United's 'No Excuses' Quarter
The airline got hit by CrowdStrike too, but it wants you all to know it made its guidance.
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When I listen to an airline's earnings calls, I find I have two choices. I can either take answers literally, assuming the executive is responding directly to an analyst’s question. Or, I can take a broader view, asking myself whether an executive’s response is a coded message to investors and competitors.
Occasionally, I’m not even sure how to play it, and this is my life’s work. This happened on Wednesday as I listened to United's third quarter earnings call and wondered whether CEO Scott Kirby and CFO Mike Leskinen merely want us to know how United solves problems, or if they wanted to poke at a competitor in Atlanta.
Perhaps you can help me.
It started when Mike Linenberg of Deutsche Bank wanted to know why United’s earnings release — which reported $965 million in net income on total revenues of $14.8 billion — didn’t mention CrowdStrike. United was far less affected than Delta, but Linenberg noted that the airline still canceled more than 2,000 flights over a few days. Wasn't that material?
Nah, Leskinen said, arguing that recovery from a tech outage is just part of doing business in an industry where things always can go wrong. United made its financial targets, including earnings per share, and the CFO wanted analysts to know that’s all that matters.
"Businesses, they’ll make excuses about CrowdStrike,” Leskinen said. “They'll make excuses about weather. We build into our guidance the expectation there will be one act of God in a quarter that impacts the business in a negative way, and if that impact ends up not being so large, then we can... beat our guidance. If you have a series of events in a quarter or a massive event, then of course you're not always going to hit your guidance. But I think it's basic to set targets in a way that expects it not always to be a perfectly sunny day.”
Hmmmm. Does anyone know of a company that has been making excuses recently? Perhaps a company that, unlike United, missed its financial targets?
I could be reading too much into this; I’m not infallible. But after Leskinen said that, Kirby chimed in. This in itself is interesting: unlike earlier in his career, Kirby doesn’t talk that much on earnings calls. He usually pipes up when he has an important point to make, like how ULCCs will go out of business, or how United is better positioned than its competitors to win the next cycle.
Kirby reminded us (yes, again) about the ‘no excuses’ mentality he learned as a student at the Air Force Academy and that he hates excuses because "it's easy to point to the things that aren't your fault, [or] that don't feel like they're your fault."
I’m not sure we’ll ever know if Kirby was obliquely criticizing Ed Bastian, who has been making excuses for Delta’s inability to quickly recover from the CrowdStrike outage. But I found Kirby’s comments about his mantra to be interesting.
“It's easy to have an MBA in a cubicle somewhere come in at 9 a.m. on Monday in an air conditioned office and calculate how much some event outside of your control costs,” he said. “But that’s not the end of the story. If you have a ‘no excuses’ mantra, you don't allow people to even go calculate those numbers. It forces people to go find innovation and creative ways to get better, so that you can overcome those things when they happen.”
We can say for certain that Kirby believes United is more innovative than Delta, because the CEO made that point clear.
"We are the innovation leader in the airline industry around the globe, and second place is far behind, and the ‘no excuses’ philosophy is a big part of that," Kirby said. "It forces us to do things that we wouldn't otherwise do if we let ourselves just look at the calendar or look at the bad things that happen and write those off."
I want to know what you think. Are we supposed to take these comments at face value about what's happening at United? Or might they have an underlying meaning? Leave your thoughts in the comments section.
Now on to some other fun stuff from United’s third quarter call.