United Airlines has kindly showed companies across the world how not to deal with customers and handle public relations after it now infamously ordered police to violently remove a doctor from a US domestic flight. However, it’s the business practices underlying the act of wanton stupidity that highlight the crony capitalist nature of the large US business.
For those who haven’t been following the sordid incident, on Sunday, several airline staff from a partner airline sought to board a United Airlines flight from Chicago to Louisville. The problem was the flight was completely full.
United’s first idea was to try a market-based solution to their problem (this is what airlines commonly do as they tend to almost always overbook flights). The problem is, United’s offer of US$1000 to customers to vacate their seat (presumably for a flight the following day) was not taken up by any passengers. The commonsense thing to do, given the airline was attempting a market-based solution to their problem, was to increase the price. While US$1000 wasn’t enough to tempt anyone on the flight to give up their seat, US$2000 almost certainly would have been.
It was at this point where United seemed to totally lose the plot (or, more likely, have procedures that bear little resemblance to common sense).
A customer-centric business, like Amazon, would have presumably told the non-paying partner airline staff that the flight was full and to find another way to get to Louisville (Amazon founder, Jeff Bezos, famously used to leave an empty chair at management meetings on behalf of the “customer”). The problem is, the large US-based airlines like United and Delta are anything but customer centric (it is this attitude that has allowed Southwest Airlines grow from nothing to be by far the most profitable airline in the US).
But instead of telling the airline staff the flight was full, or more sensibly, letting the market set a price at which it would pay passengers, United did what any authoritarian dictator would: the company resorted to violence. With the shameful assistance from airport police (hardly a surprise given the US police’s long history of excessive force), a 69-year-old doctor was famously removed with blood streaming down his face (all conveniently videoed by horrified passengers on their phones). The incident was then worsened by United’s bumbling CEO, Oscar Munoz, inflaming the situation by blaming the passenger for being “disruptive and belligerent”. Munoz is paid more than $6 million annually to run United.
As a result of the incident, more than US$255 million has been wiped of United’s market value, and the brand, which currently operates more direct flights between China and the US, is facing a massive backlash from hundreds of millions of furious people who believe that Dao was targeted due do his ethnicity.
The incident serves to highlight how the US economy has long shifted from a market based system to a crony capitalist welfare state, where the police intervene to violently remove a paying customer because an airline were too stupid to operate a market based solution to their problem. Even more ironically, the police officers who used violence to remove the passenger were themselves public servants.
A US$2000 investment would have saved United hundreds of millions of dollars of shareholder value and avoided unnecessary violence, but who ever said big airlines cared about customers or shareholders.
*Adam Schwab is the author of Pigs at the Trough: Lessons from Australia’s Decade of Corporate Greed, published by John Wiley & Sons in 2010.