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What's Wrong With United Airlines? A Little Bit of Everything


A lingering problem is China, where United is by far the biggest U.S. carrier. It has 7% of capacity in China/Hong Kong markets, while Delta and American each have about 2%, according to Deutsche Bank analyst Mike Linenberg.

Unfortunately for United, overall capacity between the U.S. and China has increased more than 30% since 2012. In the first quarter, revenue on United's Pacific routes declined 5% to $1.1 billion and Pacific passenger revenue per available seat mile fell 6.3%.

"There's no doubt that competitive capacity pressures from the U.S. to Asia, particularly to China, where we are the largest U.S. airline by far, have ... pressured our unit revenue," Smisek said, responding to a reporter's question during the first-quarter earnings call. "That said, we make good money in Asia today, even with that pressure."

Mann said a big problem for United involves a portion of its computerized revenue management system. On earnings calls the past two quarters, management has cited problems with the system, which has two main components. One controls pricing. Second is a revenue integrity system, "a back end system that controls quality - that makes sure reservations are not duplicates, cancels those that are, and works quickly," Mann said.

After the Continental merger, United maintained its own primary revenue management system but sought to adapt Continental's revenue integrity system. To do that, "United abandoned a known-to-be-working, high functioning system," Mann said, undermining the overall integrity of its revenue management system. "The worst thing you can do is to bet on revenue that doesn't show up," he said.

Online travel columnist Joe Brancatelli said United's service level has deteriorated, angering passengers. "I've been writing about United's problems since two months before the computer meltdown in 2012," he said. "There are a million things that go wrong. I haven't seen this level of hate for a carrier since the worst moments of Northwest in the late 1990s, and the people they have most offended are the elite travelers."

In a letter to pilots on May 9, following a closed-door meeting of United pilot leaders, Jay Hepner, chairman of the United chapter of the Air Line Pilots Association, said pilots have "developed a strategic plan to make our airline better." A copy of the letter was obtained by TheStreet.

Elements of the plan include executive management "being accountable for the airline's financial health and infrastructure; recognizing the value of our assets and employees; making ALPA part of the collective solution in developing the infrastructure and processes; honoring their commitments to our employees, passengers, and shareholders and resolving the major shortcomings that are bleeding this company," Hepner wrote.

Few people remember that in 2009 and again in 2010, United led all of the legacy network carriers in on-time performance. In both years, it was Delta that led the industry -- by a wide margin -- in the number of complaints per 100,000 passengers. Delta also ranked 15th among 17 carriers in on-time performance in 2010.

But in 2013, Delta was third among 16 ranked carriers in on-time performance, while United was ninth. In number of complaints per 100,000 passengers, Delta was second of 16 while United was 14th.

It's a sign that airline management teams do have the capability to turn things around. But United's management may be running out of time.

Written by Ted Reed in Charlotte, N.C.

To contact this writer, click here.

Follow @tedreednc

>>Read More: American Airlines Merger Pleases One Union Group: The Flight Attendants

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