“Air on the side of humanity” and “Service as polished as our planes” are two advertising campaigns currently underway by Jet Blue Airlines and Swiss Air respectively. As with all marketing budgets, one wonders about the extent to which the slogans represent the values of the company, and the ability to see that spending have material impact on the bottom line. Ryanair highlights that you can “Fly cheaper”, and Cathay Pacific gets you “To the heart of Asia.” Fair enough. But is that gorgeous new “globe surfing” campaign of United Airlines with the re-launch of the “friendly skies” the real deal? Have they really “got your back” as they say in the ad?
So, this past month we had our tickets in hand and headed west from New York to Cornerstone’s Denver office launch event. Keeping in mind continual industry-wide cost-cutting measures, we set out to see if the new ad campaign really is the case. In our continual search for corporate excellence and understanding of how an airline might “operationalize” corporate sustainability, we went looking to see how United Airlines went about its business.
For a bit of background, we know that over the past years, with the bite of the financial crisis, fuel price pressures, and route and carrier consolidation, the airline industry has pushed hard to cuts costs. To some degree, the “humanity” seems to have been taken out of air travel. Despite high ticket prices, customers have been lowering expectations to deal with the realities of travel. United Airlines is no exception to this industry-wide trend.
With its 2010 merger with Continental Airlines, United became one of the world’s largest airlines in terms of revenue with around 5,600 flights daily to 375 airports globally. Despite the recent dramatic pullback in crude prices, the company is constantly fighting to stay ahead of the fuel price increases that impact profitability.
According to IBIS, those increases caused the company to scrap its growth plans and cut unprofitable flight routes. In order to save, United has decreased the frequency of certain flights, pulled out of less profitable routes and indefinitely postponed the launch of flights in some markets. The company has also been subject to over $1.5B in integration-related costs over the past three years, which has dragged down operating income. With the airline’s attempts to remove fuel-inefficient aircraft from its fleet, it might prove impossible to avoid a downtick in customer satisfaction.
Back to our flight plan: In arriving at the gate for the flight, we were pleased to meet an incredibly seasoned and accommodating desk staff and flight crew. These four women collectively had over 90 years of service with the company. They were thoughtful and calm despite some loud frustration expressed by passengers whose carry-on bags needed to be checked due to a lack of overhead space. It was fairly shocking to see how close the seatback in front of one’s face is…especially if the occupant chooses to recline! (We did have the opportunity to upgrade to business class at a very reasonable price on the return trip…timing of travel is everything.)
Having kept our expectations fairly low, we continued to see really impressive behaviors from the flight crew. About three quarters of the way into the flight the pilot notified the cabin that there would need to be an emergency landing in Omaha, Nebraska. Apparently there were severe winds in Denver and the pilot wanted to do a precautionary refuel in preparation for any circling over Denver. While a few passengers vociferously complained that it was just an excuse for some severe turbulence and delays, we thought the communication by the flight crew was excellent and comprehensive…very “human” of them to give passengers full information and a sense of control. The touch down in Omaha, refueling, and take-off were then seamless.
Along the way we also had some “sustainability surprises” including a wealth of health conscious, GMO free, SQF level 3 certified food options, and a comprehensive recycling improvement program across operations. The experience of knowing that behind any high-end (albeit rather expensive) products distributed in-flight, and behind the smiling flight crew members, there was a highly competent team of veterans, trumped all.
When it comes to “sustainability” in the airline and transportation sector, it’s clear that there are hugely material factors to consider in evaluation corporate excellence including energy efficiency, regulatory compliance, and safety standards and performance; but the human element is enormously important too. United Airlines may fall victim to the industry-wide cost cutting imperatives, but in our eyes their aspirations for corporate excellence were well reflected in this particular flight. The potential inverse relationship between cost cutting, safety, and customer satisfaction comes into question with United Airlines as with any other airline. That said, it actually felt like “they had our back.” While in prior Cornerstone Capital JSFB’s we have never before given scores in our “Sustainable Product Reviews”, we’ve decided in this case to give United Airlines flight #561 the rating of 4.5/5 “Stones.”
Rose Spiegel is an Investment Management Associate at Cornerstone Capital Inc.
Erika Karp is the Founder & Chief Executive Officer of Cornerstone Capital Inc. and the former Head of Global Sector Research at UBS Investment Bank.