The Impact of Reputation on a Service Company
The success of a service company depends heavily on its reputation. The manner in which the company holds the clients creates either customer satisfaction or dissatisfaction. In the case of quality customer service and satisfaction, the organization gains a competitive advantage in the market. When the customer experience is regrettable, the company image is tarnished. This creates problems in marketing its products. For this reason, organizations that deal directly with the customer puts extra care on their reputation. Air transport industry is an example of a service industry where a company reputation has a significant effect on marketing. The customer experience on a particular airline plays a considerable role in the market expansion and customer retention (Doganis 14). With the developments in technology, any negative incidence in the industry can reach many people creating adverse effects on the reputation of a company. For instance, the United Airline, a United States airline, experienced significant losses in the market following a customer mishandling incident in April 2017. Airline security dragged a customer off the airplane, and other passengers recorded it. People widely shared the event over the social media which affected the company's reputation negatively. This paper analyzes the effect of the incidence on the company and how United Airlines recovered.
Summary of the Incident and its Impacts
This case involved a violent ejection of a customer from an airplane. This occurred on the morning of 9 April 2017. Dr. David Dao had boarded the flight bound from Chicago to Louisville, Kentucky. Before the plane could take off, the airline needed four extra seats for its employees. Since the flight was booked to full capacity, the management required to re-accommodate four passengers. Dr. Dao and his wife Teresa were selected to be removed from the plane. However, Dr. Dao refused to leave his seat, and flight security was forced to withdraw him from the flight forcefully (Grinberg 1). The incident became violent as the customer failed to comply with the security request. As the security team pulled the man from the plane, he suffered a concussion. He also sustained other physical injuries, and two of his front teeth fell off. From the video footage that was captured by other customers in the plane, his face was covered with blood and was screaming in pain. In an interview later, Dr. Dao indicated that he suffered brain damage and had problems concentrating and sleeping. The video was widely shared on the social media, and by Monday, it had gone viral. It received more than three million views in China alone.
The Impact on United Airlines
The impact of the incident was not immediate. In fact, the company and investors shrugged off the widespread criticism on the day that followed. In the stock market, the United Airline shares closed the Monday trading session with a gain of about 0.9 percent and traded at a price of $71.52 (Pizam 94). However, on Tuesday the same week, the impact of the incidence caught up with the company. Ahead of the opening session on Tuesday, the company shares in the stock exchange had gone down by almost 6 percent. According to Shen (2017), this was the highest loss in a single day in the stock market. During the morning session, the United Continental Holdings shares traded at 4 percent less than its price. The share price went down with $3.16. This resulted in a massive loss to the company and investors. Investors sold off the company shares, and the company lost over $255 million on its market capitalization that day. However, the company regained over the day, and it was trading at a loss of 81 cents or 1.1 percent at the end of the session (Reklaitis 1). The week was unfavorable for the United Airline's shares as they closed the Thursday trading session at $69 (Pizam 94). Over the week, the company value reduced by about $770 million and on Thursday, its valuation was at $21.5 billion.
United Airlines Recovery from the Incident
The company was performing well before the incident. On Monday 10 April 2017, the shares traded at a profit of 0.9 percent. On Tuesday, the shares reached the lowest, trading at a loss of 4.4 percent (Shen 1). This drop was as a result of the negative publicity caused by the viral video. However, during the afternoon session, the shares regained and the loss reduced to about 1.1 percent, and the closing price was about $70.71. Over the week, the stocks fluctuated significantly and the closing price on Thursday before the Easter holiday was at $69 (Reklaitis 1). The situation improved in the weeks that followed. Although the case was handled well by company management, the effects on the stock exchange remained. The shares traded below the highest price of over $70 for the rest of the year as shown in the figure below.
Figure 1: United Airline stocks in 2017
The recovery process has been slow, and the company failed to regain its market position. The crisis caused by the incident did not last long. The company CEO, Mr. Oscar Munoz, was quick to release a series of official apologies to customers and the public indicating that the company will re-evaluate its policy to avoid such a situation in the future and compensate the customers for the inconvenience. Also, United Airlines contacted Dr. Dao and sorted the matter out of the court (Grinberg and Yan 1). This move was necessary for protecting the company reputation and in avoiding further negative publicity. Most importantly, the video footage did not result in a decrease in ticket sales. The video had angered many people over the social media to the extent of some customers vowing not to use the company's services. However, the company did not report a decline in sales of tickets. This could have been as a result of a series of apologies from the company's CEO.
Conclusion
This paper analyzed the violent incident that occurred on the United Airline flight where Dr. Dao was forcefully removed from the plane. Dr. Dao refused to give up his seat, and the security officers dragged him off, injuring him in the process. The incident was captured by other passengers and went viral on social media. The company shares suffered significantly in the stock market. On Tuesday morning, the price of the shares went down by 6 percent. Although the shares recovered later, the price was lower by 1.1 percent at the end of the second session. The company lost over $255 million on that day, and its valuation went down to $21.5 billion. By the end of the week, the share traded at $69, and since then, it has failed to replicate the earlier high prices in the stock market.
Works Cited
Doganis, Rigas. The airline business. Psychology Press, 2016. Print.
Grinberg, Emanuella and Holly Yan. "United Fallout: Airline Offers Compensation, Passengers Say." CNN, 13 Apr. 2017, https://edition.cnn.com/2017/04/12/travel/united-passenger- pulled-off-flight/index.html. Accessed 21 Feb. 2018.
Pizam, Abraham. "The practice of overbooking: Lessons Learned from United Airlines Flight 3411." International Journal of Hospitality Management 64 (2017): 94-95. Print.
Reklaitis, Victor. "United’s stock falls 1.1%, Wipes Out $255 Million off the Airline’s Market Cap." Market Watch, 12 Apr. 2017, https://www.marketwatch.com/story/uniteds-stock- is-set- to-fall-5-and-wipe-1-billion-off-the-airlines-market-cap-2017-04-11. Accessed 21 Feb. 2018.
Shen, Luchinda. "United Airlines: Stock Drops Following Passenger Incident in Chicago." Fortune, 11 Apr. 2017, http://fortune.com/2017/04/11/united-airlines-stock-drop/. Accessed 21 Feb. 2018.
