Earlier this week, United Airlines and many other carriers presented at the J.P. Morgan Aviation, Transportation & Defense Conference in New York, and once again, Jeff Smisek was very engaging as he’s willing to go off-script a bit adding more than what the bland presentation slides provide. I listened to the 40-minute audio of his presentation and Q&A session last night and found the following particularly interesting, some of which I was hearing for the first time (bolded items).

He started his talk off by showing the “Rah! Rah! United” commercial currently seen immediately preceding the safety videos airing onboard this month (and last) jokingly claiming, “We need to sell some tickets.” While proceeding through the slides, he mentioned:

• Consolidation has been very, very good for the airline business in part because the industry was selling seats for far less than customers were willing to pay from the 1980s until the mid-2000s.
• United’s current management team is focused on sufficient and sustainable return on invested capital (ROIC) and a “significant” portion of their compensation is tied to achieving this goal.
• The unbundling of products and services has created high margin items, something rarely seen in the airline industry.
• United is “marching toward a higher business mix.”
• The Guam hub/service is a profitable operation.
• United will take delivery of 19 fuel efficient 737-900ERs this year and the first five of 50 787s (I thought it was to be six in 2012). He also mentioned they “plan to revenue manage that airplane (787) differently than the rest of the fleet.” I translate that as “good luck getting BusinessFirst award seats.”
• 777 pilots are common type-rated with the 787.
• Depending on demand and seasonality, certain markets will see 787s swapped in on 777/747 routes. Makes sense.
• Original capacity guidance for 2012 has been adjusted downward with the airline now anticipating a decrease of between -0.5% to -1.5% YOY.
• United will be investing in customer resource management (CRM) software to better deliver the right offers to the right customers.
• He plugged Chase as being a very important partner of MileagePlus. Not surprising.
• He also recognized that issues remain from the conversion on March 3rd to a new passenger service system and gave a similar “we’re working on the issues” as the press releases since have mentioned.

During the Q&A portion:

• When asked, “Who will be running MileagePlus?” he responded with the simple fact that United is now since the OnePass program has been integrated. I think the questioner was aiming more at management style (CO vs. UA), so it effectively went unanswered.
• He’s comfortable with March bookings and isn’t particularly concerned over later months’ advance booking levels.
• When asked, “Do you make more money if American and US Airways merge?” he laughed and simply stated his viewpoint again that consolidation has been good and can continue to be a good thing.
• His top priorities for what Washington should be focused on are 1) modernization of the air traffic system and 2) a national airline policy with rational levels of taxation.
• He declined to comment on specific compensation United will receive from Boeing for the late deliveries of the 787.
• Revenue management moved to origin & destination-based vs. by segment and it underperformed in February noting it needs a degree of learning and history.
• He takes comfort in Delta’s RASM growth noting it shows how well a carrier can realize synergies post-merger.

The slide presentation can be found on United’s Investor Relations page with the audio currently available from J.P. Morgan. Presentations from the other airlines present are also available if you’re interested.

This made my day. No commentary needed except get ready to laugh and cry.

A pair of Associated Press writers recently sat down with Jeff Smisek, CEO of United Airlines, and probed him for his thoughts on the current state and future of both United and the airline industry overall. Interviews of this type tend not to reveal anything new or juicy, but I still try to read between lines and will offer some further thoughts here.

First, it was interesting to re-learn that Jeff began his career as a corporate attorney never considering a gig in the airline industry. In 1995 he left a law firm as partner and likely took a huge pay cut to join the turnaround team at Continental Airlines. He remarked, “I was interested in it for sort of the business challenge.”

Here are a few quotes from the article and remarks of my own where I felt compelled:

That last part shouldn’t come as a surprise to anyone. What will be the next unbundled item? Some airlines are now charging to print boarding passes at the airport, and I eventually expect the majors to jump on this bandwagon in the next few years. I also speculate new onboard items will pop up and think amenity kits will be offered for sale to international economy class passengers.

Here he’s given the common high-level snapshot of each region. I was sort of surprised to hear Latin America is doing so well. I have nothing to base my viewpoint on other than a gut feel business traffic isn’t as strong as leisure here. The all-important U.S. market is still flat and we’re now going into the slow season.

Airlines currently send out blanketed target offers to groups of travelers, but I have to agree they lag far behind other industries in customer-specific data analytics. I know we’ll see highly targeted individual offers based on our travel patterns in the future. I think they’ll go so far as airlines monitoring what routes & fares we search for, but don’t book only to find an email a day or two later offering some type of related call to return. They’ll also increase the amount of bonus mile offers per “extra” flying we wouldn’t normally do based on our history and likely tie them to higher fare basis purchases. I also think the Continental system will win out where upgradable seats at check-in will be offered before elites get their free-bee upgrades.

Here’s where I’ll claim B.S. on Jeff’s part. He openly admitted previously that he knows United’s international service isn’t up to par with Asian or European carriers and wants United to improve it. I looked back at all my posts and can’t find the interview he gave mentioning it, but know he did. I currently go out of my way to fly a carrier in the Star Alliance internationally for their service vs. United’s unless I absolutely need the elite qualifying miles or can confirm an upgrade in advance. I know I’m not alone here.

Here’s where I have a lot of respect for Jeff. I know he consistently engages work groups when he travels. Whether it be at the airports or onboard, he always makes rounds in the secure areas – on the ramp, baggage claim, flight operations – and onboard to get first-hand feedback from his co-workers in the cockpit and galley. An engaging CEO can make things happen for his front-line employees.

Well of course he doesn’t deal with customer emails, but I bet he might scan over some of them from time to time. Executives of large corporations have both a public and private email address at their disposal. Someone on his staff obviously monitors his namesake’s email and would forward anything relevant to him, so your chance of reaching him directly at jeff.smisek@united.com is actually quite slim. It might be fun to shoot him an email there, though, at that address… I’ll try it in the future and report back.

The article continued on with a few personal tidbits about his routine while he’s in Chicago and Houston and offered a small glimpse into the life of how an airline executive lives. He’s an engaging guy having met him previously and I hold a lot of respect for him and his approach to running an airline. I’m definitely not his favorite type of customer, but I do defray his bottom line a little bit each year with revenue for a seat that might have been otherwise flown empty. I’m sure he hates my upgrade percentage, though.

In other airline, hotel and travel industry news this week…

• United Airlines CEO Jeff Smisek claims he doesn’t see any signs of an “imminent recession” when looking at advance bookings. A combination of capacity discipline and fare increases has kept the carrier in the black. Smisek remarked, “We’re not seeing it in our bookings [or] in our business travel,” as he told reporters after a speech at the Executives’ Club of Chicago. At the same conference he told reporters, “It’s easy to talk culture; it’s hard to walk it,” referring to the turbulence in challenges of merging two carriers and their respective unions. Captain Wendy Morse, chairwoman of the United Master Executive Council of the Air Line Pilots Association (ALPA) claims, “We will not stand by silently while United CEO Jeffrey Smisek inaccurately proclaims that the United-Continental merger is going along smoothly.”
• American Airlines, on the other hand, fears a double-dip downturn in the economy. They’ve further cut capacity this year and will retire 11 Boeing 757s. Eight times the normal amount of pilot retirements also occurred in August and September this year contributing to some of the capacity cuts. It’s rumored pilots are bailing early to ensure they receive advantageous pension plans, and one post also claims it’s due to the raise in mandatory retirement age from 60 to 65.
• Want to know more about mileage runners? Check out this amazing article that appeared this week on Fox News. BoardingArea’s founder Randy Petersen was interviewed for the article as would be expected since I consider him the “God” of frequent flyer programs. Here’s a teaser – “Would you ever fly around the world in 48-hours, or fly through Detroit eight times in a single trip just to get air miles?” We’re a unique bunch, but very passionate about why we do it.
• A woman has sued United-Continental (and regional airlines Colgan Air and Pinnacle Airlines) claiming post-traumatic stress disorder from a flight she was on that experienced ‘extreme turbulence.’ The flight from College Station, Texas to Houston was operated by Colgan Air, which does business as Continental Connection. File this under ridiculous and the far too often litigiousness some people have thinking an opportunity has opened up. Shame on the lawyers for taking such a ridiculous case. Money, money, money rules, though.
• Hotels in the United States posted impressive financials this summer. It has been reported, “U.S. hotel demand during the summer was higher than STR forecasted. Demand for the three months ended August 31 increased 4.2% from a year earlier, while revenue was up 8.1% to $31.2 billion.” Overall occupancy at hotels rose 3.5% and the average daily room rate similarly increased by 3.7%. No economic downturn signals this summer from the hotels.
• The U.S. Department of Transportation is looking to ensure passengers with disabilities have equal access to booking and checking-in with airlines. “Currently, the nation’s air carriers fail to use updated, accessible technology on the internet and at the airport, openly discriminating against the blind.” As such, the DOT is proposing regulations that will amend the Air Carrier Access Act to include provisions that will allow sight-impaired people to access web-only sale airfars, as well as include Braille instructions on check-in kiosks. I have a feeling the proposals will pass… it’s about time.
• More woes for travelers in Australia this week with Qantas cancelling or delaying flights due to labor unrest, Jetstar check-in agents taking “industrial action” by self-waiving excess baggage fees for 24-hours and Customs and Border Protection staff taking similar “industrial action,” by striking this past Thursday. The Australian Prime Minister is close to stepping in requiring Qantas and their unions to re-open discussions. It’s pretty unstable in Oz right now, in some cases benefiting passengers and in some cases not.

Jeff Smisek’s presentation yesterday at the 2011 Deutsche Bank Airline Equity Conference was a bit of a rehash of Sr. VP John Rainey’s presentation just last week, but he did speak to a couple of points I hadn’t heard before. First up, here are a few of those known items with the related slides (courtesy of United Airlines):

• Jeff highlighted that United has the world’s best network, leads the (domestic) competition in financial performance, is focused on return on invested capital (ROIC) and is either the number one or two carrier (in terms of available seat miles or ASMs) flying internationally from the U.S.

• As far as the capacity forecast for 2012, he’s claiming it will be flat overall by way of decreasing domestic (in part by adding Economy Plus to Continental’s fleet) and growing international (787 acquisitions and market-driven adjustments where appropriate).

• He highlighted the upcoming customer enhancements, namely refreshing the interiors of the Airbus fleet, adding Boeing 737-900ERs with the “Sky” interior, investing in better seats and completely overhauling the now tired premium service fleet that operates between JFK-SFO/LAX. For the last he reiterated the p.s. fleet would see Business flat-beds, Economy Plus and regular economy.

Now onto the newer items I hadn’t specifically heard yet this year:

• A portion of the compensation scheme for managers and above is dependent on the company’s ROIC and internal surveys from the work groups they manage. He specifically said 20% of their pay is based on the latter, but I’m sure it must be more of a bonus payout upon hitting certain scoring thresholds.
• The streaming Wi-Fi entertainment coming to the Boeing 747 fleet is an “experiment” using his words. I interpret that as in part to test its success before rolling it out fleetwide and otherwise since the 747 fleet is scheduled to be retired by 2016. It’s a good way to appease economy class with some sort of AVOD in the meantime. He also jokingly said, “When (passengers’) screens break, it’ll be their problem!”
• Sadly, his only comment about Mileage Plus was, “We’ll be announcing the new loyalty program shortly.” I’m hoping we’ll get the details by month-end.
• He acknowledged the slowness of the airport check-in kiosks today and claimed it was due to the strain the system is under toggling between Apollo (United) and Shares (Continental). Once the full transition to Shares is made (expected first quarter 2012) he promised faster processing. He hinted that ancillary sales might have taken a hit with the current sluggishness.
• During the Q&A he didn’t have specific percentage amounts when asked to breakdown the capacity forecast for 2012, leading me to believe they don’t really have a hard number domestic vs. international and said “flat” just to appease investors.
• When asked about the importance of fleet commonality he insisted United’s scale of operations could fully support a Boeing/Airbus mix and said it would remain so “for a very long time.”
• While he claims United’s 757s have many more years ahead of them, he did acknowledge the need to find a replacement and they’re in talks with Boeing and Airbus, as is the rest of the industry.
• Finally, a question was asked about the status of the European Union’s emissions trading scheme (ETS) where beginning January 1, 2012, all airlines flying to Europe will have to report their emissions of carbon dioxide and face fees if they go above specified caps. American, United and Continental have sued to avoid inclusion in this “tax,” as some are calling it, so this will be interesting to monitor. Are we going to see fuel surcharges and a new CO2 tax when flying to Europe next year?

If you’d like to view the slides and listen to the full presentation including the Q&A session, here’s the link to United’s Investor Relations.

Just released, United Airlines announces they will invest more than a half-billion dollars for cabin enhancements fleetwide. Here’s the shortlist of improvements:

According to CEO Jeff Smisek:

Additional items to note and questions that remain:

• The release states United will add flatbed seats to, “14 United 767-300 aircraft.” This sounds like they’ll convert some of the “ghetto bird” domestic 767s to premium cabin international configurations, since all current international 767s have flatbed seats.
• Channel 9 air traffic control communications will come to Continental’s 767-400 aircraft, and eventually be found on 300 Continental aircraft.
• Conversions of the remaining unmodified 777 aircraft are continuing with more than a dozen slated to be completed this year.
• Economy Plus will be seen on Continental aircraft beginning this fall with 38 birds planned to be finished by year-end. Another 100 will be converted by the end of the first quarter of 2012.
• Overhead space will be nearly doubled on Airbus A319 and A320 aircraft with newly designed compartments. This will begin in March 2012.
• Streaming in-flight entertainment and Wi-Fi will come to the 747 fleet, enabling access to video options on our mobile devices. It is unknown if this will include internet access, but I’d have to think so.
• The premium service fleet (JFK-LAX/SFO) will be overhauled beginning next year by installing flatbed seats, power ports at every row, on-demand audio and video and Wi-Fi service. The configuration of these aircraft will change to include 26 seats in Business (or maybe they’ll brand it BusinessFirst as a true First Class cabin will vanish), and 114 seats in Economy, including Economy Plus.

As I mentioned yesterday, I was incredibly fortunate to have been invited to Tom Stuker’s 10 million mile celebration at United’s Red Carpet Club in Chicago on Saturday. Tom is active on Flyertalk and had extended invites to 20 people for the event, so since I had already had plans to be flying through Chicago that day I jumped on the offer and received what I consider to be a unique opportunity to witness history in the making.

After landing at about noon, I visited the C-concourse Red Carpet Club where Tom’s event was to be held. Staffers had already cordoned off the dedicated area and I was excited to be among the first to see the venue for what would become an incredible occasion. I was happy to have met in person Randy Petersen, the founder of BoardingArea, Flyertalk and MilePoint, and later had the pleasure of introducing myself to Jeff Smisek, United’s CEO. My conversation with Jeff was brief and pleasant, and I told him I was “just a 1K” who was happy to be in attendance and that I looked forward to the evening at hand. He thanked me for my business and also expressed his excitement for Tom’s arrival.

I also had the privilege of meeting several devoted Flyertalkers, David Parker Brown of Airline Reporter, Dann Webb another BoardingArea blogger, Francis Gallagher publisher & CEO of Global Traveler magazine, and one of my loyal readers of this blog. Excitement was building and I recorded the following preparations underway:

Tom’s flight from Los Angeles arrived about an hour late due to the fact the inbound aircraft experienced a tire blowout on arrival at LAX, so United subbed in another 757 for UA942. Here was his arrival to the Red Carpet Club and introductory speeches by United executives:

Then it was time to hear from Tom himself. His heartfelt and sincere acceptance of his status was genuine, moving and greatly received by everyone in attendance. United went all out, too, catering an incredible buffet of food and an open bar with truly premium first class liquor and champagne.

Tom has flown 5,962 flights with United averaging 29,762 miles per month. I consider my 16+ trips to Australia as impressive, but Tom has been there more than 200 times along with 70 trips to Hawaii and countless others deserving of his Global Services status with United. He’s flown more miles than the Atlantis space shuttle has logged at the equivalent of 20 times that of a roundtrip to the Moon. My hats off to you, Tom, and may your travels continue to be smooth and rewarding. Congratulations!

I was extraordinarily fortunate to have been in Chicago yesterday and received an invitation to attend Tom Stuker’s celebration at the C-concourse Red Carpet Club commemorating his 10 millionth mile flown on United Airlines. I met so many wonderful people, including Randy Petersen, BoardingArea’s founder and respected frequent flyer program guru, Jeff Smisek, United’s CEO, and a slew of other bloggers, industry executives, Flyertalkers, and one long-time reader of Frequently Flying.

I have several videos to post tomorrow with speeches by United executives, and of course the man of the hour Tom. For now, here’s a photo summary of the event.

Last week I posted about the possibility of United being close to announcing whether or not International First Class would remain on the carrier. Yesterday a report surfaced on Bloomberg quoting United Airlines CEO Jeff Smisek saying “There are certain markets in which (first class) makes a lot of sense and there are others where it doesn’t.” There hasn’t been an official press release or updates to United’s website, but this may be good news for many high value international flyers accustomed to a three-cabin aircraft.

I read the Bloomberg article as a teaser of sorts with a lot of vague and unspecific data points. Another such point by Chief Revenue Officer Jim Compton stated “we have United 747s that have gone through a real recent reconfiguration with flat-bed in both first and business. So we’ll have both.” Retirement of the 747 fleet is scheduled for around the 2016 timeframe, and since they’ve taken down the conversion schedule for what remains on their 777 workhorse internationally, I’m led to believe this is a short-term (five year) decision. Is United considering making some of the unconverted international 777s into two-cabin aircraft?

Fleet integration is definitely a logistical challenge when merging carriers, and it sounds like we’ll have fairly different lie-flat products based on which “metal” we fly and to which markets. Continental’s seat architecture is different than United’s, and it sounds like the new United will maintain both for at least this short-term period. What United will certainly have to ensure during this period is that no market selling first class ends up with an ex-Continental metal aircraft with only two classes. Jeff Smisek acknowledges this issue in the article, however.

One good thing for frequent flyers is although United’s soft product (service & meals) in International First Class is completely inferior to that of its competitors, award redemption opportunities have been easier for the front cabin to popular destinations in Australia, Asia and Europe than that of business class. I will still generally redeem my miles for Star Alliance carriers, though, unless United really makes marketed improvements and reports begin to surface lauding a transformation. Time will paint the picture.

I am still anxious to see United’s official release to support this article, but I now expect United to keep a three-class presence in most markets served by the old United today, at least for the next five years. I now anticipate during the 2015-2016 timeframe United will make a decision on a uniform international offering (seat architecture & cabin configuration) to roll out in the 2018-2020 period based on market demand and global economic factors at that time.

On Tuesday, Jeff Smisek, CEO of United Airlines, made an appearance at the Stanford Graduate School of Business as the speaker for the school’s “View from the Top” lecture series. The aim of the student-run program is to bring leaders of business and social sectors in to impart wisdom on the student body, particularly focusing on their leadership style, vision and strategies for success.

I have to say, having heard Jeff now a few times, he’s a rather engaging speaker and does a fantastic job breaking down an incredibly complex industry. Here are my notes from the video presentation embedded below.

• He opened by differentiating his “talk” as he called it from a “lecture,” where the latter is done by someone smart imparting learning. He claims since he’s an executive in the airline business, by definition he’s not smart, as it hasn’t earned an adequate return on invested capital since the Wright Brothers.
• To the audience: “I want you all to fly us & always book at the last minute and pay the highest fare”. In context, it was a pretty humorous moment and not at all as it might sound to you reading it.
• Regarding the low barriers to entry to the industry, he claims, “any idiot can get an operating certificate, and many do.” He also mentioned the high barriers to exit, namely the reliance of so many manufacturers, suppliers, cities that have a vested interest in an airline surviving.
• On Air Traffic Control, he humorously said, “The ATC system is quite antiquated… it’s safe, but very very slow. It uses the finest 1950s ground based radar technology that money can buy.” Investment in that system is critical.
• The airline industry is unique in being subjected to major external events that are difficult to plan for, namely volcano eruptions (the ash cloud impacting Europe), SARS, and the earthquake in Japan.
• Regarding fuel, he claims United could buy an Airbus A380 every week and “throw it away” for the price of what the carrier spends on fuel, currently about $136/barrel, but not at the 2008 peak of $172/barrel.
• Fare increases and aligning capacity to reduced demand has been fairly successful in the current fuel situation.
• On unions, he said the situation is very difficult merging both carriers with representation differences among the work groups, as well as differences in culture. He’s working to ensure co-workers think of themselves as employees of the enterprise first, and union members second.
• Having a large loyalty base among frequent flyers provides ability to sell Mileage Plus miles to third parties, such as Chase, among other things.
• The new United is using a strategic plan template from the Continental Airlines playbook used at that carrier for the past 16 years. Namely, everything they want to do is on a single sheet of paper under the four categories of Marketing, Financial, Operating, and People.
• It’s important that everyone in the company knows the plan, only works on tasks to achieve the plan, and is given the tools to make it happen.
• Hiring talented people is paramount, and his active engagement with all work groups is critical to know exactly what’s going on at all levels.
• An open, honest approach with employees is best, specifically mentioning that if he is presented an idea from a co-worker that he knows the airline will never implement, answering “No, we’re not going to do that and here’s why…” is better than lying and saying he’ll take it under consideration.

He closed the discussion by reminding everyone to follow their passion. Money is important, yes, but a career and job you enjoy in which you can be yourself is the key to a successful life. Again, he’s a talented speaker in my opinion, and comes across as an incredibly approachable top executive.

Since I volunteered my seat on United Airlines this morning and scored another $400 in vouchers, I have a bit of time to recap additional news items from the week.

• Boeing 747-8 Intercontinental. The longest passenger aircraft in the world took its maiden flight this past Sunday. As I previously posted, only Lufthansa and Korean Air have orders in for the passenger version, so opportunities are at a minimum to fly on the fourth-generation ‘Queen of the Skies’. The Airline Reporter provides an excellent summary of the event, and links to additional stories, videos and posts.
• Chase Debit rewards ending at United & Continental.  Effective July 12, 2011, holders (including myself) of Chase co-branded debit cards with United Airlines or Continental Airlines will no longer earn miles when using their cards. And beginning April 1^st, you lose the “first checked bag free” benefit. Chase & other banks issuing Visa and MasterCard debit cards are a bit upset the fees they collect on the cards will be slashed courtesy of the Durbin Amendment. As a result, we lose the incentive benefits as consumers and will only now be able to earn miles with a mileage-earning credit card vs. one linked to a bank checking account.
• United Airlines mobile check-in. You can now check-in on your mobile device for worldwide United and United Express-operated flights. Don’t get too excited if you’re already overseas and want to check-in. Presently, only the following non-U.S. airports accept mobile boarding documents: Amsterdam, Brussels, Geneva, London Heathrow, Moscow, Munich, Osaka, and Zurich.
• Continental Airlines adds onboard Wi-Fi. Internet will be coming soon to Continentals’ fleet of domestic Boeing 737s and Boeing 757s that already have the DirecTV service. About 200 planes in total will receive the capability, and United has Wi-Fi available on all of the premium service p.s. aircraft on the JFK-Los Angeles and JFK-San Francisco routes, as well as one additional 757 in the standard domestic configuration. Jeff Smisek this week acknowledged how far behind United is lagging in this capacity, and mentioned it will be a priority in the future to roll it out fleet-wide.
• Hilton HHonors Grand Nights promotion. Hilton announced their second quarter promotion this week, which earns you 1,000 extra HHonors points for each night stayed between April 1 and June 30, 2011. Registration is required and the offer does not apply on certain categories, including many advance purchase rates.
• Air France & Airbus search for wreckage. A new search is underway for Air France flight 447 which crashed into the Atlantic Ocean on June 1, 2009. The flight took off from Rio de Janeiro bound for Paris, but was never heard from after a series of automated radio messages were sent notifying the airline of numerous problems and warning indications. Pieces of the downed Airbus A330-200 were recovered from the ocean, but this new operation hopes to recover the flight data recorders and other debris.