Glenn F. Tilton
Chairman, President and CEO, United Airlines
Thank you for that kind introduction – and for the chance to address this important forum for our industry.
I want to start today by thanking the members of the Aero Club, past and present, for always believing in the vast potential of flight.
And I want to acknowledge some of the special guests here today... including Spencer Dickerson of the American Association of Airport Executives and Aero Club President... Bobby Sturgell of the FAA... Ellen Engleman of the NTSB... and, of course, my colleagues from United who are here.
I also want to join in saluting Barbara Erickson London, not only for her pioneering accomplishments -- but also for being the mother-in-law of a retired United pilot!
Let me also express my appreciation, on behalf of my company and the entire industry, to the people here today from Congress and the Administration. They have done so much to help us through the tragedy and aftermath of September 11th, as well as the impact of the war in Iraq, and the recent disruption caused by SARS.
Certainly, these have not been ideal flying conditions. The Air Transportation Association has even called it the “Perfect Economic Storm.” The government has been an important ally in helping us weather that storm.
I know that I've been preceded at this podium in recent weeks by distinguished speakers such as Carol Hallett and Leo Mullin. And I know that they very effectively addressed a number of the central issues that are critical to our industry. So I am not going to cover that same ground today.
Instead, with your indulgence, I will talk about what we are doing at United as something of a proxy for changes within our industry. And I will speak to the global environment in which we will compete upon exit.
I am no stranger to Washington. No one who spent thirty years in the global energy business could be. But I am a relative newcomer to the airline industry. And I picked a heck of a time to join the club.
In fact, the day I joined United, Jay Leno referred to me as the “fellow with the worst job in corporate America.” Not the description one might hope for. My two children, however, did not feel the same way. That evening, they called me, and with tremendous pride, told me that I had indeed finally arrived.
So why take such a job? I took the job because I saw a challenge... a company with tremendous potential and the need for good hard work to be done.
It turns out that my perspective was spot on target. So far, notwithstanding the occasional headline, it has been an incredibly rewarding and eye-opening ride.
We are not done yet.
But we are in a very different place than we were when we started.
And, importantly, we have a clear understanding of where we need to go.
Today, I am here to talk with you about the imperative of change at United and in our industry -- dramatic, fundamental, enduring change.
Because if there is one thing that the difficulties of the recent past have made clear, it is that the old ways of doing business are not working, and we need a new direction.
It will take new ideas and new partnerships.
By doing so, even in the face of our current difficulties, we can make the second century of flight – the one that starts right now, a hundred years after the Wright Brothers’ launch – a time of even greater progress.
That's a tall order, considering where the industry is today.
Look no further than my own company.
I have been in the business world for three decades, but I had never seen anything comparable to what I found at United Airlines and this industry. It was clear that no amount of incremental change was going to save our company.
I say this because there can be a temptation, when a corporation is in crisis, to look for the silver bullet – the quick fix – and to do only as much as it takes to survive.
After all, even a minimal amount of change is going to bring pain and sacrifice. For any company, in any industry, it is hard to focus on the long term when you are not sure that you are going to be around the next week.
But clearly, that was what United was going to have to do. We were going to have to take a hard look at the way we did business at every level – and change it, fundamentally. We also had to determine what was of long-term value that we needed to retain and strengthen, such as our route network and alliances.
By the time I arrived, United, like most network carriers, was in deep financial trouble. The realities of reduced business travel, cheap Internet fares, and low-cost carriers clashed with our existing business model. United had significant issues to address. They included:
A highly uncompetitive cost structure;
An over-leveraged balance sheet;
Excess capacity;
Limited portfolio flexibility;
Lack of management credibility;
Complex governance; and
A lack of organizational alignment.
United had already been through months of ambitious cost-cutting to save precious cash. Yet all the hard work had not turned things around.
Like the industry as a whole, United was undergoing challenges the likes of which it had never seen. Revenue was falling to levels no one could have predicted.
The troubles at United were not surface wounds. They were deep, structural flaws. That is why we have been fundamentally changing the way we do business – making a seismic shift in our structure, our culture, and our leadership.
We have had to start thinking long-term, so that when we emerge from bankruptcy, we will not fall back into the patterns that got us here in the first place. We have had to transform our company – not just to survive, or to compete, but to become a different type of competitor.
To effect that transformation, we have addressed each one of those areas I just listed. Let me walk you through them briefly in four parts.
First and foremost, we have joined together with our unions to put our fiscal house in order. Since filing, we are on track to reduce overall costs by nearly $5 billion per year.
We have worked with our unions through the collective bargaining process on $2.5 billion in wage reductions and productivity improvements that create a “best-in-class” cost structure. And we have reduced capacity and significant aircraft and other costs through the Chapter 11 process.
Getting here has not been easy or pain-free, neither for labor nor management. But these tough decisions have given us the opportunity to create competitive jobs for those at United – and the prospect of more competitive jobs going forward.
Secondly, we are greatly enhancing our operational flexibility.
As you know, this is critical in an industry so vulnerable to change. To become more competitive, United had to become leaner, more nimble, more efficient. That is hard to do when your work rules are among the most restrictive in the industry, as ours were.
People got used to them.
They were a fact of life.
And it was awfully hard to change them.
My first day on the job, before I went to our corporate headquarters, I met with the coalition of our labor leaders. We embarked then on an enormously challenging but, we believe, ultimately rewarding journey.
Our goal since then has been to redefine the relationship between labor and management, so that we are able to work with each other toward a common goal – the long-term success of United and our employees.
As a company, we realized that, collectively, we had to get out of our own way – to stop preventing ourselves from being successful.
The organization had created a culture of limitations.
Now, however, thanks to our agreements with labor, our new work rules allow our people to be much more productive -- to make fuller use of their talents and ingenuity -- and we can also outsource work when that makes better competitive sense.
We’re already seeing the change in the front lines. Just last week, I was talking to one of our general managers in the field, who told me that he had been inhibited by a limited perception of what was possible. But with the changes in our work rules, he and his team now see many more opportunities for improving the way in which we do business.
Third, we have enhanced our leadership team.
We have geared it to our more competitive cost structure and more flexible organization. We continue to seek and promote the best talent within the company, and recruit top executives from outside the company, even outside the industry.
In fact, some 63% of our officers are new to their positions, and four of the eight members of our Executive Council are new.
We’re assembling a team with the right balance of competencies and industry experience that will enable us to go forward successfully.
Fourth and lastly, there have been major changes to our governance structure. United's ESOP governance was incredibly complex and made decision-making very difficult. But the ESOP ended as a result of the bankruptcy process -- a change that we recognized was very difficult for our employees in many ways. And now our governance structure has changed.
The company has now been rechartered.
The number of board committees has been reduced from ten to four.
And special provisions have been removed that gave some directors veto power over certain major corporate decisions.
We have also elected three new members to our Board, each well-respected in their different fields.
Taken together, in all these ways, we have been able to bring fresh ideas, renewed credibility, and greater accountability to our company.
And what should never be overlooked is that, while we have been getting our house in order, our employees have been consistently outperforming on every metric and achieving excellence in our operations across-the-board.
Clearly, we have been working hard to turn things around at United. Not to get them back to where they were before, but to set them in a whole new direction. As I said, we are not there yet. We still have plenty of work to do.
And, in this industry, we are not alone. Nearly every carrier is facing similar challenges. Nearly every carrier has its own hard work to do – fundamental changes of its own to make.
The question, however, arises: to what end?
The answer may seem obvious: to survive.
But surely our aspirations are higher than simply avoiding the fate of those companies that have disappeared from the competitive landscape. Surely our potential is greater than that. Beyond our survival, there has to be some higher-order reason for restructuring. What is that reason? What is the prize?
In my view, the prize ought to be that if our companies get our financial houses in order, we get the opportunity to become truly, globally competitive. The airlines of the United States should be the premier carriers in the world – with the most extensive global networks, best customer services, and strongest financial performance, rewarding shareholders.
This is a big prize. Not just for our companies, but for our country. The airline and aerospace industry have an enormous contribution to make to the U.S. economy, and we’re eager to make it.
In the current economic climate, we need to get American businesses moving again – back out on the road creating new business, jobs and prosperity themselves. The airlines are literally a vehicle for that. We are a powerful economic engine that is waiting to be unleashed.
After September 11, we saw that the tragedy affected not only our companies, but the entire business travel and tourism industry, and others. To illustrate, IBM estimated early this year that travel delays caused by increased security and flight cutbacks after 9/11 cost the company a half million dollars per week in lost productivity.
Said another way, when airlines and airports work well, we are contributors to the productivity of our corporate clients -- and when we aren’t working well, we detract.
But there’s a corollary here: the airline industry can also have a significantly positive impact on just about every other business sector. I was recently talking to new Mayor Hickenlooper of Denver – like most mayors and governors, he’s facing a big deficit – and he said that what was good for United was good for Denver as well. It’s no less the case that, as I told him, what was good for Denver was good for us.
I have heard the same thought from Mayor Daley of Chicago, United’s biggest hub and the home of our corporate headquarters. Mayor Daley talks about the multiplier effect of money spent on air travel: the fact that every dollar circles several times around the economy, benefiting everyone from the vendor at the airport to the Lyric Opera house.
In the same respect, when Boeing manufactures a 777 for United, 300 vendors around the country get business as a result.
Aviation gets the wheels of commerce moving. This is true internationally as well as domestically. The global economy of the 21st century puts a premium on connectivity – and air travel is a vital connector. We get people and products moving across borders. We are a key enabler of globalization and a driver of growth in the global marketplace.
be an obvious fact, but for many it’s not. Somehow, when talk turns to global connectivity, people immediately think solely of electronic means, of teleconference, email and the Internet.
But I firmly believe that while technology has transformed communications, successful business is about establishing relationships -- and I suggest that you cannot establish an enduring business relationship with someone, say, in Beijing, only through electronic means. It’s more than face-time, it’s face-to-face time. And our industry makes those meaningful connections happen.
There’s an irony in what I have just said. Aviation may be a major force of globalization, but aviation itself is one of the last important industries to go truly global. Our capacity to compete globally, to create jobs and growth, has barely begun to be tapped.
What explains this irony? If going global is the prize, why does it remain so far out of reach?
It is certainly not because we are unambitious. The hard work that United and others are doing should put that notion to rest. We are eager to get out there and compete globally, to show the world what we can do.
We are eager, but we are earthbound. Even if our companies break free of our own fiscal and operational constraints, there is nowhere to fly but into a tangle of regulations.
As you know, the perception is that airlines were deregulated 25 years ago. But many of the old restrictions are still firmly in place – even though the world they were designed for, when each nation had its own self-contained carrier – is long gone.
What this means is that Washington is required to be involved in almost every decision that our companies make. I am not talking about safety; I am not talking about security. Clearly the government should be involved in both. What I am talking about is the federal role in economic decisions, a role that treats us as a local, not a global, business.
The competitive pressures are clear and they point in one direction – toward the globalization of this industry. That cannot happen unless the industry and government work together in re-examining regulations that diminish our opportunity to succeed in the global marketplace.
We and government need to engage in some serious thought and dialogue – not just on the emergency measures, but on the fundamental issues.
What we need is a new partnership – for a new, global paradigm.
I firmly believe the first product of this new partnership should be that government and industry take a top-to-bottom, fresh look at how the industry is regulated.
I am not talking about another Presidential Commission.
I am not talking about industrial policy.
I am talking about being allowed to conduct our business like any other global business... and then being held accountable.
Specifically, to begin with, we should continue to push for liberal aviation agreements with other nations. The future of our industry is in multilateral “Open Skies” agreements, and the upcoming U.S. - E.U. negotiations will be an important start.
We should really use this opportunity to re-evaluate how we are regulated as an industry.
We must also break down barriers to consolidation and access to global capital. The U.S. and Europe have historically led in global aviation and there is no reason why we should not do so going forward.
That’s why we strongly support the Administration’s proposal to raise the Cold-War era caps on foreign investment from 25 to 49 percent.
And we must modernize anti-trust laws to reflect the fact that we compete in a global marketplace.
When it comes to competition -- or, for that matter, national security -- the contrast couldn’t be greater with my former industry – energy. For many energy companies, the key to remaining competitive has been mergers. I must tell you that I find it peculiar, from my personal vantage point, to contemplate the mergers of Exxon and Mobil; British Petroleum, Amoco and Arco; and Chevron and Texaco -- the latter of which included the divestiture of refining and marketing assets to Royal Dutch Shell and Saudi Aramco -- and now to come to understand that United-US Airways was perceived to be a combination that went too far.
This means that the airline industry is forced to effect change in ways that are very difficult and often painful. In going from 100,000 to approximately 65,000 employees, for example, United has had to lay off what would be the workforce of a large corporation.
We do not have the tools that are available to other industries to rationalize our businesses in a coherent, well-choreographed manner.
Washington also knows that global businesses such as oil and gas require access to global capital. On all these matters, energy companies work in partnership with the government, but in a way that leaves their fate firmly in their own hands.
Our airlines will compete more effectively with one another and with foreign carriers if we have more control over our business decisions, and if we are allowed to be accountable – to our customers and shareholders.
This is the way to create solid, stable jobs, give consumers better value for their money, and allow airlines to rely more on themselves and less on government.
Let me end where I began, by thanking all of you for your deep commitment to our industry. This is a business that was built on good, hard work and imagination, beginning a century ago when two brothers in a garage in Dayton, Ohio started a journey that transformed our world, put brave Americans like Barbara Erikson London in the air, and eventually landed us on the moon.
Aviation may be a hundred years old, but it remains a young industry – with enormous opportunities ahead. None of us knows exactly what the future holds. But we do know that we all must take a part in shaping it. As always, it will demand the dedication of every one of us. I am confident that together, we can create a future we are every bit as proud of as our past.
Thank you very much -- and remember, Fly three, get one free.
