United Airline’s Service-Recovery Challenge After Reputation Meltdown

About United Airlines

• World’s third largest carrier: measurement of revenue & passenger miles flown
• Met various operational key performance indicators; 25 zero cancellation days
• Embedded sustainability into operations
• Source of many controversies

About Aviation Industry

• Highly competitive
• Price-sensitive industry
• Operational efficiency of top priority
• Overselling & overbooking a norm
• Department of Transportation (US):
a) Allowed overbooking
b) If excess passengers, volunteer passengers can rebook + compensation
c) Allowed airlines to randomly deny boarding & compensate
The Issue on United Flight 3411
• Date: April 9, 2017 : Chicago-Lousville
• Last Ditch Emergency: Needed to fly 4 staff members to a connecting destination
• 4 passengers on Flight 3411 needed to be bumped to another flight to free-up 4 seats

What was done?

• After boarding plane, crew announced that they want 4 passengers to deboard voluntarily
• Incentives For them: a) $400 in voucher for future travel, later revised to $800
b) Hotel Stay
c) Seat on plane leaving more than 21 hours later
• No passenger was willing to deplane
• Hence, computer algorithm would randomly select four passengers to leave flight (apart
from frequent fliers and premium price payers)
Summary as it looked
• This stunt was within the law
• One of the victims: Mr. Dao needed to attend several patient the next day
• He refused to deplane, was forcefully deplaned bloody & bruised

• Incident created backlash across social media

• Passengers began to boycott United, especially in China
• Impact on stock prices: $250 million dip in market value • Worked to optimised its network
• Considered to be a “brand suicide” & a “PR failure” potential
• Competitors leveraged the incident: • Cost structure improvements
• Decrease Costs related to delays
- “We beat competition. Not You”
and cancellations
- “We would like to remind you that drags on our flights are strictly prohibited”

- “shame for airline industry as a whole”

Statements Made by CEO,Munoz

5:07 AM: Non-committal

9:27 AM: Apologised for “re-accommodation” of passengers, assured a
personal meeting with affected passenger
To employees: Acknowledged employees’ following of protocol in
handling situation
“Reluctant to offer complete apology for fear of lawsuits & attempt to downplay incident”
“No willingness to rectify incident”
After 27 hrs:
• Called incident “truly horrific” & accepted responsibility
Importance of CRM for Airlines
• Intense competition, “fast follower approach” & technology-> led to operational
improvements & hence, cost cutting
• Existing CRM systems a result of “catching up” rather than for differentiation
• CRM has been commoditised: indistinguishable services

• Manage customer relationships to optimize customer loyalty and revenues

Areas in Aviation where CRM plays an important role
• Frequent Flier Programs
• Site Personalisation
• Kiosks
• Web-Based Customer Services
• Self-Service Provisions
• Internet Check-ins
• Online Baggage Tracking
• Flight notification systems
Service Failure
• A service failure, simply defined, is service performance that fails to
meet a customer's expectations

Root Causes For Service Failure here:

a) Little/No provisions for Service Recovery
b) Lack of value based & need based approach segmentation
c) Over-emphasis on achieving efficiency
d) In-efficient existing CRM systems
Service Failure
• Failure to understand that:
Cost of Replacing Customers >> Cost of Retaining them (~5 times more)

• “Quality-Control Movement” inhibits recovery skills:

Airline companies have spent past few decades in making service delivery systems
EFFICIENT & STREAMLINED

• Too much emphasis on providing “standard service” and doing everything to ensure
that – “the protocol”

• Working towards “zero defects”: Failure to understand that “zero defects” in

services is a myth; Variability a norm

• Sophisticated technologies introduced to enact strict policies to control employee

behaviour
 • Fair treatment
• Over-compensate for incurred hidden
costs (since mistake was on United)
• Expect Sensitive & willingness to rectify
problem
• How did they develop over time?
• Steep Drop in Reputation
• 79% of prospective consumers AWARE of
incident chose to fly with competitors
• 44% of these didn’t mind paying more
(crucial in a price sensitive industry)
• Maintained operational efficiency
• Completely lacked facility for service
recovery
NO GAP: Followed
Standard • Poorly handled PR
Procedure • Statements made by Mr. Munoz
Approx Price in Dollars
• Severely failed to understand or Cost of Flight (CHI
to Louisville) 108
measure the HIDDEN COSTS involved Per Appointment
(in this case of Mr. Dao) Fee 60 + Test Charges
Bad Reputation due to no-
• Didn’t go extra yard to cover costs show; loss of clients in
• Poor tone of response future; decreased client
Hidden Costs lifetime value
Changes in CRM approaches needed (for Airlines)

• Customer segmentation—
- Need to move towards value-based and needs-based approaches can help
guide investment decisions and drive greater insight into the needs of high-
value customers.
• CRM initiative development—
- Abandon a “fast follower” approach to CRM initiative development, in
favour of investing in initiatives with a high return, which respond to the
needs and desires of their own customers.
• Organizational design and management—
- Airlines need to instil a service mentality in their employees, empowering
them with a complete view of the customer and clearly articulating the
employee’s role in the CRM strategy.
Source: IBM Institute for Business Value
Road to Service Recovery
• Listen closely to complaints
• Anticipate needs for recovery
• Train employees
• Empower the front line
• Closing the customer feedback loop
Anticipating the needs for recovery in United
• Identify staff transport prior to the boarding of passengers
• Over booking issue:
• Minimize over booking through better demand forecasting methods
• In case of overbooking,
• Notify passengers about the overbooking prior to entering the flight (i.e. at the gate or while
providing boarding pass)
• More authority to the front-line staff (especially the staff at the gate) to identify and persuade the
potential volunteers
• If no volunteers, Identify potential passengers who are low on priority list and persuade them with
lucrative services/offers, thus creating a win-win situation
• Use customer value to differentiate the services – key to effective CRM
Training and empowering front-line employees
• Training the front line employees to both adhere to the standard
operating procedure and at the same time open to breaking rules for
customer at the time of crisis
• Programs with innovative methods to encourage staff to empathize with
customers should be conducted
• Communicate the importance of customer value
• Transparency among staff at different points of customer interaction for
consistent and seamless service
• Appropriate incentives to encourage the deepening of customer
relations
Rebuilding Brand Image
• Cultural shift – Training and encouraging staff to be more customer centric
through allowances, incentives and training programs
• Encourage customers to share their experience with the staff on social
media
• Address customer needs through out the cycle
• Closing the customer feedback loop – acknowledging and responding

• For expensive product service problem

costs(>$100),
- 54% maintain brand loyalty if problem
resolved
- Only 19% repeat purchase if NOT
resolved
Source: Profitable Art of Service Recovery
Concluding Remarks…
• Surest Way to recover from service mishap: Workers front front-line
to identify & solve problem
- Requires decision making & rule-breaking (exactly what employees
have been conditioned against)
• Service Recovery is an opportunity
• Compliment production oriented systems with equal facility for
service recovery
• Emphasis on creating customer lifetime value (charge premium later)