It has been nearly eight months since United Airlines, the world’s largest air carrier, was acquired by its employees. The buyout gave the workers 55 percent of the company’s stock in exchange for nearly $5 billion worth of wage and work-rule concessions.
The employee takeover was the largest ever undertaken in the United States. But employee ownership, designed to cut the carrier’s costs and make it more profitable, was not the only dramatic change to occur at Elk Grove Township-based United in the last year.
In October the airline launched one of the industry’s more ambitious projects-creation of the Shuttle by United, an “airline within an airline,” to compete with the growing number of low-cost, short-haul carriers.
Gerald Greenwald, the former Chrysler Corp. vice chairman who has been United’s chairman since the buyout, talked with Tribune financial writer Stanley Ziemba last week about the takeover and the Shuttle. Following is an edited version of that interview:
Q-The employee buyout was not met with the overwhelming approval of United’s workers when it came into being last summer. Now that it has been in place for several months, how is it working out?
A-So far, it’s off to a really good start. And I think we got off to a good start because all of us, all of the employees at the company, expected it, sought it and wanted it, which gave us a running start. Most big companies (that get involved in employee ownership) take years to build up a head of steam. We didn’t need to build up a head of steam.
Q-In years past, there was a lot of animosity between United’s employees and its management, especially between the unions and management. Has that changed now that the employees own the company?
A-I think so. I think the biggest single change has been recognition on the part of all of us as employees that there is a link, a tight link, between owners and employees of the company. We are owners and employees. . . . I think the best evidence of the change in attitude is by the way we are serving our passengers and becoming their airline of choice.
Q-Surely, not all of the employees are convinced that a new era of cooperation between employees and management exists. Right?
A-Do all 75,000 employees believe that there has been a tight link established? No. But a big number of them do.
Q-United’s 17,000 flight attendants have refused to become employee-owners. Has that been a major disappointment for you?
A-It has. On the other hand, I think we’ve significantly improved the way we supervise our flight attendants. They’re now supervised on a positive basis rather than with the disciplinary and penalty measures that were employed in the past. They like their work better now, and they are doing it better. As a result, I think we’ve resolved 80 to 90 percent of the issues that have kept them from joining the ownership program.
Q-So what is preventing them from joining?
A-Simply stated, the union wants us to close our bases for foreign flight attendants in London, Paris and Taipei. We determined the cost of doing that would be too high. It probably would require us to furlough (lay off) those (foreign) attendants, and I don’t want to do that. Moreover, because we are a worldwide airline-40 percent of our revenues come from flying outside the United States-we need the foreign attendants, with their language skills, to attract passengers whose first language is not English. We can hire and have been hiring Americans with foreign-language skills as flight attendants, but under the union’s seniority rules, it takes years on the job before a flight attendant gets the opportunity to work on an international route.
Q-As owners, are United’s employees getting a bigger role in how the company is run?
A-We’re seeing it in lots of ways. The clearest early example was the creation of the Shuttle by United. We didn’t have five bosses sitting in a room planning the Shuttle. We put together a group of over 100 employees from all sections of the company and had them implement the Shuttle. Today, there are probably 60 such teams throughout the company working on various subjects related to providing more efficient passenger service, improving employee productivity and upgrading employee services.
Q-How is the Shuttle performing?
A-We’re now finishing our fifth month, and we’re up to 342 daily flights on the West Coast. The Shuttle’s load factors (the percentage of seats filled) are good. The passengers like the service, and our employees who work on the Shuttle really like it.
Q-There are people in the airline industry who question whether United can be a full-service carrier and a low-cost, short-haul airline at the same time. How do you respond to their concern?
A-I think United is demonstrating that a big airline can walk and chew gum at the same time. I think as an industry, airlines have been slow to learn that there is more than one kind of passenger out there and that we need to respond to them with separate kinds of services, tailored to their needs. The guy flying from Los Angeles to San Francisco doesn’t need, nor does he want, the same thing that someone flying from Chicago to London needs and wants.
Q-Continental Airlines has a low-cost, short-haul operation like the Shuttle, called Continental Lite. So far, however, it has proved to be a money-loser. How is the Shuttle different?
A-First of all, I think we did a more thorough or at least different job of planning the Shuttle, by putting a team of employees together to establish and implement it. Secondly, at the suggestion of our Shuttle task force, we decided to start up the Shuttle in a market-the West Coast-where United was already strong. That meant we didn’t have to spend a lot extra in advertising to explain who we are. Finally, we concentrated our resources in one market to make sure we could offer plenty of flights and operate like a shuttle service should. From what I’ve read, Continental went into new markets where perhaps they weren’t known so well, and they moved into too many markets at one time, thereby spreading themselves thin.
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Q-How soon will the Shuttle by United set up operations in Chicago?
A-I don’t know. We first want to be certain that we’re making money on the West Coast before we expand the operation.
Q-Did United create the Shuttle to put Southwest Airlines, the low-cost, short-haul leader, out of business?
Southwest has successfully created a “short-haul, lowest price every day, get me there on time” market. It’s a market made up of people who would otherwise travel by car or bus. What we want is a piece of that market. There’s room for both of us.
Q-Aren’t you concerned that if the Shuttle is successful, your chief rivals-Delta Air Lines and American Airlines-will attempt to create a similar operation?
A-I see Delta and American pursuing different strategies. Delta is almost singly focused on reducing costs within its existing operation. As for American, I think it’s essentially focused on not growing its airline until it solves its employee labor problems.
Q-United made a fourth-quarter profit last year for the first time in years. It also made a profit for all of 1994, the first annual profit since 1990. Is United firmly on the road to consistent profitability?
A-Well, one swallow doesn’t make a spring. I think we have yet to prove ourselves quarter by quarter. However, we are certainly off to a good start. And I’m pleased with the fourth quarter, which, by the way, was the best fourth quarter we’ve had in our history.