Unite or die - United Air Lines Inc - Cover Story

If United Airlines is going to survive, CEO Glenn F. Tilton will have to gain the trust of a badly divided workforce and find ways to bring employees together. There are models to be found in how Continental, JetBlue, and Southwest engage and motivate their workers.

It's tough to be upbeat, personable, and focused when your recently bankrupt company is losing up to $22 million a day and fighting for survival. But Glenn F. Tilton, chairman, president, and chief executive of UAL Corporation, the parent company of United Airlines, did an admirable job of it. It was early December, and Tilton--barely two months into his tenure--worked his way through a roomful of airline mechanics at San Francisco International Airport, shaking hands all around. Without retreating behind a podium, he fielded questions on a difficult subject: what United could do to survive and to re-emerge as a viable airline-industry player. As reported by the San Jose Mercury News, Tilton said, "The issue is not how many jobs we lose, but how we are going to com pete in a market that's changed dramatically?"

It was one of many such meetings with employees that Tilton would conduct in five cities over a three-day period. By several accounts, he received rave reviews from his workforce. One union officer described him as a "straight shooter," while a pilot noted that "every time he opens his mouth, he seems to say the right thing."

The United CEO also earned plaudits from human resources experts, who said it was exactly the right tactic for a leader trying to turn around a sinking, strife-filled organization--one that must cut $2.4 billion a year from its labor costs to stay in business. "Tilton's interaction with front-line employees is a key success factor for United right now," says Jody Hoffer Gittell, an assistant professor at Brandeis University's Heller School for Social Policy and Management and an expert on using human resources to boost performance at airlines. She says the face-to-face reassurance from Tilton was an important first step toward building "a reputation of credibility and caring." She sees that as an essential for rallying the Elk Grove, Illinois-based airline's workers--about 78,000 full and part-timers in late January--to persevere through wage cuts and other austerity measures.

Tilton must do more than cut expenses, say academics and business consultants. In the short run, United's management must gain the workforce's confidence and cooperation simply to keep the airline running. But over the longer term, Tilton will have to overhaul an ailing corporate culture long plagued by tension between man- agement and unions, divisions among the workers themselves, miscommunication, and resistance to change. He must replace it with a new model that emphasizes flexibility, cooperation, teamwork, and commitment. For inspiration, industry experts point to the successful human resources strategies of some of United's competitors: Southwest, whose vaunted efficiency stems in large part from management's ability to get along with and motivate its unionized workers; low-cost upstart JetBlue, with its streamlined bureaucracy and effective two-way internal communication; and bankruptcy survivor Continental, which reinvented its dysfunctional culture in the mid-1990s by replacing ineffective managers and giving workers a voice in shaping its comeback strategy.

Whether Tilton will be able to accomplish such a transformation at United remains unclear. Previous chief executives have also tried to alter the airline's culture, only to fail. Even if Tilton does succeed in remaking United, there's the question of whether changes are coming too late to make a difference in the company's fate, given its financial ill health and a stagnant economy. As one United mechanic told the San Francisco Chronicle: "Everybody's crossing their fingers and hoping this guy is the guy to do it, because he's all we've got right now."

Disgruntled employees contributed to United's plight

Publicly, Tilton has so far offered few specifics about the reorganization, other than his intention to launch a new discount airline to compete with JetBlue and other airline companies--an idea that sounds a lot like the United Shuttle, an experiment that the company tried for seven years but ultimately abandoned in 2001. In an interview with Business Week, Tilton seemed intent on making measured adjustments and improvements to the failing airline's sprawling, complex operation, rather than tearing it apart and building anew. While United must transform itself, he cautioned, the company "can't go back to a blank sheet of paper."

But if there's one area in which United needs revolutionary change, it's human resources. The company's labor costs, according to a J. P. Morgan analysis, are the highest in the industry. Then there are work rules--pilots, for example, fly only about 60 hours a month, compared to 80 for Southwest--that experts say are efficiency-busters. Costs at competitor Southwest are far lower, in part because management has been able to convince unions to accept lower pay and minimal rules. The reason: the upbeat, cooperation-oriented culture created by Southwest legend Herb Kelleher. "Workers at Southwest are delighted to be there, work hard for less pay, and feel like part of the team," says University of Chicago business school professor James Schrager. "United has more of the traditional union/management model, where there is a constant fight over goals and outcomes." Indeed, from 1997 to 2002, the human resources division at United was headed not by a career human resources executive but by William P. Hobgood, an at torney and former U.S. Department of Labor official whose expertise was in labor negotiations.

Gittell, author of The Southwest Airlines Way: Using the Power of Relationships to Achieve High Performance (McGraw-Hill, 2002), says one key to that airline's success has been promoting "relational coordination"--that is, strong, trusting partnerships between managers and workers that allow all concerned to execute the mind-boggling intricacies of making an airline run smoothly. Instead of imitating Southwest's human resources ideas, Gittell says, United has either ignored them or tried them only halfheartedly. At United, "employees are hired for functional skills rather than relational skills," she says. "Performance is measured in a functionally specific, divisive way, rather than allowing cross-functional responsibility for performance."

United has made some attempts to innovate-in particular, its experiments in the mid-1990s with an employee stock-ownership plan and the introduction of the United Shuttle, a low-cost, no-frills, high-efficiency clone of Southwest. While both ideas generated bursts of employee enthusiasm, Gittell says, the effect was short-lived. One reason was poor conception. The ESOP, for example, gave employees 55 percent of United's shares in exchange for pay and benefit reductions from 1994 to 2000. But workers soon discovered that tax laws took away much of the financial benefit of the stock grants, and since flight attendants didn't participate in the plan, the distribution created groups with divergent interests. Beyond that, stock ownership didn't translate into influence in day-to-day operations--though it did create plenty of nervous, angry worker-shareholders as United shares gradually lost close to 90 percent of their value between 1998 and 2003. And while the United Shuttle's innovations enabled planes to get in and out of the gate more quickly and cheaply, both management and unions resisted some of the ideas and gradually watered them down, until the project finally was discontinued in late 2001 as part of cost-cutting.

Poor communication between management and employees also has hurt United, according to Wayne Cascio, a University of Colorado Denver management professor. He cites the airline's costly imbroglio in the spring of 2000, when pilots were angered by what they saw as foot-dragging in contract negotiations. Then they felt blindsided when they discovered that then-CEO James Goodwin secretly had been pursuing a merger with U.S. Airways, which would have caused many to lose their seniority. The result was a work slowdown that resulted in the cancellation of tens of thousands of flights. Ultimately, the pilots were given a placating raise that incited other workers to demand more money, and that drove up costs.

Continental's response to crisis

Can United be resurrected? Industry leaders point to other companies that have made comebacks from similarly dire straits. Continental, which went belly-up in 1983 and again in the early 1 1990s, is the most notable example. In a 1998 Harvard Business Review article, former Continental president and chief operating officer Greg Brenneman reported that pilots routinely turned down air-conditioning on flights-despite passengers' discomfort- because of a misguided policy that gave them incentive pay for reducing fuel consumption. Supervisors tended to concentrate more on winning promotions by sabotaging in-house rivals than on improving the airline's performance. Management's implicit communication policy was "don't tell anybody anything unless absolutely required," Brenneman wrote. Employees were expected to adhere to the "Thou Shalt Not" book, a nine-inch volume of arcane rules, even if it meant displeasing customers. Morale was so low that when he visited a facility in Houston, Brenneman was shocked to discov er that employees had torn the airline's logo off their uniforms in embarrassment.

As a result, when Brenneman and his boss, chief executive Gordon Bethune, devised a rebuilding plan for Continental, they realized they had to fix more than just the airline's finances and market share. They also strove to jettison Continental's negative environment and replace it with a new culture. They fired 50 of Continental's 61 corporate officers in the first few months and weeded out incompetent managers at all levels-and aggressively recruited the top management understudies from their competitors to replace them. To show employees that their judgment was trusted, they made a show of burning the "Thou Shall Not" book in a company parking lot. They instituted a "tell everybody everything" communication policy and installed hundreds of bulletin boards at Continental facilities. To give employees a voice in company plans, Brenneman and Bethune directed each corporate officer to visit a city where Continental had operations at least once per quarter to brief workers on the airline's plans and to seek feed back. The company continued to pay incentives, but tied them to Continental's financial performance.

The airline rebounded strongly. Although the September 11 attacks plunged the entire industry into a brutal slump, Continental has not been hurt as badly as United. In the most recent quarter, as United was forced to declare bankruptcy, Continental was reporting revenue growth that beat Wall Street expectations.

Overhauling a failing corporate culture

It might seem as if United should simply copy Continental's or Southwest's human resources blueprint. But emulating the tactics without real philosophical change won't work. In recent years, United also has tried to improve its internal communication, setting up a toll-free hotline and an online chat that employees can use to offer suggestions or air problem; and criticisms. But those technological tools haven't solved management's and workers' fundamental difficulties in communicating, and the resulting frustrations.

"Basically, United has a culture where the players have a win-lose orientation," Cascio says. "But everyone is pitted against each other, rather than seeing that they all win if they beat the competition."

Instead, what United desperately needs to do, experts say, is replace that failed culture with one emphasizing cooperation, trust, and teamwork-the same core values that helped strengthen Continental and Southwest. The first step is for Tilton to regain employees' trust. But in addition to making appearances and pressing the flesh, it's crucial for him to not make any initial flubs that would destroy his credibility with workers. United's human resources division, in turn, has its own crucial role to play. Tilton must compensate for his newness and lack of firsthand knowledge of the airline industry "They have to serve as his archivists, to make sure he's fully aware of company history when he makes a move," says Peter Cappelli, director of the Center for Human Resources at the University of Pennsylvania's Wharton School. "It would be disastrous for him to be caught proposing something that didn't work 10 years ago. The workers will pick up on that, and write him off."

Tilton has to show workers that he really has a strategy for saving the company, beyond just subjecting them to more wage cuts. One way to accomplish that is to enlist the workforce in creating the nuts and bolts of that strategy. Last September, before United declared bankruptcy, Tilton announced that he was putting together a task force of company officials and outside experts to look at ways to improve productivity at United, and that the group would review employee suggestions. University of Colorado-Denver professor Cascio, who's studied successful downsizing efforts, thinks Tilton needs to go much further.

"United has tended to look at its workforce as a cost rather than as a source of innovation," he says. "Tilton has to change that." If Cascio were in charge, he'd bring representatives from United's employee constituencies together and form a group to brainstorm about improving efficiency without harming customer service. "Look, let's face it-the customers are the only ones who are going to save this airline. Management needs to get ideas from the people who are closest to the customers. All the wage and expense cuts in the world aren't going to help if the customers flee because service deteriorates."

As a start-up in the late 1990s, JetBlue used a similar approach to avoid the "culture of blame" that inevitable snafus at a new airline could create, according to a Harvard Business School case study written by Gittell and Stanford business professor Charles A. O'Reilly III. JetBlue created "Tiger Teams" to come up with solutions for persistent problems-and made a practice of appointing as members the worst complainers among the employees. That encouraged them to focus on solutions rather than criticism. The Southwest model includes involving workers in planning, gaining greater flexibility and efficiency by getting rid of cumbersome work rules, and making job descriptions more elastic.

Tilton already has expressed an interest in starting a new low-cost service. Gittell recommends that he take a long look at the innovations that were part of the mothballed United Shuttle project. By experimenting with procedures, Shuttle crews found that they could empty a plane of passengers and luggage, perform necessary maintenance and safety inspections, and reload the plane for takeoff in half the time it usually took. Flight attendants were allowed to try things such as using trays to deliver drinks instead of pushing cumbersome carts down the aisle-a trick that speeded up service and allowed them to give customers more personal attention.

Whether Tilton will be able to effect such sweeping changes- and to save the airline-is anyone's guess. Continental did emerge from bankruptcy. Once-big names such as Eastern Airlines, Pan Am, and TWA did not. Nevertheless, when he recently met with United employees in Denver, Tilton seemed determined to move upward and onward. As reported in the Rocky Mountain News, the unwavering CEO declared, "We cannot afford to indulge ourselves in looking back. We don't have the time."

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Patrick J. Kiger is a freelance writer based in Washington. D.C. To comment, e-mail editors@workforce.com

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