United Airlines and the Cuban Missile Crisis

An eon ago and half a continent away, your earnest correspondent was studying at a well-known Midwestern university.

The topic at hand was decision theory and various models were studied.

Using the Cuban missile crisis as a case study, we probed how the United States realized that the Soviets had installed nuclear tipped missiles within close striking range of our major cities. It turns out the Red Army deployment manual for nuclear missiles required that they be surrounded by a ring of defensive surface to air missiles (SAM). So while the nuclear missiles themselves were quite well hidden, they were each surrounded by an obvious circle of SAM sites, easily observable by our U2 spy planes. And thus the dastardly plot was revealed.

The culprit (from the Soviet point of view) was that deployment manual, and the Red Army’s blind obedience to it. We can only thank them for that.

The bureaucratic process model (also known as organizational process model) describes how most governments, corporations, and other organizations operate. Policies are formulated. Processes are documented. Rules and regulations are promulgated. These guidelines are all followed, else the risk of one’s job.

The only problem with this approach is that not every condition or combination of conditions can be anticipated, nor the proper response prescribed. A static rule book does not fit well in a dynamic world.

The recent United Airlines imbroglio is a case in point. Unless you’ve been living in the allegorical cave, you are aware of what happened, but here is a quick review of the essential facts. On Sunday evening, April 9, United Airlines needed to move four crew members from Chicago to Louisville to staff another flight the next morning. United Express 3411, sold out, had already boarded and was ready to depart. The gate agent halted the departure and informed the passengers that the flight wasn’t going anywhere until four of them deplaned. Initially $400 vouchers were offered, later increased to $800. No one accepted.

At that point a United manager decided that four passengers would be selected for involuntary eviction. Three of them grudgingly complied. Dr. David Dao did not, the cops were called, and the rest is already history.

United’s CEO Oscar Munoz, an award-winning communicator, blew it. Not once, but several times. Finally after being dope slapped by his customers, the public, and a growing cadre of legislators, he found wisdom. United has changed their policy and this should not happen again. Until, that is, an unanticipated combination of circumstances arises that the new policy prescriptions do not fit.

That is the problem with the bureaucratic process model. There is another way, values based.

Let’s say United recognized that their customers were the key to success, and that customer satisfaction was a valuable commodity. This would be a major departure from the view that passengers represent just so much squishy cargo.

The idea of vouchers to buy a customer’s cooperation is a step in the right direction but has several flaws. First, a voucher has varying value to different passengers. To a frequent United customer who plans future trips soon, an $800 voucher is worth pretty much face value. But to an accidental traveler, who doesn't plan any future United excursion, that voucher is fairly worthless. Solution – drop the vouchers, deal in cash.

Next, the preset limits delegated to gate agents and escalated through various level of management are a perfect example of a rigid approach designed to minimize costs, not maximize customer satisfaction. Try a reverse auction at the discretion of any United employee present.

A reverse auction is a bidding process where a buyer (the airline) is attempting to buy a valuable commodity from a seller (a passenger with a seat). Say that you, a passenger, make a rather ridiculous bid of $20,000 to give up your seat. There is little chance the airline will need to actually accept this bid, because some other passenger will likely counteroffer at $10,000, or less, and so on.

This is market based allocation, where a valuable commodity (the seat) is purchased from the lowest bidder. No involuntary eviction, no cops, customer value respected, and customer satisfaction maximized. What's the problem?

Only that executive management must express goals and values clearly and trust their employees to carry them out.

One wonders, if this approach works out well for the airlines, perhaps we could apply similar reasoning to our regulation-heavy government. Markets can work magic.