The scandal over the forcible removal of a passenger from an overbooked United Airlines flight from Chicago to Louisville earlier this week promises to bring lessons on several fronts. It will of course compel United Airlines to review its policies on dealing with passengers on oversold flights, and critics hope it will spur a more humane response to such situations. But the incident also exposes the fact that airlines like United have little flexibility in handling unanticipated situations with shorter-haul flights, and they face pressures to maintain profit margins and cope with demand surges without commensurately expanding capacity.
Public outrage has been swift, brutal and widespread since a video went viral of the eviction of Dr. David Dao. Likewise, the share price of United Continental Holdings fell from levels of $72 to around $68 on Tuesday, but climbed back to nearly $70 on Wednesday after United CEO Oscar Munoz apologized for the incident.
Four days after the event, a still agitated public is weighing the delayed apology from Munoz, after he initially praised his employees “for following established procedures” in internal memos. “We are going to fix what’s broken so this never happens again,” Munoz said later in a press release on Tuesday.
“The apology from Munoz is late, but it’s great to have it; at least 30 million people in China have viewed it,” said Wharton management professor Michael Useem, who is also director of the school’s Center for Leadership and Change Management. The ejection of Dao, a Vietnam native who now lives in Elizabethtown, Ky., has caused uproar on social media sites in China, where many wondered if Dao was targeted due to his ethnicity. “The apology is critical for restoring a notion among the viewing public that that’s not going to happen to us,” Useem added.
In the U.K., companies in similar situations often have “a quick, sensible and sensitive response,” said Kenneth Button, professor of public policy at George Mason University’s Schar School of Policy and Government and an expert on transportation policy. However, in the U.S., company CEOs or spokespersons are fearful of facing legal action for what they say and tend to be reticent in their initial comments, he noted. The resulting delay in issuing a more considered response is “damaging” to all types of companies and not just airlines, he added.
The apology masks deeper problems that United faces, and the Sunday incident was a symptom of those. United Airlines has been under pressure from investors to strengthen its senior management with people who have more experience in airline operations, especially since Munoz came from the railroad industry, noted John Strong, professor of finance and economics at the College of William & Mary’s Raymond A. Mason School of Business. The airline also faces pressures to improve its profitability, which is just about a third of what other major carriers make, he added. “That puts lots of pressure on the system to push to the limit all the time.” He noted that this is particularly true of small airline operations at hub airports, and described them as “the most unreliable and most inconsistent.”
Useem, Button and Strong discussed the wider implications of the United Airlines incident on the [email protected] show on Wharton Business Radio on SiriusXM channel 111. (Listen to the podcast at the top of this page.)
“We do learn most about what can go wrong when things do go wrong, and now we have to reconstruct.”–Michael Useem
Will Public Outrage Last?
The backlash over the incident may wane over time, according to Maurice E. Schweitzer, Wharton professor of operations, information and decisions, whose research focuses on deception, trust and emotions. “Consumer facing corporations, such as United, care about their image. [But] media attention on their misdeeds tends to be fleeting. The news cycle moves very quickly, and we shift our attention away from negative events,” he said.
But a public show of remorse can make a difference, noted Schweitzer, who also closely studies corporate apologies. “An effective corporate apology can dramatically shift perceptions, but even a mediocre one, such as the one United delivered, will help,” he said. Many have called for a boycott of United after the incident, but Schweitzer said such protests are generally ineffective, because they require sustained effort and leadership. “As consumers shift attention, they often choose convenience over principles to which they are not deeply committed.”
“People just want a cheap way going from A to B,” said Button. Added Strong: “It is an extraordinarily price-sensitive market.”
Useem noted that many people have said they would boycott United flights but he expected that sentiment to pass. Rather than boycotts, United Airlines reviewing its policies is where action should begin, he said.
That seemed to be the direction from the stock markets, too, as they stopped punishing United’s stock after Munoz offered his apology. “The share markets sometimes are episodic in character; they react shortly and then they recover,” said Strong.
However, United would have to watch out for any dip in bookings in China, where the reaction was dramatic and which happens to be a huge and important market for the airline, said Strong. “If United has a negative reaction in the Chinese market, that has a significant impact on the overall performance of the airline.”
“If United has a negative reaction in the Chinese market, that has a significant impact on the overall performance of the airline.”–John Strong
Focus on Correcting Policies
According to Useem, Munoz’s apology is only “a small, first step” towards rethinking United’s policies. He said the problems in the United case were caused not as much by the airline staff as by the policies laid out by the company’s management. “This is Enterprise Management 101,” he said, adding that in the days ahead, United’s management would have to review its policies that led to a passenger being dragged out. He compared the United case with those at Volkswagen and Wells Fargo, where the pressure to perform against odds led employees to shortchange their customers.
Useem said airlines typically are prepared with crisis management responses, such as to accidents, but United was clearly not prepared well enough in the latest case. He noted that when United Airlines initially explained that it had removed four passengers from the controversial flight, “it was not because of overbooking but because the company had a policy of flying pilots at the expense of passengers if needed.” That policy was “a time bomb waiting to happen,” he added. “We do learn most about what can go wrong when things do go wrong, and now we have to reconstruct,” he said.
Button called for a closer look at what exactly went wrong last Sunday, and who was guilty of forcibly dragging out Dr. Dao. He noted that United CEO Munoz had defended his staff, and wondered if the root of the problem was actually at the airport. “We tend not to think of that,” he said.
An Industry-wide Phenomenon
Button said the problem is not unique to United. He pointed out that a similar situation caused, for