October 3 - Time To Reassess Campaign Against Gulf Carriers


Mr. Robert A. Milton

Chairman

United Continental Holdings, Inc.

c/o the Corporate Secretary’s Office

Willis Tower

233 S. Wacker Drive

Chicago, IL 60606

 

Re: Political campaign against Open Skies policy and Gulf Carrier Competition/Time to Reassess


Dear Mr. Milton:

As the joint United/Delta/American campaign against the United States’ longstanding Open Skies policy and Gulf Carrier competition nears its third anniversary, the Business Travel Coalition (BTC) continues to hope that United’s Board will step-in and distance the company from this failed Delta-driven obsession. Thus far, BTC is disappointed that you have not. We are hopeful, however, that the reality of a three-year investment of a considerable sum of shareholder money and management time and attention in a floundering and unwinnable political campaign will soon convince the Board that enough is enough.   

Given the high caliber of your management team, and the other post-merger related challenges the company continues to face, it is very surprising Delta was able to convince United to participate in its anti-Open Skies campaign that was destined to fail from the outset. Given the global name recognition of both the United and Star Alliance brands, it was also most unfortunate that United did not publicly reject Richard Anderson’s attempt to inject anti-Muslim sentiment into the debate by raising a false linkage to 9/11. Equally troubling is the apparent failure of management to rigorously evaluate Delta’s claim that it had developed a slam-dunk case against the Gulf Carriers – legally rock solid and supported by irrefutable facts.  

If United management had done due diligence on Delta’s assertions, like the Obama and Trump Administrations had, then it would have concluded that there is no legal case under the International Air Transportation Fair Competitive Practices Act (IATFCPA), and therefore, no basis to take the unprecedented step of abandoning longstanding Open Skies policy. The fact that United and its partners refuse to file an IATFCPA complaint tells both Administrations all they need to know: despite all the soaring political rhetoric, United/Delta/American don’t believe they have a defensible complaint. 

Your CEO Mr. Munoz has referred to this as an emotional issue. With all due respect to Mr. Munoz, the only reason it is an emotional issue is that United has followed Delta’s lead in trying to use your hard working employees as lobbying pawns you can whip into a frenzy by falsely claiming Gulf Carrier competition is an existential threat to their livelihoods and the future well-being of their families. Frankly, that is unfair to your workforce and damages management’s credibility in labor relations. 

This actually is not an emotional issue at all. Rather, it is a straightforward fact-based question: can United/Delta/American prove in an IATFCPA proceeding that the alleged actions have caused commercial harm. Even though you have tellingly failed to file such a complaint with the US Department of Transportation, that is the litmus test that both the Obama and Trump Administrations have applied in their internal evaluations and their reluctance to act clearly signals the conclusion each reached. 

The CEOs of your two commercial partners, Ed Bastian of Delta and Doug Parker of American, both have publicly suggested that the end-game of the political campaign is a restriction on so-called Fifth Freedom flying by Gulf Carriers in the US-Europe market. If that is how United also defines victory, failure is inevitable. 

US all-cargo giants FedEx, UPS and Atlas Air Cargo rely on Fifth Freedom rights. Their global networks depend on them, and therefore, they are sacrosanct to all-cargo carriers. In fact, FedEx operates a Fifth Freedom hub in Dubai. It is unrealistic to believe the Trump Administration would breach the US-UAE and US-Qatar Open Skies agreements by denying Fifth Freedom rights and thereby set a dangerous precedent that other countries could use against our all-cargo airlines.

If there is any doubt about that, look no further than the Obama Administration’s rejection of demands by United/Delta/American to freeze Fifth Freedom rights. It was a fatally flawed miscalculation by Delta in the beginning and one that should have been apparent to your astute management team before it agreed to follow Delta’s lead.   

Nevertheless, United persists in allowing itself to be distracted by this sputtering political campaign that is destined to fail. In a July 2017 speech to the Wings Club, Mr. Munoz proudly noted that your operations are “firing on all four cylinders” but the United States’ broken ATC system makes it “like driving Ferraris on gravel.” One therefore, would conclude that United’s government affairs team would be substantially focused on supporting President Trump and House Transport Committee Chairman Shuster’s ATC reform initiative. 

Instead, to the apparent detriment of United shareholders, management has allowed its government affairs priorities to be distracted by Delta and its Gulf Carrier fixation. For instance, on August 11, 2017 the Houston Chronicle editorialized against the ATC reform proposal United supports even though you operate a major hub in Houston and have some 11,000 employees who live there. The Houston Chronicle did not even appear to be aware of your views on the issue, let alone that ATC reform is a priority for United. 

Instead of focusing on ATC reform, your team chases Congressional signatures on meaningless anti-Gulf Carrier letters. The irony is that distracting United from focusing on ATC reform benefits Delta. As you know, Delta has the second oldest fleet among the top US major carriers. Accordingly, since Delta’s fleet is hardly comprised of Ferraris, it alone benefits when United has to drive slowly and inefficiently on gravel.

Another example of distraction-related damage is the Senate Committee-approved $4 per journey increase in the Passenger Facility Charge (PFC) airports may collect from passengers. For decades United has fought even a $1 PFC increase. Yet, while United, Delta and American officials and consultants were distracted wasting political capital gathering Congressional signatures on inconsequential anti-Gulf Carrier letters, the airport community completely outfoxed them. Being distracted has consequences. That debate has now largely shifted to how much should the PFC increase be, not whether Congress ultimately will enact one. 

Frankly, I was surprised Emirates did not send Mr. Munoz a thank you letter for all the free publicity United gave its new Newark-Athens-Dubai flight by its over-the-top reaction to it. The Greek-American community has publicly said that it tried in vain for five years to convince United to offer year-round non-stop service between Newark and Athens. However, for all but the Summer season, United preferred to inconveniently route passengers one-stop via your European Star Alliance partners’ hub airports. 

If United did not want the government of Greece to approach Emirates to urge it to commence the new flight, then all United had to do was launch that flight itself. However, United obviously made a miscalculation thinking no other carrier would offer year-round service from your fortress Newark hub, and that provided a false sense of security that you could continue to ignore the preference of US-Greece travelers for year-round non-stop service. Somehow United’s error of judgment and indifference to the preference of passengers is Emirates’ fault!?

Mr. Milton, I urge you and your fellow Directors to use the upcoming third anniversary of the anti-Open Skies/Gulf Carrier campaign to reassess whether continuing to squander shareholder money and valuable management and Boardroom time on this failing political campaign is in the best interest of your shareholders. Respectfully, BTC believes that your shareholders would be better served by focusing on continuing to improve your product and service so that United can compete more vigorously and by abandoning Delta’s failing political campaign with its unachievable objective.

Thank you for considering my views.  

Sincerely,

Kevin Mitchell

Chairman

Business Travel Coalition

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