United Airlines’ Stock Price Slammed after CEO Defends Violence against Passenger

Paul Dykewicz

United Airlines (NYSE:UAL) took the biggest blow to its stock price not from removing a paid passenger off a flight to open seats for company employees but after its CEO defended a policy that allowed the customer to be bloodied and pulled off the plane against his will.

The public generally is forgiving if honest mistakes occur, apologies are given and corrective action is implemented to avoid a recurrence. But United Airlines and its leader initially followed none of those steps and the result is that the company lost roughly $950 million in market value in the wake of its self-inflicted public relations crisis.

The chart below shows the stock price’s drop on April 11.

The solution for the airline rests partly within its so-called “Customer Commitment” policy on its own corporate website, which promises to provide a level of service to customers that is commensurate with “a leader” in the airline industry.

“Our goal is to make every flight a positive experience for our customers,” the policy states.

The CEO should have asked himself whether that standard was met when he viewed the video of the passenger getting yanked out of his seat by Chicago airport police who were called by his employees to do so. Whether the bloody face of the doctor who was removed by force from his seat and dragged down the aisle out of the plane was caused by him falling on an armrest is secondary to the airline’s policy to pull him off the flight by force in the first place.

Try to imagine any other industry or business where customers are treated so poorly. Airlines have consolidated to the point in recent years where there is much less competition, higher prices and more crowded planes with a tightened number of seats. Indeed, United merged with Continental, American Airlines (Nasdaq:AAL) joined with USAirways and Delta Airlines (NYSE:DAL) purchased Northwest Airlines.

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The airlines are not monopolies but they wield immense market power at their hub airports. New Jersey Gov. Chris Christie urged federal regulators after the incident to reform the airlines’ practices for “bumping” paid passengers off their flights in cases of overbooking and noted that United controls roughly 70 percent of the market at the airport in Newark.

Passengers who want an alternative airline may have little choice when most of the flights and routes are held by a dominant airline in a particular locale. Customers can cut up their United credit card, mail it to the CEO and refuse to fly on the carrier but not without many of them incurring major inconvenience.

Airlines dislike regulation but it may be coming soon after the April 9 fiasco that involved a physician forcibly removed from his flight to make room for airline employees, despite him asking to stay on board to be able to see patients in Kentucky the next morning. It remains a mystery why the airline does not adopt a free-market policy to compensate volunteers sufficiently by raising the value of travel vouchers until enough people accept.

Instead, United’s current policy fell way short. It may be similar to the policy of other carriers but the market power major airlines hold may give weight to Gov. Christie’s proposal for reform.

United’s policy avoids discussing the physical removal of passengers from a flight after they have been boarded and seated. It describes procedures for “oversale” situations prior to boarding. Those procedures led to the public relations crisis for the airline and should be viewed as a call to reform by all carriers.

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United’s policy is that passengers will not be denied a seat until volunteers are sought to give up their confirmed seats. If there are not enough volunteers, passengers will be denied boarding.

This case of United paid passengers already boarding and taking their seats shows a lack of respect to then ask them to leave and accept whatever the airline chooses to offer for compensation and for another flight.

“You will generally be entitled to compensation and transportation on an alternate flight,” according to United’s policy. That failed policy led to the passenger’s injury, embarrassment and an expected lawsuit after his attorney announced he incurred a concussion, two broken teeth and a fractured nose.

United’s CEO later said he wanted to apologize to the passenger and the other passengers on board the flight but it took widespread public outrage and social media shaming of the airline and its top executive to reach that point. Originally, the CEO said the airline merely “re-accommodated” the passenger.

All Pro NFL offensive lineman Joe Thomas tweeted about how that description would apply to his flattening of defensive players on rival teams during games. ABC TV’s late night talk show host Jimmy Kimmel created a new television commercial for United as a spoof with a proposed new slogan that is vast departure from the company’s old one about flying the “Friendly Skies.”

People and companies make mistakes but when it happens the best approach usually is to acknowledge the situation, apologize and correct any faulty policy that led up to it. United now faces litigation, public backlash and a looming question about whether whatever new policy it adopts will meet its own lofty standard of presenting itself as an industry leader.

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__________________________

Paul Dykewicz is the editorial director of Eagle Financial Publications, editor of StockInvestor.com and DividendInvestor, a columnist for Townhall and Townhall Finance, a commentator and the author of an inspirational book,Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a Foreword by legendary football coach Lou Holtz. Visit Paul’s website at www.holysmokesbook.com and follow him on Twitter @PaulDykewicz.

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United Airlines is in the midst of a public relations disaster and its share price has suffered. Should investors treat it as an opportunity or a warning sign?

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