United says it does not yet know if business was hurt by last week's bumping drama in Chicago. It's possible that the airline lost some customers on the margins, but United will be fine long-term. If the price is right, passengers will be back.
Since United Airlines called Chicago O’Hare airport security officers last week to remove a passenger from one of its flights, leading to a violent altercation that was caught on video, the hashtag #BoycottUnitedAirlines has been trending on social media.
But speaking Tuesday on United’s first quarter earnings call, executives said they do not know whether the April 10 incident — perhaps one of the worst public relations debacles in U.S. airline history — has had a measurable effect on advanced bookings. So far, United President Scott Kirby said, the airline has not changed its forecasts.
“It’s really too early for us to tell anything about bookings,” Kirby said. “In particular, for last week, because it was the week before Easter. That’s normally a very low booking period. We just don’t have any quantifiable data.”
Asked specifically about bookings from China — the video went viral on Chinese social media site Weibo — Kirby said United does have enough data. United is by far the largest U.S. airline in China, though analyst Hunter Keay of Wolfe Research said ticket sales from Chinese customers probably represent only three percent of United’s overall revenue.
“It’s a small numbers problem,” Kirby said. “There’s a lot of volatility for bookings from point-of-sale China so it’s really too early to say anything about it.”
The incident, in which Dr. David Dao was dragged off a United Express flight from Chicago to Louisville, Kentucky when he refused to give up his seat for an airline employee, was among the world’s most viral and controversial stories last week.
Many United customers and potential customers asked how the carrier could forcibly remove a passengers who had already boarded and give that seat to an employee. Others acknowledged United has a right to ask passengers to leave, but asked how United could permit security officers to drag him off the plane so harshly.
“There have been some concerns from corporate accounts, which [is] totally appropriate,” Kirby said. “We feel like we have managed that pretty well and our corporate accounts are largely supportive. They want us to fix this. They want us to do the right thing. But they believe in us and believe that we will get this fixed and that at the end of the day we will be stronger and have better customer service.”
United CEO Oscar Munoz, who in a written statement last week first blamed Dao for being “disruptive and belligerent,” said Tuesday he takes full responsibility — “the buck stops here” — but added that he would keep his job. Munoz also said no one would be fired. “It was a system failure across various areas so no there was never a consideration for firing an employee,” he said.
Investment analysts not concerned
United’s stock has vacillated since the altercation but investment analysts who follow the carrier — and fret about nearly everything that could make shares less valuable — seem unconcerned the incident will change the carrier’s long-term financial prospects.
On Tuesday, analysts questioned United’s top executives for an hour, yet only one asked a about Dr. Dao’s experience. The analysts were far more concerned about United’s plans to add more flights, with some fearing more capacity might lead to market share battles, which could lead to lower revenues for airlines. The executives said it makes sense for United to add routes, since as recently as early 2015, before Munoz and Kirby joined the company, United tried to cut its way to improve profitability — without any success.
In note published April 14, Keay said he expects this issue eventually will fizzle. He noted that Spirit Airlines had a similar viral incident in 2012, when it refused to refund a ticket for a dying military veteran who was too sick to fly. “Spirit stock sold off on heavy volume,” Keay said. “It was a PR disaster… until people forgot about it.”
Keay said whatever legal settlement United reaches with Dr. Dao likely will not have a material effect on the airline’s finances. And he said most customers should return.
“Switch away from United for repeated bad service – sure, many have done that in recent years – but boycotting United in sympathy for an incident for which there is minimal, if any, specific precedent and for one that will likely drive policy change and some crow eating by management?” he said. “That seems dramatic.”
United has already outlined two changes to its procedures, and Munoz told analysts the carrier will use a “more common-sense approach” in dealing with passengers.
The airline said it will not call police or security unless a passenger is a threat to safety or security. The airline also said employees who must fly will need to book at least an hour before departure. This will ensure that, if a paying passenger loses a seat so an employee can fly, the customer will learn about it in the gate, rather than after boarding.
United has not said it will stop bumping passengers, but Munoz said the carrier will share more policy changes by April 30.
In his note, Keay suggested airlines offer more generous compensation to passengers it removes from flights.
Last year, he said, United involuntary bumped 3,765 passengers. Airlines are required to pay each bumped passenger no more than $1,350, but Keay asked whether airlines may want to pay more, perhaps as much as $3,000. “This seems easy,” he said, “And it might be underway.” He said the cost to the airline would be negligible, and it would help the carrier avoid future public relations hits.
This viral event overshadowed a strong first quarter from United. The airline reported net income of $96 million, with a pre-tax margin of 1.7 percent.
Its passenger revenue per available seat mile, or PRASM, a closely-watched metric that measures how much revenue an airline makes for each seat it flies one mile, was flat on a year-over-year basis. This is a big deal, as most airlines have been reporting year-over-year declines in recent quarters, as average ticket prices have declined in many markets.
In the second quarter, United expects its PRASM to increase, year-over-year, for the first time since early 2015. The airline predicted PRASM will increase between one and three percent.
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Photo credit: Asian community organizations from Chicago hold signs to protest after an April 10 United Airlines incident in which a doctor was removed from a flight. United said Tuesday that it's too early to tell how bookings have been affected. 227349 / 227349