United Airlines, Time to Fly “Together” Analia Anderson, Derek Evers, Velislav Hristanov, Robert E. Hoskisson, Jake Johnson, Adam Kirst, Pauline Pham, Todd Robeson, Mathangi Shankar, Adam Schwartz, Richard Till, Craig Vom Lehn, Elena Wilkening, Gail Christian / Arizona State University United Airlines, formerly the wholly owned prin- Strong demand for air travel followed during cipal subsidiary of UAL Corporation, has experi- the post World War II economic boom that swept enced a significant amount of turbulence in its more the United States. In response, United expanded its than 80-year history. From its inception in 1926 workforce, acquired new routes, and purchased it has weathered many storms including mergers, the company’s first jet aircraft.3 On June 1, 1961, acquisitions, war, the Depression, strikes by labor United merged with Capital Airlines, then the fifth- unions, buyout and takeover attempts, terrorist largest air transport company in the United States, attacks, and bankruptcy. The most recent major and formed the world’s largest commercial airline. challenge to United and the global air transporta- In 1968, United’s stockholders approved the for- tion industry has been the global economic reces- mation of UAL, Inc., as a holding company, with sion. Then in October 2010, United Airlines joined United as a wholly owned subsidiary. with Continental Airlines in a merger that created The next 20 years were turbulent times for the the world’s largest airline, with more than 80,000 company and tested not only United, but also the employees. UAL Corporation changed its name entire airline industry. The company had six differ- to United Continental Holdings, Inc., with corpo- ent presidents between 1970 and 1989. Management rate and operational headquarters in Chicago and changes resulted in new directions and new images its largest hub in Houston. Until a single operat- for United. The company acquired other nonairline ing certificate is received from the Federal Aviation businesses including rental car businesses and hotel Administration (FAA), United and Continental properties, which were later sold. UAL, Inc., also will continue to operate separately as subsidiaries changed its name to Allegis Corporation in 1986, of United Continental Holdings. The certificate is and then changed it back to UAL, Inc., in 1988. On anticipated to be received by the end of 2011.1 As February 11, 1986, United purchased Pan American global economies struggle to emerge from the reces- Airways’ Pacific Division and began service to 13 sion, airlines will face numerous challenges. In this Pacific cities, and in October 1990, it announced case, United Continental Holdings, its competitors, the purchase of Pan American’s routes between the and the airline industry are examined to determine United States and London. if United Airlines will have calmer skies ahead or if United sustained record losses in the early 1990s there are storms on the horizon. and worked to recoup them for several years. The company initiated a hiring freeze, grounded older air- UAL History craft, and sold its flight kitchens. However, the result- ing $400 million reduction in operating expenses In 1925, an act of Congress made the carrying of was not enough to enable United to avoid launch- mail by air a private operation under a system of ing intensive labor costs negotiations with employee competitive bidding.2 United was formed a year later unions. The UAL board approved a proposal for as Varney Airlines Airmail Service, an airmail ser- 54,000 employees to exchange portions of their sala- vice that carried mail between Pasco, Washington, ries and benefits for UAL stock, paving the way for and Elko, Nevada. This original venture evolved the creation of the largest majority employee-owned into a modern global airline. company in the world on July 12, 1994.4 C-1 776812_United6812_United AAirlines.inddirlines.indd CC-1-1 88/18/11/18/11 66:52:52 PPMM C-2 United Airlines, Time to Fly “Together” Exhibit 1 Labor Union Representation at United Air Lines Number of Contract Open Employee Group Employees Uniona for Amendment Public Contact/Ramp & Stores/Food Service Employees/Security Offi cers/Maintenance Instructors/Fleet Technical Instructors 14,811 IAM January 1, 2010 Flight Attendants 12,892 AFA January 8, 2010 Pilots 5,632 ALPA January 1, 2010 Mechanics and Related 4,678 Teamsters January 1, 2010 Engineers 218 IFPTE January 1, 2010 Dispatchers 164 PAFCA January 1, 2010 aInternational Association of Machinists and Aerospace Workers, Association of Flight Attendants—Communication Workers of America, Air Line Pilots Association, International Brotherhood of Teamsters, International Federation of Professional and Technical Engineers and Professional Airline Flight Control Association. Source: United Airlines Annual Report 2009. The newly created Employee Stock Option Plan removal of executive officers. Thus, the seats on (ESOP) environment conflicted with the company’s the board gave employees significant control over prior culture because formerly control was cen- major business decisions. By December 31, 2009, tered in the top-level executives. Subsequently, the 6 labor unions represented approximately 82 per- chairman, president, CEO, and other key officials cent of UAL’s workforce of approximately 47,000 stepped down from their positions. One of the new active employees8 (see Exhibit 1 for a list of the six management’s first steps was to begin to transform unions and their representation in United’s current the corporate culture from a “command-and-control” workforce). philosophy to one based on higher employee involve- In response to the globalization of the airline ment, with an emphasis on better communication. industry in the early 1990s, United directed its Workplace innovations were quickly adopted, strategy toward an international expansion through including telecommuting, elimination of the fur- strategic alliances. In 1992, United entered into an lough policy, and the introduction of casual dress alliance agreement with Air Canada, and in 1993 it codes in nonpublic areas of the company.5 announced a comprehensive marketing agreement Perhaps the most substantial change result- with Lufthansa. With careful attention to antitrust ing from the ESOP was the shift in the balance of regulations, United ensured that the company’s power within UAL. Over the two-year period after alliances received antitrust immunity from the its creation, the original 54,000 U.S. employees who U.S. Department of Transportation. On May 14, launched the ESOP in mid-1994 were joined in own- 1997, United Airlines, Lufthansa, Air Canada, SAS, ership by many of their coworkers in Europe, South and Thai Airways International launched the Star America, and Asia.6 By 2002, a significant portion Alliance network, which also included Austrian of the UAL workforce was represented by one of Airlines, Lauda Air, Varig Brazilian Airlines, five different unions: the International Association Singapore Airlines, and others, bringing the total of Machinists and Aerospace Workers (IAM), the to 14 airline companies. As a member of the Star Air Line Pilots Association (ALPA), the Association Alliance, United received such benefits as the diver- of Flight Attendants (AFA), the Transport Workers sification of risks and the sharing of resources Union (TWU), and the Professional Airline Flight necessary for global competition. Increasing the Control Association (PAFCA).7 With such a high number of destinations, creating a vast communica- level of union organization and enormous owner- tion network, and enhancing marketing and sales ship stake in the company, UAL labor was able to activities were the key factors that favorably influ- create 3 employee representative positions on the enced the company’s future growth and competitive- 11-member board. Over the next several years the ness. Its advertising slogan, “Rising,” seemed well labor force became very powerful in such decisions deserved (see Exhibit 2 for a listing of current airline as the approval of mergers and the selection and alliances and their members). 776812_United6812_United AAirlines.inddirlines.indd CC-2-2 88/18/11/18/11 66:52:52 PPMM United Airlines, Time to Fly “Together” C-3 Starting in 1995, United enjoyed three consecu- slowdowns during the 2000 labor negotiations that tive years of record-breaking profits. However, resulted in canceled flights, angry customers, and although United was named one of the ten best a $700 million revenue shortfall. In an attempt to stocks for long-term investment in August 1999 by regain employee confidence, an agreement was made Fortune, the company soon encountered turbulent with the pilots’ union that made United pilots the times again. The pilots and machinists staged work highest paid in the industry.9 United then planned Exhibit 2 Global Airline Alliances Global Alliances Alliance oneworld® SkyTeam Star Year Formed 1999 2000 1997 Countries Served 145 169 181 Destinations 901 898 1160 Daily Departures 9,381 13,000 21,000 Passengers (thousands) 335,712 384,000 603,800 Lounges 550 447 970+ Fleet (operated) 2,473 3140 4,023 Employees 311,830 316,445 402,208 Full Members airberlin (member elect) Aerofl ot Adria American Airlines Aerolineas Argentinas Aegean British Airways (member elect) Air Canada Cathay Pacifi c Airways Aeromexico Air China FinnAir Air Europa Air New Zealand Iberia Air France ANA Japan Airlines (JAL) Alitalia Asiana Airlines Kingfi sher Airlines (member China Airlines (member elect) Austrian