United faces a steep climb in fixing its reputation

The merger of Houston-based Continental Airlines and Chicago-based United Airlines in 2010 was supposed to combine Continental's reputation for solid customer service with the broader reach of United's domestic and international network.

Instead, the 5-year-old marriage has turned into an exercise in frustration for United fliers, with frequent delays, canceled flights and lost bags. Like many fans of the former Continental, Paul Wigdor, a managing partner at Ascendant Advisors, an investment advisory firm in Houston, still bemoans the loss of the airline.

"Continental was probably the best airline in my opinion that you could travel on pre-United," said Wigdor, a New Jersey resident who flies about twice a month to Houston from Newark on United. "I would say United is one of the lowest."

Among his complaints: poor service, choppy Wi-Fi and - after United cut back on perks and upgrades - little appreciation of frequent fliers, like himself, who log tens of thousands of miles a year.

"l feel like at 100,000 miles, somebody should care and make me feel like a valued customer," Wigdor said. "You're treated as just a commodity, and it's a race to the bottom. They don't really appreciate me at all."

Flying between two of United's biggest hubs, Wigdor does not have much choice. In Newark, United has an overwhelming share - about 70 percent - of all traffic.

"If there were other options," he said, "I'd happily fly other options."

In large part, the merger is still a work in progress. Labor relations are sour, customer satisfaction is low and the basic measurements of the airline's operational performance are dismal compared with its main rivals.

Passengers surveyed by Skytrax, an airline quality rating agency, give United a grade of 3 out of 10, the same as the low-cost carrier Spirit Airlines. (American earned a 4, Delta got a 5 and top-rated carriers like Singapore Airlines, All Nippon Airways and Qatar Airways received a 7 each.)

On-time performance is one of the biggest problems for the carrier. In July, for instance, about 25 percent of all United flights did not land on time, ranking the airline ninth among 13 domestic airlines, according to FlightStats. This compared with 18 percent for Delta Air Lines and an industry average of 22 percent. United had the second-lowest percentage of completed flights, only ahead of WestJet, in July, the last month for which government statistics were available.

"If you're not getting the fundamentals right, if you don't have an airline that travelers can trust to depart and arrive on time, if you don't stick to your schedule, you don't have the foundations for an airline," said Henry Harteveldt, a travel analyst and founder of Atmosphere Research Group.

But Harteveldt said United's problems ran deeper still. The airline needs a new computer reservation system - the brains of an airline's operations - after deciding to use Continental's Shares system following the merger. The decision cost the airline badly, leading to canceled flights and repeated computer failures.

It must also improve its relationship with corporate customers, which complain about United's lack of flexibility with big accounts, Harteveldt said. Finally, he added, it must improve the internal culture, which has fared badly since the merger.

New CEO

Regaining the support of employees and customers, particularly business and corporate travelers, will be the first challenge for Oscar Munoz, a rail executive and United board member who was named chief executive last week after the surprise resignation of Jeff Smisek in the face of a federal corruption investigation.

Smisek had been a key architect of the merger between the airlines. As chief executive of Continental at the time, Smisek helped orchestrate the shotgun marriage with United after advanced talks between United and US Airways broke down.

United had far bigger ambitions when the merger was announced, declaring that the combination would form the world's biggest airline. Its lead has been squandered. American Airlines, which merged with US Airways, recently signaled that it measured itself against Delta, not United, its traditional rival.

Airline's upgrades

For all that, United has not been standing still. Last week, it introduced new business-class seats for its single-aisle fleet of Airbus A319s and A320s, as well as Boeing 737s and 757s. It was also the first North American carrier to fly the new Boeing 787 Dreamliner. Since 2010, United has added 200 new airplanes to its fleet and introduced Wi-Fi.

The airline also says that its on-time performance in recent months has improved.

While Munoz vowed to talk with employees, he has not been vocal about the direction he wants to take.

The airline said that Smisek left the company because of the investigation, not because of his performance. Smisek is entitled to a severance package that could reach $29 million.

Smisek's departure is not what was envisioned when he took over the merged airline.

"Everyone thought it would be Continental on steroids," said Vicki Bryan, an analyst with Gimme Credit. "Instead, management has been the main problem for this airline. It's not just that they've underperformed. They squandered what should have been a wonderful opportunity to build a great airline."