average, so I moved the discussion on to employee morale.

I told them about something that happened while traveling to Chicago on Sunday. As it happens, on that same day, three different employees from customer service to in-flight, all explained how they felt the message they were getting from WHQ was that "they should feel lucky they have a job." As I was relaying that message, Mr. Tague walked in to the conference room, and after introductions I had a chance to repeat what I had just said. He of course said that such a message is regrettable and that there is a problem if this were true. He also did say that he felt some of the blame fell on union leadership for propogating any such message.

So this started the conversation between Mr. Tague and myself that lasted for about an hour and 15 minutes. I cannot give you every detail, and I have to be careful as Mr. Tague did tell me some things in confidence, and I do not want to betray that. I will give you some key points that came out of all that though.

Management at UAL does not feel that all unions are negotiating in good faith. Mr. Tague did say that talks are going much smoother with other groups than they are with the pilots and flight attendants. No one wants to argue that, and if indeed management is working things out with those other groups, then as a shareholder and customer I am relieved. He did say that because of provisions in the Railway Labor Act, negotiations can go on for years. That fact is not very comforting.

As far as the pilots and flight attendants, management's impression is that they will not accept anything less than what they had back in 2002 and that is hard to work around. I corrected him in that the underlying issue behind the disagreements is that Mr. Tilton made assurances that if they gave him the concessions he needed to restructure the company, once it was profitable again, those concessions, if not in whole, in part would be restored. I told Mr. Tague that when the company posted profits in 2006 and 2007, hundreds of millions of dollars were paid out to executives and shareholders, while none of the front-line employees got a raise. They got a little something extra in their 401K, but it was pennies compared to what they gave up. I told Mr. Tague that the number one issue he has to work around in these negotiations was that the front-line employees feel they got screwed by Mr. Tilton.

Regarding the International Premium Travel Experience (the "IPTE"), Mr. Tague did say it was back on track now with the 777's being converted (one done so far). There was an article in the Los Angeles Times recently stating that these upgrades would put United on par with carriers such as Singapore or Emirates. Mr. Tague said he is committed to seeing it through and I believe him, but where we seem to disagree is again the issue with the front-line employees. I told him that they would never be able to compete with Singapore unless they were willing invest more in the employees so that they can offer that all-around "premium" experience. Mr. Tague said they need to focus on getting the new seats and video systems installed, and then they can focus on all the other aspects. I countered by disagreeing and said that with the help of the front-line he could deliver a premium experience before those new seats go in.

Mr. Tague moved on to discuss how that with the fuel price spikes in 2008 and the severe recession that set in, UAL management was forced to make some very difficult decisions. No one can disagree. Their job was, and is not easy; and they took some big risks. Out of those risks though they set in motion a new model for the industry that most of their competitors have copied. Baggage fees, up-selling premium items such as Economy Plus, Priority Check-in and Security Screening, and one-time passes to the Red Carpet Club have all contributed to revevenues. Even Continental has started charging for food in economy on domestic flights. Mr. Tague's point is that, regardless of what happened in the past or what promises were or were not made, the company and its employees have to look forward.

With mixed feelings, I withdrew my proposal. They did honor the condition I laid out for its withdrawal by giving me the opportunity to sit down and discuss my concerns with senior management. It was first suggested that I would be talking with both Mr. Tilton and Mr. Tague. I knew it would not happen with Mr. Tilton. Whether Mr. Tague takes anything I offered seriously remains to be seen. Even before the meeting I knew I would be withdrawing my proposal. It would have only been controversial and added to the already tenuous relationship between UAL management and the front-line employees.

This month, the Proxy Statement will be going out for the annual meeting of shareholders for UAL Corporation. This Proxy Statement will lay out the agenda for this meeting and votes will be taken for any other shareholder proposals properly submitted. One item that will be on the agenda is for shareholders to ratify the selections for the Board of Directors. This is where we still have a chance. Last year, this measure passed by only 64%. This is quite unusual and I am sure it did take the Board members and UAL management by surprise. This year I encourage all shareholders out there, especially the employees, to take this opportunity to vote very seriously and cast your vote against this slate of members for the Board of Directors (one of which is Glenn Tilton). Do not waste this vote. Tell everyone you know that holds shares, and if they cannot vote, them make sure they give their proxy to someone they trust will cast the vote they want. Based on one really ugly thing Mr. Tague did say, I still feel strongly that this management team is not looking out for what is best for the long-term for this company. Their paychecks cloud their vision, and it is obvious that the Board does not share my feelings, as they pretty much rubber stamp their approval on whatever is put in front of them. If there were time I would encourage readers to go out and buy some UAL stock jus to cast their vote against this Board, but the cut-off date has already passed. If you are not a shareholder by now, you are unable to vote at this year's meeting.

If you still want to have some say, then there will be another chance as any merger has to be approved by the shareholders. There is no way they will be able to come to some deal for the regular annual meeting, so a special meeting will have to be called and proxies will have to go out to shareholders. Unless labor agreements are settled, shareholders on both sides would be foolish to approve any merger. For my money, the better merger situation is with US Airways. It would be cheaper to acquire, and if the idea of consolidation is to reduce capacity and reap the benefits of lower overhead, then US Airways is the better choice. The upside potential is greater. Continental can be a valuable alliance partner, and they have a proud management team and workforce. The last merger talks fell apart because of disagreements over leadership and where the company would be headquarted, and unless UAL management is more willing to bend over (money does make us do strange things), this time will not be any different.

As for me, I still feel defeated, but I do realize the need to look forward. As I sat there in the Red Carpet Club last Monday reflecting on a better time, I turned to look inside the club. What used to be a haven for members only, the RCC's are now crowded with everyone and anyone with an extra $50 they are willing to spend that day. Seating is scarce, tables are not cleared promptly, and are littered with dirty glasses and napkins. The din from the noise of the TV's and people talking on their phones makes it difficult to work. Pre-packaged snack offerings have been replaced with open plates of fresh cheeses, broken crackers and a mash of cookies. The cheeses and vegetables are not refrigerated properly, patrons make their selections with dirty tongs, and the carpet in front of the snack table is dirty with food droppings. I would hate to think that all of these items that were previously offered in individual, sanitary packages were done away with so that customers could not take them on the planes. When I landed at LAX that night, the newly remodeled men's room at that Red Carpet Club had no paper towels or working hand dryer.

So back to looking forward - do I want to put up with this anymore? My biggest expenditures on United are the First Class seats on the Premium Service flights to New York. This service has definitely gotten worse since it was first started (they have to cut costs). Will it get better? The one thing I did get out of the meeting with Mr. Tague is that I alone cannot effect the changes I think should be made. They are set on their course. I was encouraged by one thing I did read this week though. It was a quote from Gerard Arpey, CEO of AMR (American Airlines). He disagrees with the prevailing idea that consolidation is needed for the legacy airlines to succeed. I agree - get a workforce that supports you and wants to give the customers the best experience they can, and stop the never-ending excessive compensation of executives that awards short-term performance, then success is possible. Look at Southwest Airlines.

For now I will keep supporting the front-line employees in any way I can - "Whatever it takes."