One-on-One: CEO Eyes United's State And Future

By BTN / January 24, 1999

One-on-One: CEO Eyes United's State And Future

If United Airlines' search for a successor is successful, chairman and CEO Gerald Greenwald will retire some time this year. Greenwald, who for the fourth time was named to Business Travel News' most influential executives list (BTN, Jan. 11), last week spoke with airline editor Jay Campbell about United's plans for 1999 and other current issues facing the travel industry.

BTN: Corporate travel managers are being asked by their senior management if the Year 2000 problem should be a significant concern. What would your answer be?

Greenwald: We've been at this for 15 months now and we expect we will have our own act fully in order by the end of March. We've been cooperating with the other airlines in the Air Transport Association to monitor--and on occasion, encourage and cajole--suppliers, ranging from airports to the Federal Aviation Adminstration to fuel companies, in their programs. IATA, on the international level, is doing the same. My status report would be to say I expect airlines will be safe and fine, but we're now going to shift to marketing ways to persuade the public that we've killed the bug.

BTN: Airline yields dropped a bit more than expected last fall and some observers said it was because corporations were booking the lower fare classes, fearing a recession. Do you agree with that, and what are the latest booking trends showing?

Greenwald: It's rather hard for us to read, candidly, but let me tell you what we know. In October, we saw some yield softening in the United States. United's had softened less than the industry average, but we saw some too. Then, November turned up. December isn't in yet, but early numbers tell us that it turned down again. Our best guess is, and until we get another month or two under our belt we won't be sure, that back in October there was talk about the U.S. economy not being very strong in 1999. It is our feeling that a number of U.S. corporations said, 'Well, until we know better, we'd better tighten up a bit.' We saw increasingly better news in November and we think American companies started to think 1999 would be a better year. Our guess on December is that the last two weeks in terms of weather were miserable, so lots of business travelers said, 'Who, me? No, thanks.' If we're right, we'll be fine in 1999. If we're wrong, we'll be a little less than fine. We'll go from excellent to good.

BTN: Do you believe we'll be looking at more direct links between corporations and airlines?

Greenwald: It's hard to say. There's a growing number of net deals. The big event, I think, is that there were two ways of booking and paying for seats--travel agents and airline reservations systems--and now there's a third way, the Internet. We're going to try to make it as easy as we can to allow passengers to choose which of those three they want to pick.

BTN: Is United considering bulk seat sales to large agencies and/or corporate customers, along the lines of Continental's deal with American Express?

Greenwald: No, we're not. What is developing in the industry is an ability to identify seats that would otherwise go empty and put them up as E Fares on Wednesdays for weekend bookings. That seems to work fairly well. Whether it's bulk business or E Fares, they work if they are a replacement for an otherwise empty seat. But it doesn't work if they are a replacement for an otherwise full-revenue seat.

BTN: Would it be fair to say that United is pursuing a strategy of setting up preferred travel agencies in a dealership kind of mode, like in the car business?

Greenwald: No, that doesn't make any sense to me. My view is travel agents need to be responding to their customers and if they can only respond with one airline, it limits their capabilities.

BTN: The Star Alliance has a new management structure. Will you now be less involved?

Greenwald: The CEOs of the partner airlines will continue to meet, hopefully as time goes by less frequently, probably more like two times a year. The work to be done is becoming more intensive, more comprehensive. It is no longer setting policy, it's execution. And we thought it would be best done by assigning someone from each of the partner companies to have the accountability and the authority to get on with some of the major needs and requirements, and to do it faster than our competitor alliances can do.

BTN: What issues of integration is this new team currently working through?

Greenwald: Well, one of our guys, Bruce Parker, has the assignment for information systems. We're trying to meet a promise to United's loyal passengers: If we don't go there, we'll get you there with one seamless connection, handing you over to one of our partners who will treat you in the same special way we would treat you. Well, we're now nine airlines, soon to become a few more and we would then have the full complement needed to span the globe. But 30 years ago, none of us planned our systems thinking this was going to happen. So it takes a lot of work behind the scenes, with software, to make that commitment to the flying public.

BTN: Part of that announcement indicated that a sales and marketing official has yet to be named. When will that happen and at what point should corporations expect to see consistent, joint contract proposals coming from the alliance?

Greenwald: I should think you're right, having a sales and marketing person would help that process. We want to be able to go to major world-scale companies and offer an across-the-Star-Alliance corporate proposal. However, we're not permitted to do so unless we have an antitrust waiver. At present, we can do this with Lufthansa and SAS, and we can do it separately with Air Canada, but that's where it stops.

BTN: Are there applications you will file for more waivers?

Greenwald: We continue to look for opportunities, but we are cognizant of the U.S. government's position and that there are still some countries that do not feel that they are quite ready for Open Skies.

BTN: What's United doing to find a successor for you? Is it likely to be someone from inside or outside the airline industry and what's the target date?

Greenwald: My primary motivation is, until we're ready, I want to discourage unnecessary speculation because I want our people to concentrate on improvements in passenger service. We are going through an orderly process, and I expect we'll have a really good successor.

BTN: The Shuttle by United could be coming to Washington. Is that a sign that the concept will be expanded, or would you characterize its growth as limited?

Greenwald: It is a different way of flying that we've made successful, and we are continuing to look for other places to add it. We'll likely add some routes out of Denver. But, when it comes to Dulles, we thought we ought to expand first with mainline flying. The reason we're perhaps being more cautious is we'll be flying in some congested air traffic areas, to LaGuardia, Boston, Atlanta. So, we need some experience first.

BTN: What's going to happen when the ESOP expires?

Greenwald: First, I always want to remind everybody that it only expires in one way. The total number of shares equaling 55 percent of the company will be placed in all the employee owners' accounts by the year 2000. Every other aspect of what we're doing will continue until ownership drops below 20 percent. You and I and maybe our kids will have retired by then.

BTN: Fuel costs are now pretty low, but they won't stay that way forever. What other areas has United identified for cost cuts if necessary?

Greenwald: Well, we are the beneficiaries of lower fuel prices and you're right, we don't count on prices staying this way forever. On the other hand, there are no signs this year that they're going to turn up in some important way. Having said that, we long ago initiated a whole series of what I call multi-year, growing cost initiatives and they're continuing to build in value for us. For example, three or four years ago, we started on a path to modernize and simplify our fleet. At the time, we had 10 different types of aircraft, and now we have nine. By the end of this year I think we'll be down to eight.

We have already been seeing the benefits of lower maintenance costs and it will keep building. This whole effort will not conclude until 2003 or 2004 when we will have replaced our 727 fleet.

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