It’s not a secret that airlines’ standards of service are persistently slumping and their propinquity to make life miserable for passengers is on the rise. Last month, United Continental Holdings Inc (NYSE:UAL) barred two young ladies from boarding a plane because they were wearing yoga pants (an admittedly debatable matter, but not a fight worth picking). And in January, Delta Air Lines, Inc. (NYSE:DAL) was forced to cancel hundreds of flights when its aging computer system failed and took a while to restore.
By and large though, owners of DAL and UAL stock didn’t sweat it too much, nor did consumers grumble for very long. For better or for worse, embarrassing stumbles and bad judgment calls are just a part of life, and nobody expects perfection.
Most people do live a “forgive and forget” lifestyle.
Sometimes though, a company — an airline — makes a decision that leaves the world wondering “What in the heck were you thinking?” On Sunday, United Airlines made such a mistake — one big enough that UAL shareholders might be having second thoughts about the future of their stake.
Being Right Wasn’t Worth This
On the off-chance you’ve not heard, on Sunday afternoon, United Airlines asked police officers employed by the Chicago Aviation Department to remove a man from a plan bound from Chicago to Louisville. The officers (at least one of them) obliged in a way that could only be described as extreme. He dragged the man, reportedly a physician, from his seat in the back half of the plane all the way out of the aircraft — shirt pulled over his head the whole way.
The incident was captured as a video by several other smartphone-wielding passengers, which of course went viral on the web a few minutes later.
In addition to the normal amount of social outcry you’d expect, Chinese social media is also in an uproar, as state-run media have said the man was of Chinese descent.
The circumstances behind the debacle are difficult to debate. On the one hand, United Airlines has the right to boot people from an overbooked plane. It’s not an unusual practice to overbook a plane, knowing more often than not some passengers fail to show up for a flight. It’s annoying, but it helps keep the price of airfares low. All airlines also generously compensate bumped passengers for the inconvenience. Aside from arranging for new flights, United offered $400 to passengers on this particular flight if they would give up their seat, plus the cost of accommodations and meals, if necessary.
On the other hand, United Airlines put themselves into this troubling situation simply because of poor planning, then handled the matter in the worst way possible.
The first questionable inexplicable aspect of the incident is that United wasn’t making room for four passengers because it had overbooked passengers. It was looking to kick four people off the plane to make room for four employees that needed to get to Louisville to crew a flight leaving from that destination.
The company’s poor scheduling and staffing management became a customer’s problem.
The other shocking element of the story to some degree isn’t United Airline’s fault, but to some degree is.
Chicago Aviation Department police officers are policemen in the truest since of the word. And United Airlines technically has the legal and lawful authority to remove any passengers from a plane it operates. Deferring the matter to a non-United employee, however, essentially means the airline is implicated for a decision and action that a third-party takes on their behalf.
That’s exactly what happened. While how the matter was handled by the Chicago Aviation Department was out of United’s control, utilizing law enforcement to forcibly remove a passenger who clearly doesn’t want to de-plane can only end one way: badly.
The solution: Ask someone else. Or perhaps fairer still, if hundreds of dollars aren’t enough to inspire someone out of their seat, up the ante. Offer $1,000, or even $2,000. Whatever the price necessary to prompt volunteers out of their seat, it’s going to be considerably cheaper than whatever settlement or lawsuit will almost certainly materialize now.
Bottom Line for UAL Stock
Is the gaffe damning enough to cause real fiscal trouble — in terms of boycotts, etc. — for United Airlines?
While it should be, the answer is, probably not.
That might not be the case were there a myriad of other options. Take restaurants for instance. It’s been more than a year since Chipotle Mexican Grill, Inc. (NYSE:CMG) was pinpointed as the source of an E. coli outbreak, and while the restaurateur has taken great strides to win back consumers’ trust, the public hasn’t been quick to come back to the table. Last quarter’s same-store sales were down another 4.7%. There are just too many other quick-service food options.
Not so with airlines. There are only three major airlines that ferry customers to and from all the nation’s major markets, and it’s a rarity to find an equivalent flight from one carrier to the next. Consumers might want to stick it to United Airlines here. They just can’t.
Still, there’s no denying this stunning event isn’t going to be good for UAL. If gaffes of this level are allowed to continue, that could turn into a true fiscal problem for United Airlines.
That’s not apt to be the way this all shakes out. But, boy was it embarrassing.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.