United We Don't Stand

With little credibility, things are as bad at United Airlines as they really seem.
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Last June, as United Airlines' proposed purchase of

US Airways

(U) - Get Report

fell apart, I put United, a unit of

UAL

(UAL) - Get Report

, on my Titanic List at PlaneBusiness. This low honor is reserved for companies I believe pose a serious risk to investors.

Notwithstanding the debacle of the failing deal, my reasoning was this: United was unfocused in terms of its core business strategy, operations were pitifully inconsistent, confidence in the airline's executive management by those in the middle ranks had eroded, and revenue was falling while expenses continued to expand.

On top of that, United had signed a pilots' union contract it could not afford, given its earnings at the time.

Kind of like the old, "Oh, I really can't afford this now, but I'm sure by next year I will be able to swing it" mentality that puts just-graduated college students into deep debt in no time flat.

But this was no freshly minted naive college student.

As I said then, never before had I seen such a rapid and total financial collapse of an airline that two years ago had seemed to be the model of success.

My point? The seeds of this meltdown were there long before the events of Sept. 11 left aircraft grounded and chilled enthusiasm for flying.

Late Tuesday, United's sad story took another embarrassing turn as news leaked out about a letter that CEO Jim Goodwin had written to employees -- but not yet distributed.

Sight unseen, news of the letter sent Wall Street into a panic, as investors pushed shares of UAL down 10% on Wednesday.

I obtained a copy of the letter that was ultimately sent to employees late Wednesday, and you can read it by clicking

here.

Was this merely a "Chicken Little" letter, written to justify desperate cost-cutting and contract changes, as the airline tries to avoid the shark-infested waters of bankruptcy?

That's the takeaway by United's employee unions, but I disagree.

I think the situation

really is

that bad.

And I believe Goodwin and his executive team is responsible for most of it, including the over-the-top pilot contract that management signed off on, apparently believing the magic answer to United's revenue woes -- the US Airways deal -- hung in the balance.

I also think there are much better ways to communicate a company's situation to its employees than was evident in this letter. As you read it, remember that this was his

first

mass communication to employees since the Sept. 11 attack.

Aside from the ideas conveyed in the letter, his choice of words was lamentable. The airline will "perish"? Does he not understand that "perish" is what happens to poor unfortunate souls who die on an airplane when it crashes? A company does not perish. It may go into bankruptcy. It may close its doors. But it does not perish. He added to the ghoulish tone by saying United's costs are "exceeding revenue at four times the pre-Sept. 11 rate," and the company is "hemorrhaging money."

Then, as Goodwin noted in the letter, United started running its first television commercials since the Sept. 11 attack, "ads that will featureUnited employees encouraging our customers to return to the skies."

My take on them? They were a waste of money.

Sadly, they were nothing more than a poor imitation of

Southwest Airlines'

(LUV) - Get Report

recent television advertising campaign.

Just a few days after the airlines were grounded in September, Southwest was on the airwaves with a brilliant campaign. The tone was: "We are a great country. We will survive. When you are ready to fly again, we'll be here."

These spots were so darn good, the Air Transport Association should have subsidized their costs. They set a positive tone about the entire industry, not just Southwest.

But this new campaign of United's, especially in light of Goodwin's comments to employees this week, rings distinctively hollow.

This is an elementary communications lesson: People will only believe a message if the sender has credibility.

And right now, United Airlines' management has very little credibility left with anyone.

Holly Hegeman pilots the Wing Tips column for TheStreet.com. At time of publication, Hegeman held no positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. You can usually find Hegeman, publisher of PlaneBusiness Banter, buzzing around her airline industry Web site at

www.planebusiness.com. While she cannot provide investment advice or recommendations, she welcomes your feedback at

Holly Hegeman.