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Apr 12, 2017

United Airlines’ object lesson in how not to handle a PR crisis

More than US$255 million has been wiped of United’s market value since yesterday's incident.

Adam Schwab — Business director and commentator

Adam Schwab

Business director and commentator

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).

[United drags protesting passenger off overbooked flight]

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.

7 comments

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7 thoughts on “United Airlines’ object lesson in how not to handle a PR crisis

  1. klewso

    Some culture? Sack Munoz.

  2. Deborah Campbell

    US Federal law caps compensation through overbooking at $1350 according to an article in the Guardian this morning.

    1. Nudiefish

      Call the compensation something else then.

      $2000 is a lot cheaper than $255 million…

    2. phonakins

      compo at the top rate, give a free hotel and first class. all the perks that don’t have to be counted as cash?

    3. Kfix

      That’s how much they can be required to pay, not how much they are allowed to pay.

  3. John Hall

    The Land of the Free has become the Home of the Bully & Big Brother Business. This airline will be panamed if there is any justice left in the US.

  4. AR

    If there were eer any doubt about the relationship between power & money, this should dispel it yet people will continue to fly UA.
    Buggered if I know why.
    One trip a decade ago was more than enough for me – crappy service, dirty toilets – one of 6 in zoo class was taped shut and late departure & even later arrival.

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