Travel Industry

United takes a drubbing

It must be tough to wake up each morning these days and realize your name is Glenn Tilton and you have to report to work as president and CEO of United Airlines these days.

On the B2B side, you’re under attack from associations and now Congress for your attempt to scrub credit card merchant fees. On the consumer front, a band called Sons of Maxwell has pulled 4.2 million hits on its YouTube video titled “United Breaks Guitars.” Even worse, people are humming the tune that goes with “I should have flown with someone else or gone by car, because United breaks guitars.” Dave Carroll is promising two more songs about his gripe, despite the fact the airline did step up and offer compensation after a year of denials.

Swell. The first one is now selling on iTunes for .99.

Here’s how a few social media experts would advise Mr. Tilton to turn this thing around:

The airline apparently thought it was responding in good humor by saying it intended to use Carroll’s video to train its employees. Not a bad concept, but tin-eared in execution, is Kathryn Hammer’s take.. “Great, break the guy’s pricy guitar, refuse to pay for it, ignore and stonewall the issue for a year, then, when you’re finally called out on it on the national stage, announce you’re helping yourself to his intellectual property. Wince.” Her strategy: Hire Carroll to make the training video along with the CEO and customer service leadership on camera. Pay the songwriter handsomely. It could even go so far as to hire him to do a series of short music videos for the United website, highlighting particular promotions and services, each beginning with, “Hi, I’m Dave Carroll, and United makes me sing.”

Broken guitars = United

For that matter, make Tilton sing about how sorry he is, says Les McKeown, CEO of Predictable Success. If he is tone-deaf, all the better.

Donnetta Campbell would start with a YouTube video announcing a new foundation that gives guitars to underprivileged kids (really do it, she adds) and donate a bunch to pay a penance for the damage. Film the kids with their new guitars and lessons.

In that same vein, Matthew Broder, the communications wizard at Pitney Bowes, suggests a “bands fly free” promotion to established bands that can prove they are traveling to a paid gig. He’d even hire local musicians to set up a jam session at the select United gates.

When bad news goes viral like this, if a company doesn’t respond in the same channels, the audience is left with a negative opinion, points out Carol Warren, a principal at Antarra Communications. If this were her client, she would have already created a song about how United will fix the problem, making sure to poke fun of themselves. Nor would she stop there: regional Twitter email campaigns could clue people in on the best local places to hear music for upcoming flight destinations. She’d run a sweepstakes for folks to post regional music and food tips on Facebook — best tips win free air tickets based on the feedback.

Lots of opportunity

Mario Almonte, the managing partner at Herman and Almonte PR, takes the opposite approach: “The United Breaks Guitar video is too catchy to be taken seriously.  Airlines have always been notorious for losing baggage and destroying their content.  United’s problem is not PR but its business practices,” he says. “ Riders don’t care about United’s business practice.  They only care about their own personal experience.  Give them a good deal and they’ll accept a little bad service.” If the airlines really want to fight fire with fire, they should put out a humorous video showing how annoying and inconsiderate musicians can be on their flights — e.g. taking up an entire overhead bin with their equipment, getting drunk and hitting on the flight attendants.

But no matter the tactic, funny seems to be United’s way out of this mess. After all, as David Moye, the media relations manager at Alternative Strategies, points out, “Explaining their business decisions in a fun way will get the support of consumers, who will forgive anything that’s funny. Think Richard Nixon saying, ‘Sock it to me.’”

Photography: tawalker, fictures, jsome1

Whose responsibility?

Thanks in large part to Congress’ attention, United Airlines has delayed its deadline to cut 28 travel agencies off its credit card merchant account. Sure, the airline felt the pressure from associations to knock it off, but the signed letter from 13 elected politicians no doubt was the final piece of baggage thrown onto this cart.

Rep. Michael Arcuri (D-N.Y.)  told the press in a teleconference earlier this week that he’s not buying United’s argument that this was a cost-saving initiative limited in scope, because the savings would be too small to be worth the effort. When the numbers don’t add up, suspicion swoops in.

And lawmakers were quick to warn United that it really wants to fly right when it comes to the Fair Credit Billing Act.

But that’s not to say the issue is resolved. United has only gone as far as to say these agencies on the chopping block — one allegedly directs $500,000 in ticket sales to UA every year — may ask for a 60-day extension to get their affairs in order. The company continues to swear this is not a pilot program in a more sinister plan to eliminate travel agents from its business plan.

“Finally, this action neither violates nor undermines the Fair Credit Billing Act,” Jeff Foland, United’s senior vice president of worldwide sales and distribution, wrote in a press release. “There will be no difference in how credit card disputes will be handled from a customer’s perspective. Customers who charge their tickets with travel agents will have the same rights they have always had, including the right to dispute charges to their card issuer for non-performed services. This is the case when the impacted travel agents use United’s merchant account; it will continue to be the case when the impacted agents use their own merchant accounts.”

Mass exodus?

The trouble is, the new policy doesn’t break the ARC sales terms, either, as some industry pundits thought early on, officials at the technology solutions company are saying.

So it’s shaping up to become more a battle of wills: can the travel industry kick up enough dust to get United to slink away from this notion or will an airline desperate for cash damn the brownie points and forge ahead with any penny-saving measure it finds? I’m in agreement with Kevin Mitchell, chairman of the Business Travel Coalition, who is fond these days of bringing up the backlash Northwest Airlines dealt with when it tried to slap a $7.50 surcharge on any tickets the public buys through an agent. Obviously, that went over like a lead balloon in 2004, and according to Mitchell, it took months to rebuild the business that stunt cost the airline.

Today, NW has been eaten by Delta Airlines. Just sayin’.

Photography: stevendamron, marceatsworld

It's getting hot in Washington

Seems like government regulations aren’t exactly popular these days.

Not that businesses have ever really welcomed them with open arms, unless it meant they could find a leg up on the competition with it or it upholds another law already on the books. You can probably still hear the applause from travel agents around the country when 13 members of Congress sent a letter to United Airlines yesterday asking the transportation giant to delay its credit card cost shift, using the Fair Credit Billing Act as leverage.

But the proposed National Fire Protection Association (NFPA) Airport Rescue and Firefighting (ARFF) standards are a horse of a different color — especially now that the Transportation Research Board has said the proposal would cost airports almost $4 billion in the first year to comply. The breakdown:

• Airports would need to build almost 600 additional ARFF facilities and purchase more than 1,000 additional ARFF vehicles. Cost: in the$2.9 billion ballpark.

• Airports would be required to hire more than 11,000 additional firefighters. Cost: chalk up $1 billion per year.

What does this mean for your city?  The average airport would be required to build or relocate one fire station, purchase two additional ARFF vehicles and hire 23 additional fire fighters to comply with NFPA standards. Additional ARFF facilities, vehicles and training would cost an average of $6 million per airport. Additional firefighters and other operating and expenses would cost the average airport $2.2 million per year for a total of $8.2 million in first-year costs.

Here’s the kicker: It’s not exactly buying quality, according to the Transportation Research Board. The proposed firefighting requirements would have only a negligible impact on aviation safety, the report’s research shows. They determined that the new standards had the potential to prevent one fatality among all the airport emergencies from 1997 to 2007. The end result is to pass the cost on to airlines, which raises ticket prices or reduces flights — and often both.

Officials at the American Association of Airport Executives are on the case,  urged lawmakers to reject provisions in the House FAA reauthorization bill that could force airports to comply with these fire fighting standards. Certainly AAAE president Charles Barkley wouldn’t turn down anyone’s voice chiming in to express their concern for more costs for unproven results.

Photographer: DVIDSHUB

UA's idea isn't flying with the industry

United Airlines has found a sure-fire way to stir the pot this summer. Its announcement last week that the airline will no longer allow some travel agencies to use its merchant account to book United products after July 20 has heaped coals on officials’ heads.

Basically, a handful of agencies (no one has revealed just who and how many) will have to use their own merchant accounts to accept payments and then pay United in cash. The penalty for forgetting is $75 per ticket. Consultants like Robert Joselyn immediately said this smelled like a pilot program to shift the credit card fees and fraud liability to all travel agencies down the road.

And that’s just the opening volley. Among the anonymous comments posted at Travel Weekly within the first 48 hours of the bombshell:

• “With UA continually on the brink of another bankruptcy, what agency wants to pay with cash and take the risk of holding the bag??”

• “United seems bent on angering and alienating everyone they do business with – whether it be the passenger (I can’t tell you how many clients will say never again will they fly on UA) or their ‘travel partners’ who they seem oblivious to damaging their relationship with in every way imaginable.”

• Has United lost their minds??? We are free employees, selling United’s tickets for nothing and hoping maybe we can receive a service fee. The people at United hate the airline and Glen Tilton because they are Harvard MBAs who are in it for themselves and no one else … It’s just a method to drive down labor costs. Sorry, you airline MBAs, it is not going to work for you. You will see!!!”

• “It sounds more like they are having cash flow problems and want to pass the buck. We already push more and more people onto the discount airlines. and if this follow through the gds’s will have a problem and the discount carriers will benefit.”

Except at United Airlines

The ironic twist, of course, is that United isn’t the first to suggest credit card fees are a problem — Continental’s CFO mentioned in January 2007 that it was looking at ways to get around credit cards, including direct bank transfers. British Airways spent three years earlier this decade locked in a legal battle trying to shift American Express merchant fees from its corporate business. It finally pitched its tent and went home in 2005.

But talking and doing are different things, so it’s UA that the American Society of Travel Agents’ legal team now says it intends to take up with the U.S. Justice Department. According to Paul Ruden, the senior vice president of legal and industry affairs at ASTA, this could mean carriers are relaying their intentions without words to get around the antitrust law. He has some damning facts on his side.

As a travel agent and a business journalist, I’m torn between the two sides. Obviously, cost-cutting is a key ingredient in business survival, and I do it myself. Business is not for the faint of heart: it’s a rough and tumble game.

The problems stem when you play out the consequences. Agencies, as many experts point out, will have to charge more service fees beyond the current $10 mark-up at online databases to cover their costs. Meanwhile, consumers are becoming restless and feisty about fees instead of numb and accepting. When airlines unbundled services and began charging $15 here, $25 there, the result was mass irritation. Tacking on another $10 for using an credit card falls in that same category. Not to mention many Americans are beginning to see holes in their income stream and simply can’t afford to pay another sawbuck.

So, naturally, they’ll trot to the airlines’ URL sites directly to book without fees — bad for travel agents, but remember: This is business. Put on your big girl panties or don’t play. However, this also means the passenger load is now the airlines’ full responsibility — their employees are on the hot seat to handle processing changes, cancellations/credits and notifying folks of new itineraries.

It doesn’t take any in-depth musing to determine labor costs could outstrip the estimated $171 million United now pays in credit card fees. From that standpoint alone, it would be nice to save United Airlines from itself.

Which lends some weight to Ruden’s theory that the real end game is to save GDS fees. “Maybe this is partly or all about getting out from under their full-content agreements,” he told ATW. And there are some rules to this game that shouldn’t be broken — like honoring your contracts.

Photography: cliff1066, szlea

When Doug Parker, CEO of US Airways Group, told the National Post in late March that frequent flyer programs have hurt the industry — too many free trips, you know — it barely made a blip on the traval radar.

Frequent flyer programs aren't grounded yet

“The amount of our product we give away is not consistent with generating returns for shareholders and providing stability for employees,” he told reporters. Yet frequent-flyer miles are now a staple of U.S. travel. so airlines can’t retreat, and thus are trying to recoup lost revenue with the checked bags charges. That’s an estimated $500 million in US Airways’ pocket this year.

It’s certainly what most consumers have assumed for the past 18 months; as a travel agent, I’ve seen a marked decline in enthusiasm for racking up frequent flyer miles. A large chunk of Americans simply don’t trust the programs to be around when it’s their time to cash in — consider them the Social Security set up of the travel industry.

However, Rick Ferguson was listening, and as the editorial director of COLLOQUY, the custom magazine that interprets research from the loyalty marketing consultant of the same name, he certainly disagrees.

First, loyalty marketing is a way to use perishable inventory, i.e. empty seats on a scheduled flight. Every unbuckled seat belt lying across a cushion you can use as a floatation device in the case of a water landing represents a missed opportunity to flatter, impress and reward. As Ferguson points out, the only real costs on a balance sheet for filling this seat at the last minute is the extra fuel for the person and his lugggage  which they charged him for — a bag of peanuts nd a Diet Coke.

Second, airline executives have confided to Ferguson that they’ve made more money selling airline miles to partners than they do flying planes. Robert Sahadevan of United Airlines told attendes at the Frequent Travel Marketing Association conference that only 37 percent of the miles issued within its Mileage Plus program are actually used for ticket purchases. The other 43 percent are sold to third parties (credit card partners, hotels, etc.), which makes frequent flyer programs a valuable cash flow soarch approaching $5 billion by some market analysts’ calculators.

That’s a tad more than the luggage fee idea.

“The airline and the loyalty program are conjoined twins, sharing a heart and circulatory system. You might be able to separate them, but the surgery would be risky, and one or both of the twins might not survive,” Ferguson writes in COLLOQUY. “I may not know anything about running an airline, but I do know it’s usually not wise to mess with a good thing.”

Photography: Cliff1066