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Back Local News United Airlines planning to outsource more jobs to cut costs

United Airlines planning to outsource more jobs to cut costs

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UNITED Airlines is looking into further outsourcing some areas of its operations where the costs “have gone out of control,” UAL President Jeff Smisek said yesterday.

“It’s a disservice to the rest of the employees for us to keep the cost too high because, ultimately, that jeopardizes everybody’s job,” Smisek said in an interview with Variety. “So we will phase our services with the third party [in areas] where it makes sense.”

While United is taking the outsourcing option with reluctance, Smisek said, the company is compelled to make a prudent business decision to keep the company’s stability.

“All things being equal, we prefer not to do that. We don’t want to do outsourcing because that disturbs people’s lives, but we got the cost out of control,” he said.

United’s financial condition has not been exactly well since the merger with Continental Airlines. In April, it reported a first quarter net loss of $325 million, or $0.98 per share, excluding $92 million of special charges. Including special charges, UAL reported a first quarter 2013 net loss of $417 million, or $1.26 per share.

Core competence

Smisek said it may take a while for United to break even and recover, but drastic actions – such as engaging third-party services for certain operations – are imperative.

“So we look at the things that we do. What is the core of our competence? Where are we good at? What are the costs of doing things, particularly the areas which are not our core competency? We need to always be looking at ways that we can do [these things] efficiently,” Smisek said.

He said keeping the third party’s compliance with United’s own service standards is not an issue.

“It’s actually fairly easy to do because you have management oversight and you also have service level agreement with the third party. In the contract, you specify the type, quality and quality of service and you hold them accountable just as we hold our own people accountable for the quality and quantity of service that we provide,” Smisek said.

Job losses

Last year, 90 Guam employees lost their jobs when United shut down its call center and the cargo division.

Smisek said United found better efficiency in concentrating the calls into one center as opposed to multiple centers around the world doing the job.

“We always have to look at where our costs are and compare them to what a third party (that offers the same services) can provide equally or better,” Smisek said. “All airlines do this. If you think of maintenance for example, no airline that I know of does all of its maintenance itself.”

He said United is currently engaging the services of GE and Rolls Royce for engine maintenance.

As for other areas of operations that may be contracted out, Smisek said, “It’s more a matter of figuring out over time where our costs are no longer competitive; it takes time.”

Although some lines of work may be transitioned to a third party at a time, United will take more considerations on the local level, Smisek said. “For example, if there’s a particular issue and if it’s a tiny number of people (that may be affected), it’s really not worth the bother disturbing the lives of four people,” he said.

The outsourcing option is not a grand plan, Smisek said.

“It’s basically just the basic blocking and tackling of looking at a business and operating it efficiently,” he said.

“For far too long, airlines did not do that. That’s why you saw airlines going into bankruptcy; that’s why you see airlines laying off thousands of thousands of people; that’s why you see airlines not investing in their people, their technology, their product and facilities.”

Meeting with employees

Flying in from Taipei yesterday, Smisek stopped over on Guam for a day-long visit to meet with United employees on Guam.

“It’s a good opportunity for our co-workers to hear directly from me about what my thoughts are and to answer the questions they have. It’s a good opportunity for me to learn what’s on their mind,” Smisek said.

Acknowledging the employees’ post-merger adjustment issues, Smisek said, “People always have legitimate concerns about changes to how we conduct business.”

During the meeting, Smisek said he relayed the company’s three areas of focus this year: operational reliability, customer service, and profitability.

(Excerpts from Variety’s full interview with Jeff Smisek will be published in the June 24 issue of Variety.)

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