Interesting IFE comments by United Airlines CEO in Sept
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PostID 304423 On Tuesday, January 06, 2004 (EST) at 8:49:37 PM
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Remarks by Glenn F. Tilton at The World Airline Entertainment Association (WAEA)
September 09, 2003
Seattle, Washington
"New Realities, New Approaches in Inflight Entertainment"
By Glenn F. Tilton, Chairman, President and CEO, UAL Corp. and United Airlines
Good Morning. And thank you Mary, I appreciate that and I appreciate the endorsement of your children as well.
Today's gathering is a very, very valuable reminder, especially to me personally, that the business will not always be about financial restructuring, and that it is in fact as we said on the first day following our filing of our Chapter 11 case, it's still about the customer.
And it will always be about the customer. And, if I were to only impart one message from this podium today, it would be that, and the fact that I'm given the opportunity to remind myself of that is a very, very good thing.
It has been an extraordinary year for the industry. We do not wake up on any occasion, and this morning was no exception, without news that reminds us of the challenges of our industry. Let me just set context: in two days on September 11th, when I return, from what has been a three-week experience of constant travel I'll return to Chicago and will participate in a commemorative ceremony for those that we lost in September 11th, 2001. So imagine, contextually, standing here before you today talking about something very near and dear to your hearts and important, inflight entertainment, and returning to Chicago to lay a wreath in commemoration of those that we lost on that day.
The recurrent threat of terrorism, the war in Iraq, woke up this morning to the acknowledgement that we have a confirmed case of SARS in Singapore, all of which have a sobering and disproportionate affect on our industry. Business has been very difficult; the challenges are real. People have been buying less and people have been traveling less. And the competitive landscapes for all of our businesses are changed irreversibly, and we have to accommodate that, we have to be responsive to that as we set strategy going forward.
But there are opportunities -- and you represent them -- within these challenges, and your imagination and your creativity is going to show us, in my view, the way. They include opening up to new technologies, many of which I got a glimpse of as I did a little preview tour of the exhibition hall, and they include developing the next generation of infrastructure required to serve the evolving entertainment and information requirements of our mutual passengers.
We also have, and I think this is very important for my side of the aisle, so to speak, the opportunity and the responsibility to find new ways of working together to deliver a great customer experience at an affordable and competitive cost.
Before I get into specifics with respect to that theme, let me speak to the issue of United and the work that we are doing to create a platform that enables us to consider this agenda of yours and these challenges going forward.
We have obviously had a challenging year and we've had to rethink our operations as well as the marketplace and how we approach our customers going forward. We've had to move very quickly and very skillfully to transform the company so that we're able to compete and we really have focused on three principal areas:
One, which I know you are all very familiar with, is getting our financial house in order, as we must. We are on track to reduce our costs by some $5 billion annually by 2005. To put it in context, that represents about a third of our pre-filing operating budget.
It's been coupled with an effort to improve our competitive revenue performance relative to peers. Prior to filing, we were burning through $6 billion a day. We were cash flow positive, however, on an operating basis in the second quarter of this year, and we were generating by July three and a half million dollars of positive cash. August has also been encouraging.
Two, during that time we wanted to make sure that we also ran a very good airline, because we knew that at the end of the day, it was still all about the customer. And our customers have been loyal and they have been patient, but they can't be so forever. For the last 12 months, remarkably enough, United has had operating and customer satisfaction metrics better than United has ever experienced before. It's an extraordinary performance by our people, who would have every reason and every excuse to suggest that they're either distracted or demoralized, but they have led the way in turning in this performance.
Three, and perhaps that which gets the least attention by the media, and it really speaks to the issue of this conference, we have been determined to preserve our strategic choices. Restructure the balance sheet, restructure our debt, get our financial house in order, run a great airline, but have those strategic choices preserved so that we participate in this business going forward. We have been able to do so. We have our hub structure intact in the United States, at the end of the restructuring. We have our international route network available to us to optimize as we go forward. And we have our customer base available to us as we participate in conferences such as this one, to be able to make the strategic choices that are relevant to the marketplace of the future and to build an even greater airline than the one that we transform coming out of Chapter 11.
So we have the opportunity to focus not only on our survival but also on our ability to compete effectively across the full spectrum of competition in this business. And we're going to give ourselves the opportunity to participate in your theme and your agenda, and that's onboard innovation and connectivity.
So, while we have a lot of work to do, and we are by no means complete with respect to our restructuring, we have given ourselves the opportunity to be market ready, and we are market ready and ready to compete. We're also finding ways to launch new and strategic initiatives to help serve the inflight needs of our customers more completely, and trying now to think about how to set United apart.
Take, for example the JetConnect service that we introduced with Verizon Airfone earlier this year, that enables passengers to send and to receive e-mail from the plane and get regularly updated news, sports and weather information. Launching this in partnership with Verizon Airfone enabled us to provide the most advanced service while essentially eliminating implementation costs for our company. Both United and Verizon Airfone are sharing in the revenues. A win-win for both companies. To us, JetConnect is a prime example of the kind of up-to-date, cost effective content and service we need to provide for tomorrow's travelers.
We also think it is the type of partnership that can be a model for the industry as a whole going forward. We think it importantly responds to key developments that have converged in recent years, to make the inflight entertainment landscape very different and very challenging.
As technology becomes easier to use, more accessible and less costly, regardless of where our customers and passengers happen to be, they increasingly expect the entertainment and the information choices available to them inflight to be as instantaneous and as varied as they are on the ground.
Of course we must perform the remarkable task of making all of this possible 30 thousand feet or higher in the air while traveling at 450 miles an hour. In a tube.
At the same time, because of the proliferation of small, relatively inexpensive electronic devices passengers really don't need to rely any longer on inflight offerings for entertainment. They are certainly no longer a captive audience. We have their bodies on board, but we can't be guaranteed that we have their attention, and we've all witnessed this phenomenon. All they have to do is load up their laptops, their personal DVDs or their interactive electronic games.
We need, as a collective, to create the compelling high-quality content and new value-added business services that will compete successfully for their attention. And when they think of all of those options available to them, they need to think first of us, and they need to be convinced that we, in turn, are thinking of them.
And we need to deliver up-to-date technology to convey the message and to deliver the product. We have to find opportunities to grab our customers' focus onboard, and in a very significant way, we need to have them thinking about the experience as a pleasurable one. If we can't provide options that our customers will choose over what they will bring along themselves, we've lost the revenue and customer satisfaction opportunities, and we've lost the opportunity to differentiate ourselves.
Our offerings need to be more sophisticated and interactive, because giving our passengers greater choice and more control over content can be a huge influence on customer satisfaction and comfort, as I've said, in these difficult times.
I get to see this, as you can imagine, very, very often and I get to see it up close and personal. On my return from Narita to Chicago, as I walk our 777's, with screens and entertainment choices at every seat throughout the airplane, the contentedness of our United passengers is palpable. And, when I stop to talk to them about that, it is much appreciated. We're not simply moving them from point A to point B, we're making our expression of appreciation understood.
Of course, the economic and business environment of the last few years has left most carriers more cash constrained then they were pre-2000. Many are spending less on non-core items, not surprising, and as all of us streamline our cost structures, the trend is likely to continue. Inflight entertainment, while an important contributor to customer satisfaction, is only one of many competing priorities. It is not our core business and to the extent possible, we need to make it much less of a cost center.
We're practical, we have to strive to turn it into a revenue generating opportunity. We now have the chance to find creative new ways of working together, all of us in the room, to deliver more terrific customer experiences and even more competitive cost. We need to seize our chance to be innovative in how we approach developing and providing IFE on several levels.
One of the key areas from United's perspective is to develop the new partnerships that are going to be successful for the long term. With IFE, we think these partnerships could extend to but not be limited to:
Settling on a common standard and technology for inflight entertainment systems;
Driving down cost by harnessing the power of collective purchasing, something that would be helped along by the many alliances and partnerships in our industry;
Moving away from the model where airlines simply pay vendors for services and products, and this is potentially, in our view, the most effective approach and I want to suggest why from our perspective.
In an environment in which entertainment content companies are so hungry to get their products in front of consumers, and we all know that they are, there are tremendous opportunities here for all of us. This is particularly true given the valuable audience that United and many others carry every single day.
The future is wide open in this respect, particularly to create partnerships that sustain the needs of both carriers and vendors, and of course, all of our customers. Imagine for a moment that an interactive game developer wants to reach our audience to stimulate sales back on the ground, at home. A screen hardware manufacturer wants to extend its very valuable brand. A systems software, PC and server company has an interest in becoming, "the digital backbone of the industry," so that it can use the medium to up-sell Internet-based services to consumers. In this good and productive confluence of interests, lies a partnership opportunity in which an airline acts as the nexus, as the fulcrum or the venue, providing the audience.
In a new paradigm, perhaps this is the way that it would work:
The technology companies handle installation, maintenance, and upgrade.
A variety of sources provide video, audio and interactive content, some at a cost to the airline, some offset by barter, or by ad revenues.
And all revenue generated by paid-for services, channeled through the system, is shared by the participants.
Partnerships characterized by various combinations of co-investment, shared risk, co-responsibility and revenue sharing are a very real possibility, and they have already worked well for us in several instances. It's the most entrepreneurial approach, from our perspective, and the most likely to breed the success we need collectively for the long term.
Take the relationship that I mentioned a moment ago with Verizon and United. Verizon Airfone provides the system, they install it, they maintain it, they provide upgrades and they share the revenue with United, which in turn, provides access to a key group of potential customers on a larger scale. This kind of partnership is not typical yet for our industry, but we've seen it work before, and successfully.
For example, the arrangement with T-Mobile to install broadband wireless Internet access in our airport lounges. There are other approaches as well. Including ones such as the partnership United has with Pace Communications and Disc Marketing - outside firms that create our inflight video and audio programming.
The results, in these challenging times, have been win-win- and win again for customers, United and the vendor: award-winning programming unique to us, to United, for our customers, lower costs for us and a new, shared revenue stream for our venture partners.
When we all begin to think about our relationships in a non-linear fashion, driven in some part by the financial challenges and the realities of the industry, many more possibilities open up. Costs diminish for airlines; entertainment programming improves; and new value-added services can be introduced, creating better customer experiences and new income opportunities for us all.
For airlines, again from our perspective, the future of IFE is about balancing the needs and the comfort of the air traveler with our mandate to be even more disciplined with cost management and more entrepreneurial in terms of generating revenue.
We must be in touch with what passengers want - and they want more options and they want greater personal control. And to provide this, we need to be flexible, and we have to have affordable IFE systems and new partnerships to bring these concepts into reality.
We all know that this is an exciting time for all of you here today - it's an exciting time for IFE - because the future is uncertain, but full of promise. In the challenges we face, there are unique opportunities for creative solutions, innovative thinking and groundbreaking new projects. Tremendous time, given the momentum that we have already, to work together to build the essential new products and services to help get people flying and flying more often, once again.
Ultimately, that's the fundamental that we are seeking that leads to success.
All of us at United look forward to joining with you to bring about this brave, new future for our companies - for IFE and for airline passengers throughout the world.
It gives us the opportunity and it gives people in positions such as mine the opportunity to be reminded - it is all about the customer, and it's all about customer choice. We really do forget that at our peril. And I would like to thank all of you for giving me the opportunity to stand here before you, but also in preparation for being here, remind myself that that is indeed the case.
Thanks very much. I appreciate your time and attention.
