RAY SUAREZ: United cancelled hundreds of flights last weekend, and 240 more on Monday at Chicago's O'Hare International Airport. It was a repeat of a familiar scene this summer. There have been record numbers of delays and cancellations, unhappy United passengers waiting on long lines, sleeping on floors, relaying the bad news on cell phones and complaining to TV cameras.
PASSENGER: First it is mechanical difficulties and now, they can't get a crew, then it is weather. You can get a straight answer from anybody.
PASSENGER: It is their problem and they have turned it into our problem now, and that's wrong. I think a lot of United customers will remember this at the end.
RAY SUAREZ: In July, United, the world's largest carrier, reported almost 6,000 cancellations, three times the rate of other major airlines. The airline has announced it will cancel almost 2,000 more flights in September. United blames bad weather in part, and an acrimonious labor dispute. Since April, United and its union of 10,000 pilots have been squabbling over a new contract. Management says pilots are deliberately refusing overtime and calling in sick to bring pressure on the company. Union spokesman, Captain Herbert Hunter says his pilots are not the midst of any job action or work stoppage.
CAPTAIN HERBERT HUNTER: There is no job action by the pilots in anyway, shape or form, and the last thing in the world I would want to do is hurt this airline.
RAY SUAREZ: The union says refusing overtime is the member's right, and that United's real problem is too few pilots. The airline recently raised its hiring goal from one thousand to thirteen hundred pilots. Angry passengers and corporate clients are dropping out. United has already reported second quarter losses of $50 million, and estimates are the airline could lose another $120 to $150 million in the third quarter. United's problems have raised questions about a merger with are USAirways announced last May, more urgent are the concerns for next week's Democratic National Convention in Los Angeles. United is the convention's official airline.
RAY SUAREZ: For more, I'm joined by Julius Maldutis, a global aviation analyst and managing director at CIBC World Markets, at Canadian Imperial Bank of Commerce. And Mark Orwoll, managing editor of Travel and Leisure Magazine. Julius Maldutis, you have heard suggestions about weather, about air traffic problems, about disputes with the pilots. Are all of these contributing to United's current problems?
JULIUS MALDUTIS: Yes, I think they all are contributing, but I think the primary factor is that you have two labor unions whose contracts have expired and they are very unhappy at the slow progress, and that's the primary reason for all of the flight cancellations that we are seeing.
RAY SUAREZ: Both of the unions, the machinists and the pilots are part owners of United Airlines. It is the largest employee-owned company in America. How is it that the owners are at war with themselves in a sense?
JULIUS MALDUTIS: Well, they are not at war with themselves in this sense. They are more at war with the current management, and unfortunately, there is no statesmanship on anybody's part here. And that's why we have the problem.
RAY SUAREZ: And Mark Orwoll, let's look at this from the point of view of the passenger. Is this the kind of problem that over time is bound to cause shrinkage for United Airlines and it's going to be trouble to get those people back?
MARK ORWOLL: I don't think so. The loyalty, when it comes to air travelers, is pretty limited. In fact, vacation travelers, the average leisure traveler is pretty fickle person. When they call their travel agent to book a trip, they don't say put me on United Airlines; they say put me on the cheapest flight you can find. So if six months from now, a year from now United has the best fares, I think those leisure travelers will be on United. As far as the frequent travelers, the business travelers, many of them have thousands of miles, if not hundreds of thousands of frequent flier miles invested in the airline. They can't afford not to the fly on United Air. Of course, that's if they can actually get on a flight to use those miles.
RAY SUAREZ: Julius Maldutis, let me turn to you. Do you agree with Mark Orwoll's diagram there that long term this doesn't really hurt United that much?
JULIUS MALDUTIS: Well, I think you have to take a look at what happened to Northwest Airlines in September of 1998. Here we had a company that suffered a two-week strike. It lost a billion, $1.8 billion in losses. And it took them over a year to win back their frequent flier business passengers. So it really depends on what United does after the strike. And I'm hopeful that right after Labor Day, we're going to see a settlement.
RAY SUAREZ: And what kind of shape does this leave the proposed merger with USAirways in, is that in trouble by, as a cause, as a consequence of this United Airlines problem?
JULIUS MALDUTIS: Well, I think that's a very critical question because the pilots are unhappy over the fact that they have no assurances of what their role is going to be in a merged company. So I think management is going to have to resolve that issue if the company is going to go forward with the merger. Also, keep in mind the fact that we are having a presidential election, and I think no party will want to antagonize organized labor so the merger issue really is going to be decided next March or April.
RAY SUAREZ: Mark Orwoll, until United is able to wrap up its hiring of new pilots, until it's able to make peace with its union, what should the flying public know about its rights in the near term, when you are standing there in the terminal?
MARK ORWOLL: If you are actually in the terminal and you look up on the flight status board and you see "cancelled" or you see "delayed," your rights are pretty limited. You know, if the delay or cancellation is caused by bad weather, if they can attribute it to a labor strike, or any kind of act of God, that's called a force majure event -- really the only thing the airline owes you in that event is a refund on the unused portion of your ticket. They may try to get you on another flight. If the flight delay or cancellation is caused by any other reason like a machinery problem, that's called a schedule irregularity. In that case, the airline is obligated to put you on the next available flight, or, if that's not satisfactory to you, to put you on the next flight even on a competing airline. So it is important for you to find out what the cause of the delay is, even though that's often hard to do.
RAY SUAREZ: In our taped report, you may have heard that frustrated passenger expressing a bit of suspicion of the airline's information stream. They said they told us one thing they told us another thing. Can an airline -- in effect -- say it is one thing that leaves it less exposed when the cause of the cancellation might, in fact, be another thing?
MARK ORWOLL: Well, you know, I think it was very telling that in the public apology made by the president of United Airlines on Monday that right up there at the top of the apology, he stated that we're really sorry about all of these delays that were caused by labor problems, and by bad weather -- two, what would you call forced events, so he got that right out in the public right away. And I don't think that was by accident that happened. And indeed the interpretation of what is the actual cause of a delay, well, you could take it to court and you could talk about it, debate about it for hours and hours and hours. If the airline isn't up front with you, then, look, you have to get to LA or to Florida or to New York in the next six hours. You don't have time to wait. So you are relying on the good faith that you have in that airline.
RAY SUAREZ: Just in the past day, the Illinois attorney general, Jim Ryan, and several members of Congress from western states have suggested that they want to look into the airline's practices and procedures. Should United fear that really a can of worms is being opened by this kind of scrutiny?
MARK ORWOLL: I would think so. This is just going to keep the whole issue in the public eye -- even more than it has been since last weekend. Of course this is nothing new, as your initial report pointed out. This, the number of cancellations and the delays, has been an ongoing issue since the contract expired, the pilots' contract expired last spring. The bad weather, the work, the refusal of the pilots to fly overtime really brought it to the floor. And I think if the congressional investigation, if they bring it to a DOT investigation, it's just going to keep this before the public. I think people are going to be reluctant to fly United until this thing is resolved. So, yeah, it's going to have long-term implications and the investigation by the DOT, if that happens, and the complaints by these politicians, is going to keep the fire lit under this issue.
RAY SUAREZ: Julius Maldutis, let me have you weigh in on that same issue from a business point of view. Certainly, United's stock has been taking a terrible beating this year.
JULIUS MALDUTIS: [Audio problems] … the last, I think, you have seen today, number of analysts including myself, we have reduced our third quarter forecast. Hopefully, this dispute gets resolved by the end of this month, or early into the next month, because the longer it lasts, the greater will be the damage to United Airlines. But I am hopeful that we can resolve this issue. You know, it is somewhat amazing that in the 1970s, there was a mutual aid pact, which leveled the playing field between management and labor. It is unfortunate today that the negotiating power is all with labor. As I indicated before, no airline today can sustain any kind of job action or a strike. American Airlines last year suffered a sick-out which caused damage. So, there's got to be in a way to resolve these labor difficulties. And I hope the new administration, whichever it is, makes this a significant priority on the Secretary of Transportation's table that there has got to be a mechanism because it is the traveling public who is the ultimate loser.
RAY SUAREZ: Julius Maldutis and Mark Orwoll, thank you both, gentlemen.