Ralph Nader’s Letter to United CEO Jeff Smisek

Ralph Nader — a truly important voice in the 1960s and 1970s, who hasn’t been relevant since 2000 — wrote an open letter to United CEO Jeff Smisek.

He criticizes United’s share buybacks, largely as a rhetorical device to contrast his real target: United’s decision to outsource machinist union jobs. (United reached a deal with the machinist union out outsource 1150 jobs at 16 airports, less than the 2000 jobs at 28 airports being discussed at the time of Nader’s letter.)

There is much to criticize at United. The outsourcing of baggage handlers and customer service agents may have a negative effect on customers — you might get friendlier but less empowered agents, and baggage could get better or worse.

These are complicated issues, and current United management doesn’t have a strong track record that leads one to expect good outcomes or believe they’re making good decisions. Nonetheless, I’m not persuaded that Nader’s letter makes the cases that many excitedly claim that it does.

Here’s his argument:

Dear Mr. Smisek,

Two stories have come to public attention about your airline, which invites some serious introspection by you and your fellow executives who make millions of dollars a year.

The first appeared in the January 23, 2015 edition of the Wall Street Journal titled, “Suddenly Flush Airlines Debate How to Use Cash.” The article posed the choices: for increased services for consumers and reduced fares; for investors to cut debt and buy back stock. There was no indication of a cash dividend increase. Then this paragraph: “United returned $320 million to shareholders last year through share repurchases, and it said Thursday it could accelerate its buybacks with extra cash flow.” Stock buybacks — really a poor use of productive capital — are favored by executive suites as a way to elevate executive compensation compared to cash dividends.

Now comes the second story that was not so widely publicized. Your subordinates have been instructed to outsource 2,000 union jobs under a vendor bidding process that you will throw against your loyal skilled workers to match, or else. Twenty-eight stations at airports are affected in this round. You hope to save $2.7 million out of the pay of long-time United Airlines workers (many who make $15 per hour and benefits) on the tarmac at dawn or dusk, and rain, snow or shine.

Do these two stories prod you to wonder what’s going on in your monetized mind that excludes common decency and elemental labor management relations? Do you think that vendors’ lower paid, inexperienced labor pool is not going to cause you problems down the road?

And does a merged airline (with Continental) planning more unproductive stock buybacks to pile on the $320 million in 2014 have any qualms squeezing 2,000 already hard-pressed workers with families out of $2.7 million (not to mention other similar plans, past and future), astonishingly at a time of record profits? Squeezing appears to be your corporate policy tool for your passengers as well — for example, squeezing their leg room, squeezing them by innumerable fees and penalties, and squeezing their time by delays on the phone in responding to their questions.

Why is it that a far tighter oligopoly of domestic airlines than before deregulation mimics each other’s race to the bottom in labor and consumer relations, instead of mimicking better practices by Southwest Airlines with a far more consistent record of profits and no layoffs? Does this perverse behavior also make you wonder?

Mr. Smisek, you’re pushing the envelopes in ways that reflect a power trip — that is if you can get away with it, you will. At this point I am reminded of the courteous UAL of the Sixties, Seventies and early Eighties with services and attentiveness, with a fine record of domestic maintenance standards. That history should provide you with some contemplation about the role of top management over the years.

Consider this advice: drop the risky outsourcing; treat your employees as Southwest does; and stop ratcheting up the fees for baggage, changes of reservations, etc. Unless, that is, you believe that customer backlash, investigations by media and lawmakers and lower job gratification are not anywhere on your horizon.

Your response is welcomed.

Sincerely,
Ralph Nader

Share repurchase leads to many questions but is not itself inappropriate.

  • It’s a rather sorry affair that United doesn’t believe it had effective uses for the capital, that the managers aren’t savvy enough to earn a strong rate of return, so they were best off returning the funds to shareholders.
  • There certainly are perfectly legal, though ethically questionable, uses for share buybacks. Nader insinuates those could apply here, but never makes that case. For instance, a buyback increases earnings per share by reducing the number of outstanding shares — so executive compensation deals tied to earnings per share may be gamed.

Outsourcing baggage handlers isn’t good for the incumbent baggage handlers, and is pretty good for the new baggage handlers. It’s even conceivable a new company winning the contract could hire the same people and pay them less. That’s going to be tough for those accepting less pay for similar work. They may not have good options. That’s tremendously regrettable and worth lamenting.

Whether or not it’s the right decision for the airline to make is complicated. Saying that this will ‘only’ save a few million dollars a year misses the point, the airline does have higher costs than the rest of the industry despite not performing as well overall as some of their competitors. So they need to make changes across their operation. Any given change may add ‘only’ a few million dollars to their bottom line. Multiplied across the entire entire the changes taken together will be huge. Any given change can be dismissed as small, but if you dismiss each one you miss the large gains.

Outsourcing customer service leads to changes that are more customer-facing.

My own bet is that United is penny wise and pound foolish, but I don’t have the full context for these decisions and Nader certainly doesn’t explore them.

I’m not sure there’s a right amount that United ought to pay baggage handlers, if there is I certainly don’t know it, so I’m not willing to say they’re moving forward with a plan to pay the ‘wrong’ amount.

What about you: does Nader persuade you that United is behaving improperly with the agreement it has come to with its union that will allow it to outsource ~ 1150 jobs?

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. “There certainly are perfectly legal, though ethically questionable, uses for share buybacks. Nader insinuates those could apply here, but never makes that case.”

    I agree he didn’t but motives are hard to prove… he just reported a common result of the policy that seems to be part of an overall pattern–which does raise questions.

  2. While Ralph Nader’s letter to Jeff Smisek is contentious, he is right about nearly all the points that he makes in it. I do hope that Smisek replies to Nader, and that reply gets publicized. My bet is that Jeff is too busy counting his $$$ to be bothered with such insignificant issues as employee and customer satisfaction.

  3. While I understand where Nader is coming from, but quite frankly his beef should be with the companies doing the contract. They are the ones offering subpar wages and

    Yes, United needs to do a better job working closely with their vendors to ensure employees receive same level of training as their in-house employees and offer the same level of transparency in processes on both sides.

    Anyway, the only part I agree 100% with Nader, and this is not just with UA, but companies across the World, is the share buyback argument. It is hard to argue they are doing it for the shareholders when 80-90% of their compensation is in one form (Restricted or Unrestricted) of company stock. My company for instance boasts they returned 94% of capital to shareholders, last year was 89% and the year before was 83/84%. You can see where things are going in that area. Employees’ merit increases have been around 1-1.75% each year for the last three years. Not complaining, if that was a problem, I would have left, but something is pretty lopsided with the picture here IMO.

  4. I haven’t taken Ralph Nader seriously about anything in 20 years. He’s been wrong on every major issue during that time, including helping to elect GW Bush president. If I ever saw him in person I’d give him a piece of my mind.

  5. Totally forgot to go back and finish the first paragraph (guess multi-tasking is very effective haha). The point I was making is most companies contract the bulk of the front line work (all the way from janitors to accountants to product platforms), it is how both companies work together on delivering key customer metrics.

    UA, and the contractors, all clearly fails on so many level in this area and their rash behavior [it feels like a light switch where work just get dumped on a specific date to the contractor to do all the work which usually leads to endless problems in routine processes] in trying to save every single penny possible rather than assessing how they can improve the transition process, offer shadowing, implement a period where both workforces will overlap, etc.

    Doing a significant change literally overnight with minimal thought into the transition is doomed to fail 99%+ of the time.

  6. Ralph aside, outsourcing reminds me of Alaska farming out mechanical overhauls on the MD80 in the early 2000’s, specifically a shop that immediately remade the template for when the gear was to be replaced which raised the 2 ton horizontal stabilizer perched at the top of the tail – the only non-redundant system on any aircraft model that could lead to catastrophic failure.

    Less than 6 months later an Alaska MD-80 lost control off the SoCal coast for nearly a half hour during which one last pilot transmission was “The good news is we’re still flying, the bad news is we’re upside down” before crashing into the Pacific.

    This is where the race to the bottom literally ends.

  7. A friend has worked his entire career as a maintenance inspector at Delta while watching almost all of the work being outsourced to contractors that block him at every point from inspecting their work. When he asks Delta management to back him up to actually inspect the work he suspects is being done in a cut-rate and shoddy manner, he instead gets pressure to retire with no replacement. I told him to call “60 Minutes.”

  8. Not relevant since 1992? This is the jerk that got the moron #43 elected in 2000! If it weren’t for him, the world would probably be a much better place today.

  9. A friend has worked at Delta as a maintenance inspector for his entire career, watching most of the heavy maintenance be outsourced. Now at almost every maintenance base he finds himself being blocked from doing his job, and when he complains to Delta they will not back him up, instead pressuring him to retire. I told him to go to “60 Minutes.”

  10. Would you believe that Ralph Nader is making an appearance locally next month. I’m unsure if I attend two or three Nader past events; but in hindsight, they all sound the same.

    http://www.971talk.com/events/event/ralph-nader-and-grover-norquist-event

    In regard to the IAM and United Airlines situation, might this more about the lost of aircraft maintenance technician positions, instead of machinist jobs. Locally, Boeing has 200 machinists eligible for retirement and what I’ve read, replacements won’t be hired.

  11. Damn. When I saw your title I was *sure* Nader had booked a fare ex-LHR using Kroner and was writing to get his ticket reinstated. Soooo close!

  12. Ralph Nader wasn’t relevant since 1992? Some would say he was relevant in 2000 enough to help gleff’s party member GW Bush to win the 2000 U.S. Presidential election by way of what culminated in Florida in the fall of 2000.

  13. Yes Yes Yes . You there in Walmart scrutinizing the chili beans for their Gluten content. Southwest is your friend. You know southwest once gave your favorite aunt a Teddy Bear, it’s true. And their peanuts! Ma Gosh. Unworldly.

  14. A little OT: Suggesting that Ralph Nader was responsible for GW Bush in the White House is misguided – correlation does not equal causation.

    Gore ran a terrible campaign that failed to capitalize on the Clinton Administration’s achievements. There is nothing to suggest that those who voted for Nader would have voted for Gore had Nader not been running. And Nader had nothing to do with the Supreme Court decision stopping the recount (in which Gore believes he would have prevailed), installing Bush, nor Bush’s election in 2004.

    Nader’s beliefs are completely different than those of the 21st century Democratic Party. Nader has a long history of acting as a champion of consumer rights, some of which have been adopted by Obama, but all of which were shunned by Gore in the campaign.

    Don’t hate Nader for his 90,000 votes in Florida because Gore was incapable of winning a completely winnable election. And don’t hate him for the politically motivated right-wingers on the Court.

  15. Right wingers and libertarians grudgingly acknowledge Nader but refuse to give him credit for his achievements. The slant of this piece is entirely predictable given the authors biases.
    Typical.

  16. @amie – while I don’t know enough to give Nader causal credit, I think he was very relevant in his focus on car safety. Unquestionably ‘Unsafe at Any Speed’ was a game-changer, and timed with the inflection point in a reduction of automobile deaths. One possibility is that his work made it much easier to sue car manufacturers, and this liability changed their incentives significantly. So I think there’s quite a bit of a nod to him, I note in the lead-in to the post his relevance in the 60s and 70s.

  17. @ Gary – Sorry for the confusion, I thought your commentary was spot on. I was pointing out some fallacies to some of the others out there that seem to think Nader is responsible for President GW Bush.

  18. How long ago was it when the Unions were being told they must feel the pain of the airlines were people saying that organized labor was blocking reforms needed? THIS is what the airlines do when they HAVE money. THIS is why workers wont give in at all, they know that no matter what, the current business climate is get whatever you can out of your customers and your employees…THIS is why the US is having trouble, companies don’t really care.

  19. @Gary I know it wasn’t your intention but your piece on Ralph Nader caused an eruption of BDS (Bush Derangement Syndrome).

  20. Bush Derangement Syndrome was 2000-2008, when the US lost the last measure of its innocence and its world reputation as a force for good invading and slaughtering a country which had done nothing to us and upon which we’d imposed a brutal dicatator. Derangement is still 1/3 ignorants saying Iraq was involved in 9/11. Derangement is learning nothing from Vietnam, following a Mad magazine iconic leader into infamy and utter permanent ruin.

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