American Culture

United Airlines and its ‘calculated misery’: happy customers just aren’t needed to make money

The future of Oscar Munoz, the CEO of United Airlines, has just been re-accommodated.

You remember him, of course. After airport dragoons dragged a boarded, seated, paying customer off a United aircraft, Munoz’s first PR apology contained what Scholars & Rogues has called the “word of the year”: “I apologize for having to re-accommodate these customers.”

telemmglpict000125651009-large_trans_nvbqzqnjv4bqbe6o56qrl4zbrlmqqi7ubfvse9jsn00kzbur3ixhagoWell, that’s cost him. Munoz had been groomed to move upstairs from CEO to chairman of United Continental Holdings, the airline’s owner. (You do remember, of course, that Continental agreed to merge with United seven years ago.) Well, Munoz won’t get that top job.

United’s twin clusterfucks of policy execution (overbooking issues) and PR aftermath (“re-accommodated”) have derailed Munoz’s career — well, a little. He may lose about $500,000 from his bonus, because it’s tied in part to what airlines call KPI — key performance indicators, as indicated in consumer satisfaction surveys. But don’t shed a tear for Munoz — he received $18.7 million in total compensation for 2016, more than triple that of 2015.

But that’s not the only consequence for United executives. From Barry Meier’s New York Times story:

The company, United Continental Holdings, is also adjusting its incentive compensation program for senior executives to make it “directly and meaningfully tied to progress in improving the customer experience.” [emphasis added]

Really, United? We’re supposed to buy that? The cruel, inhuman removal of bloodied, injured Dr. David Dao from United Express flight 3411 marks a nadir of United’s attitude towards its customers. United could care less, because it has no need whatsoever to improve the customer experience.

United and other airlines — thanks to industry consolidation and deregulation that permitted it — have learned they don’t need happy customers to make money. It’s called “calculated misery,” and airlines make money knowing how low they can go.

Think of the word “upgrade.” That usually means you’re rising to an unexpected higher plateau of service — often without an increase in cost. At United and other large airlines, it’s the opposite — you pay to avoid a lower, less tolerable level of service. In other words, airlines calculate the amount of misery you’re willing to pay to avoid. This is calculated misery, a term first coined by Tim Wu in The New Yorker. Says Wu:

But the fee model comes with systematic costs that are not immediately obvious. Here’s the thing: in order for fees to work, there needs be something worth paying to avoid. That necessitates, at some level, a strategy that can be described as “calculated misery.” Basic service, without fees, must be sufficiently degraded in order to make people want to pay to escape it. And that’s where the suffering begins.

The necessity of degrading basic service provides a partial explanation for the fact that, in the past decade, the major airlines have done what they can to make flying basic economy, particularly on longer flights, an intolerable experience. [emphasis added]

Pay, and enjoy. Don’t pay? Be miserable. United doesn’t care. Tim Wu again:

That push for profit yielded increased fees for baggage and reservation changes (following industry-wide trends), and unprecedented segmentation between regular and elite customers. While it has always differentiated between business and economy fliers, post-merger United took its complex caste system to new levels.

For its very highest-paying Global Services customers, United layered on the benefits: segregated gate agents, dedicated phone lines; short or skipped security lines: in sum, the complete avoidance of the crowds everyone else deals with. Meanwhile, United took away services at the bottom, shrinking seats, imposing punitive fees, removing pre-boarding for parents with children, and increasing the numbers of boarding classes.

That’s not an effective corporate strategy for “improving the customer experience.”

 United continues to lobby anyone who’ll listen (and take its campaign donations) to retain its ability to provide passengers with that “intolerable experience” they’ll pay to avoid.

United (and other airlines, of course, through its industry flak association) have opposed government-dictated change that could, in fact, improve customer experience.

United has spent more than $1 million in the last decade on state politics, mostly to oppose legislation creating passenger bills of rights.

United lobbied in 2014 against rules that would require it to disclose more clearly the fees it charges. After President Obama proposed such rules requiring price clarity, the industry lobbying group, Airlines for America, asked President Donald to delay such regulation. Donald did. United, as a member of Airlines for America, got its way.

United has lobbied against regulations setting minimum seat dimensions. The year before, it said it would reduce seat widths further to increase revenue.

United lobbied on a bill proposed by a budget carrier to allow an airline to charge passengers to use aircraft bathrooms.

United lobbied against a bill, the Families Flying Together Act, that would compel airlines to seat family members together on flights. It lost that fight; the bill passed. Airlines for America called it “bad for airline customers, employees, the communities we serve and our overall U.S. economy.” Imagine that.

United has lied to the federal government.

In September 2014 comments to federal officials, the Chicago-based airline outlined its opposition to proposed rules that sought more disclosure of the fees airlines charge to customers. One of the rules at issue was designed to compel airlines to more explicitly disclose fees charged for reserving specific seats.

“Including advance-seat-assignment charges among the ‘basic ancillary service’ fees that must be disclosed as part of initial fare displays makes no sense,” the airline wrote to the Department of Transportation. “Every ticket, of course, guarantees a passenger a seat on the plane, with no additional mandatory seat-assignment charges.” [emphasis added]

In the past 20 years, the air transport industry has spent $1.25 billion on lobbying.

Since the 2012 election cycle, donors from United and its affiliates have given more than $2.4 million to federal candidates and political committees. The total includes nearly $500,000 that has flowed to lawmakers on the House and Senate committees that regulate the airline industry. In that time, the company has succeeded in blocking many legislative measures designed to help passengers. [emphasis added]

United’s claim that it will tie executive compensation to “improving customer experience” is mere lip service. Too much history and decades of lobbying against making flights a more humanizing experience shows United’s skies are more what Tim Wu calls “hellscape” than friendly.

Maybe this is all Jimmy Carter’s fault. He signed the legislation that deregulated the airline industry in 1978. Previously, all fees were regulated. You knew what you’d pay for a ticket. After deregulation, low-cost carriers emerged. Consolidation followed in the past decade. Without as much competition (and profiting from lower fuel prices), none of these airlines gives a damn whether passengers are happy — unless they’re paying for elite levels of service.

United’s Oscar Munoz has fallen on his $18 million sword for the company. He’ll take a pay cut. He won’t get the the chairman’s seat. But he’ll never need to fly United in basic economy. Ever.

Neither he nor his corporate cronies have learned a damn thing – other than how to botch a crisis PR circumstance. And no one got fired.

When you next climb onto a United aircraft, not much will be different. You’re still paying more to avoid what’s worse.