Why Does United Airlines Still Exist?

James Kwak
Nov 10, 2014 · 6 min read

On June 15, I was sitting on my flight to Chicago, waiting for the plane to push back from the gate. I got a text message: the last flight to Grand Rapids was canceled. A minute later the cabin door closed. There was no flight from Chicago to Grand Rapids that would get me there early the next morning, so I rented a car and drove, stopping for the night in New Buffalo, Indiana.

The following week, I flew to San Francisco. The morning of my return flight, I woke up to a blizzard of automated texts. During the night, my flight had been canceled and then reinstated, so I (along with everyone else) was unbooked, booked on a different flight home, and then rebooked on my original flight. There was chaos at the airport because everyone’s seats had changed, but I eventually got on the plane. During the time that I was unbooked, however, the automated upgrade system put someone else in my first-class seat on the second leg (which I had paid for with miles.)

On August 25, my first flight to Chicago was delayed by three hours. (It was eventually canceled.) At that point, I was likely to miss the last connection to San Francisco, so I bought a ticket on another airline. I called my original airline to tell them what had happened and ask them not to cancel my return flight, which was a redeye the next night. But when when I arrived at the airport to fly home, I learned that the airline had indeed canceled my return. Instead of the first-class seat to Newark that I had paid for, the only seat they could find for me was a non-reclining coach seat on the redeye to Chicago, which is pretty much the worst flight that exists. When I got to Chicago, my flight home was delayed by more than three hours (that was the time I had a drink at the airport club in the morning), so I didn’t get home until the middle of the afternoon.

On October 30, my meeting ended early in Chicago, so I got to the airport five hours before my flight. The earlier flight was overbooked, so no one was able to fly standby, and then my original flight was delayed by two hours. I ended up spending about seven hours in the airport and got home around two in the morning.

On November 2, my flight to Chicago was delayed by more than one hour. When I arrived at the gate for my connection, I learned that first class had been overbooked — which shouldn’t be possible if the upgrade system is working properly — and I had been downgraded, which also shouldn’t be possible because I had paid cash for the upgrade (a new upsell feature on several airlines’ websites). The problem was that the computer system at the gate only knew what base fare I had paid for, so the gate staff assumed I had gotten a free upgrade. Then we sat on the runway for another hour before taking off.

All of these mishaps occurred on United Airlines. These are by no means the worst travel stories in the world. But I don’t actually fly all that often, and on roughly half of my United trips something unusually bad happens — not counting the routine delays that happen all the time.

There are two lessons to be drawn from these entirely unexceptional examples of air travel gone wrong. One is that United’s computer systems don’t work — for the same reasons that many large companies’ core systems don’t work. The overnight unbooking and rebooking was probably a computer error, and in any case United had no way of rolling back all the automated changes to its reservation system. The automated cancellation of my return flight was either an incompetent customer service representative who didn’t preserve my return reservation when I asked her to, or a computer system that didn’t give her any way of preventing the cancellation. I was downgraded from first class because some marketing genius at United decided to add a new upsell feature to the website — but no one bothered to extend the legacy system they use behind the scenes to capture the new data from the ticket sales process. (This is a common problem with enterprise software these days: companies build new features in their websites but can’t integrate those features properly with their core processing systems.) All of this just reinforces a point I’ve made several times before: the computer systems holding together the world’s largest companies are held together by duct tape and string.

But the broader question is why United is still in business. In an ordinary competitive industry, any company that delivered such a haphazard experience to its customers — and I’m precisely the kind of customer that airlines want — would have gone out of business long ago. This isn’t a matter of frontline customer service. For the most part, the human beings I dealt with were courteous and understanding and genuinely seemed like they wanted to help — only they couldn’t, because their computer systems were beyond their control, or their airplanes were had mechanical problems, or their flight schedules were too tight to accommodate any kind of disruption. Look at what Target did to Kmart, or what Apple did to BlackBerry, or what the new budget hotel chains (Hampton Inn, Hilton Garden Inn, Courtyard, etc.) did to the old “full-service” Holiday Inns.

In a world where most products and services get better over time, the actual experience of air travel gets continuously worse in most meaningful dimensions — seats are packed more closely together, more tickets are sold for every flight (creating full planes, insufficient luggage compartments, and resulting delays), and tighter schedules mean that weather and mechanical delays get amplified — while prices are finally climbing. This only happens in oligopolies like the U.S. airline industry, where we are down to three main carriers (American, Delta, and United — Southwest is the best in many ways, but they don’t quite have the network and schedule for most business travel), or the telecom indudstry, which is also known for egregious customer service. The consolidation of the past decade is finally paying dividends in airline profitability, but it’s at the expense of the customer, and the basic structure of the industry — based on control of all-important gates — makes it virtually impossible for a new entrant to come along offering a better customer experience, perhaps at a higher price, which is what would happen in any competitive industry. There is a set of laws that is supposed to deal with this problem, but the Department of Justice has been reluctant to use its antitrust powers since the 1980s, with the results we see today.

So why do I still fly on United? Well, I don’t just fly on United — I’m on Delta as I write this, and, based on a small sample, I find them to be more reliable. But I don’t think that American and Delta are fundamentally different, and when you fly to certain places a lot, like Chicago and San Francisco, the oligopoly tends to shrink down to something like a monopoly because of the dominant position certain airlines have in their hub cities. So a lousy experience is something that we just learn to suffer through, like citizens of some Soviet-era communist country. Only, capitalism is supposed to make things better. And it usually does — except when it doesn’t.

Bull Market

A collection of finance and business writing by…

Thanks to Dan Davies

James Kwak

Written by

Books: Take Back Our Party, Economism, 13 Bankers, White House Burning. Professor @UConnLaw. Chair @southerncenter. Co-founder @Guidewire_PandC.

Bull Market

A collection of finance and business writing by @alexisgoldstein, @delong, @dsquareddigest, @DuncanWeldon, @felixsalmon, @jamesykwak, @Mark__Buchanan, @WhelanKarl

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