United Airlines Flight to Oblivion

Big business often acquires a ‘culture’ that undermines performance.  The greatest travesty of this ‘cultural legacy’ is that it is starting to show:

  • Dogmatic culture – The treatment of a doctor kicked off a recent flight because United Airlines wanted to make seat space for flight crew is a testament to a corporation that is thinking more like a ‘context-dropping’, dogmatic bureaucracy, rather than a nimble, fast-footed organisation.
  • Socialised service – In the desire to be ‘all things to all customers’, United Airlines seems to have lost sight of the cost of that proposition. ‘Winning customers at every price point‘ is difficult if you have discount airlines doing it better and cheaper, whilst avoiding those ‘low traffic’ rural connections.
  • Sustainability in this context can only arise from political favour, which is why these airlines are invariably driven to seek ‘political advantage’ over their nimble competitors or compelled to engage in a litany of mergers until there is no competition left, or their efforts to reduce redundancies have driven the market ever-smaller, so no one can afford to fly anymore. United Airlines merged with Continental Airlines in May 2010. This is how corporations ‘ensure their long term financial success‘ in a statist society. This type of society was not the historical legacy of the United States, and one is left pondering whether it is ‘this culture’ that Donald Trump is seeking to fix.

What we can make of these corporations is that they are invariably compelled to adopt their bureaucratic cultures by several phenomena:

  • Their struggles to preserve their market position if their most profitable services are being ‘poached’ by smaller competitors. Smaller airlines with lower cost structures, who don’t have to offer a litany of packages or carry unprofitable routes can win customers.
  • These airlines require ‘cost discipline’ that rests on economies of scale. These scales of service require localised decision -making. The problem is that when the overarching regulatory framework is so arbitrary, dogmatic and context-dropping, this ultimately results in that ‘paralysis’ that is destroying democracy, also destroying the culture of our largest corporations.   This is why ‘small airlines’ are the greatest exponents of distributed organisation, or decentralised power, which in a political context, we know as anarcho-capitalism. They take advantage of the failings of ‘the legacy systems’. If there were not some scope for competition, which is the case in the ‘full state solution’ like Europe, then you would not see the competition we see in the United States airline industry, but given the double standard inherent in state privileges for ‘big airlines’, you realise that its not entirely healthy.

It is this ‘context dropping’ bureaucratic culture that proved indifferent to the impact on the life of a customer. It was this culture of indifference to customers, that saw United Airlines air marshalls remove a doctor from a plane, indifferent to the impact on people’s lives, or even its financial consequences.

United Airlines was too big to fail, and there was no apparent consequence to those running the airline. The nimbleness of smaller airlines was not apparent in United Airlines.   The problem is that UA has taken the position that it didn’t need ‘local decision-makers’. It took the view that airlines could be run from a ‘rule book’. It didn’t so much as make this decision, as it accepted that it was an imperative when the rule book was so thick. Yes, the ‘big airline culture’ is being brought to ‘ground’ by over-regulation. This ‘over-regulation’ isn’t just this idea that there are too many regulations, but more problematic, is the notion that:

  • Bureaucrats in Washington know how to run a business or an airline
  • Losses for an airline can be passed off as ‘exogenous factors’ to an executive whose performance can be ‘reasonably’ extricated from regulatory imposts.
  • More regulation is better regulation
  • Any regulation is ‘good regulation’ if it is well-intended

Examining this case of the forced removal of this particular customer, we can see two things:

  • Such events can have an enormous impact upon the brand image of a corporation. This single event has proved to be very expensive to United Airlines. Since it occurred, some $1.5 billon (4% on 13th April 2017) has been wiped off the value of the airline. This was perhaps an over-reaction, and the recovery in the stock price the next day, is at least a measure of the ‘robustness’ of these companies, but might that merely highlight the cynical acceptance of customers that, in a consolidated aviation industry, they really don’t have much choice?

Such events are destined to prompt some political ‘over-reach’. So a litany of regulations that have transformed or degraded the culture of a business, far from being seen as the ’cause of the problem’, are deemed to be the solution. The political imperative is not to step back, but to add another layer of regulation.

Lastly:

  • Political rhetoric – The ‘rural subsidy’ is pitched as a ‘strategic advantage’ insofar as ‘burdensome unprofitable routes’ are pitched as an opportunity to ‘leverage our network strengths‘, even if these isolated communities have historically been areas of declining employment and real incomes. Maybe Trump can restore these communities to health? It’s a big ‘if’.

These corporations reach a point where their value proposition is less about their ‘leanness’ and ‘operational expertise’ and more about their:

  1. Political patronage or connections
  2. Political ‘standing’ insofar as they become ‘too big to fail’

United Airlines, indeed all of the ‘mainstream airlines’ all fall into that package. These companies are large. Their shareholder base and worker base is large, so their executives are powerful representatives. More than their immediate constituents, these corporations are important to local communities who rely on their connections to larger cities. Having lived in a rural community, I know how important a city airport connection is to the ‘high rollers’ in rural towns and cities. These constituencies are important for political parties in terms of securing grass roots patronage for the mainstream parties. When you recognise this nepotism, or the extent of ‘cultural subsidisation’, you soon realise why the United States is sick. There is very little cultural courage to wind back this largesse, otherwise concealed as ‘service’ and ‘loyalty programs’. People will tell you that they wouldn’t fly United Airlines unless they could secure their connections to larger cities. When you hear these ‘parochial statements’ you soon realise that the source of this culture is ‘parochial entitlement’. You might soon realise that executives and customers alike are behaving like petulant children. Talk of ‘competition’ and ‘choice’ is just rhetoric. These people want what they want, and they want it now, and they aren’t prepared to pay directly for it. They want these privileges to be subsidised by the state. Now, this is not welfare for the poor. The poor can’t afford these flights often. It is more often ‘welfare for the rich’, if not corporate welfare. Whether it is a principled commitment to ‘big state’ or ‘claw back’ for all the taxes these people pay, at the end of the day, it has left American airlines with a non-competitive culture.

 

Such developments are destined to spell the end of American supremacy unless the electoral mandate in support of Donald Trump manifests in a change in this political re-activism.

 

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