Allegis Needs to Make a Name for Itself Fast
They laughed when Chairman Richard Ferris changed the name of UAL Inc., the holding company that owns United Airlines, Hertz rent-a-car and Westin and Hilton International hotels, to Allegis Corp.
And when they--the investing public, that is--finished laughing, they sold the stock so that UAL declined more than $3 to $56.50 a share in the 24 hours following the name-change announcement on Wednesday.
Ferris, who became chief executive of United Airlines a decade ago at the young age of 44, tried to explain the business vision behind the move, first to a Chicago press conference and then to Wall Street analysts at a meeting in New York.
Ferris and a cadre of UAL’s top officers said the name UAL was “too closely identified” with the airline; that the operations of United and Hertz and the hotels needed to be integrated in order to make UAL- cum -Allegis a force in the global travel business. They handed out information kits, complete with a glossy copy of the company’s new in-flight magazine, which has also been renamed from the simple “United” to the supposedly tonier “Vis a Vis”--which passengers with a dictionary handy can readily determine comes from the French and means face to face.
The UAL move, in short, had all the earmarks of standard American corporate hoopla, and the market rejected it, clipping more than $150 million from UAL’s market value, and keeping the stock price about where it has been since mid-1985.
Don’t Need Hoopla
Others don’t seem to need hoopla. Chairman Frank Lorenzo hasn’t changed the name of Texas Air Corp., even though it operates airlines under the names Continental and Eastern. Lorenzo seems to care more about the figures on the bottom line than the name on the stationery. All he has done lately is introduce the lowest fares in the airline business, attract lots of customers and confound the competition.
Including UAL, whose managers told security analysts on Thursday that Continental’s low fares were hurting United competitively--meaning don’t expect high profits from United’s parent company, whatever its name, as long as Lorenzo’s airlines operate at half of United’s costs.
So why did Ferris change the name? One reason was to stop internal squabbling. According to people who work for UAL, employees of United Airlines have been treating the Hertz and Westin people like second-class corporate citizens. That can be no laughing matter--divisional strife has hobbled some fine companies. In changing the name to Allegis, a computer-generated non-word derived from allegiance and aegis , Ferris, you might say, was clipping United’s wings.
Suited His Vision
Which, in any case, suited his vision of UAL as a travel company, not merely a transportation company. Ferris, now 54, has had such ideas for a long time. He is neither an old airline hand, nor an MBA, but holds a bachelor of science degree from Cornell in hotel management. He worked the first part of his career in hotels in Aberdeen, Wash.; Anchorage, Alaska, and Chicago before joining United Airlines in 1971 as head of food service.
Ferris wants to use the worldwide computer systems of United and Hertz to build a system that can control the inventories of empty airline seats, rental automobiles and hotel rooms, and change prices instantaneously to try to fill them. He counts on the computer-linked system to enable UAL-Allegis to handle package tours and business travelers worldwide at the lowest cost.
Give him his due, he’s thinking big about a big business. Worldwide travel, according to a broad estimate of the American Society of Travel Agents, is a $1.8-trillion annual market. And it is growing especially rapidly in Asia and the Pacific, where Ferris has positioned UAL-Allegis with the purchase last year of Pan Am’s Pacific routes. It is, of course, a business fragmented among hundreds of countries and thousands of companies, and many question Ferris’ vision of it as a packageable whole. But they laughed at Walter Wriston in the 1970s, when he set out to build Citicorp into a global banking system. And the laughter eventually turned to cheers.
Will Ferris ever hear the cheering, or will he get the bum’s rush? You’ll know in a few short years because that is probably as long as Ferris has to start bringing results from his vision.
Wall Street, already impatient because of past earnings disappointments, prices UAL stock at a significant discount to the stock of its comparably sized rival American Airlines.
Unless Ferris, who made $833,000 in salary and bonus last year, can show results soon, his board of directors may suggest early retirement.
Everybody admires vision, of course, but they pay only for results.
