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United Risks Losing Business Fliers on Computer Failures

United Continental Holdings Inc. (UAL) risks losing more customers, especially business travelers, after flight delays ensnared thousands of passengers in the third computer failure this year at the world’s largest airline.

A software breakdown in United’s dispatching system disrupted service for about two hours and initially threw about 250 flights behind schedule, said Rahsaan Johnson, a spokesman. Delays cascaded from there to affect hundreds more planes while Chicago-based United restored regular operations.

The breakdown followed computer malfunctions in March and August that prompted Chief Executive Officer Jeff Smisek’s pledge last month to win back travelers who switched airlines because of chronically tardy flights. Business travelers, who fly often and usually pay the most, are considered particularly susceptible to changing carriers because of their job needs.

“These kinds of outages, they’re not only publicly embarrassing when you’ve got a company whose core operations depend on its IT system working well,” said Charles King, principal analyst at technology consultant Pund-IT Inc. “It costs the company a great deal of money to have their customers rebook flights on other airlines and face delays.”

United offered to waive change fees for travelers affected by the failure and refunds for those delayed more than two hours who opted not to fly, Johnson said.

‘Operate Reliably’

“We are spending time and effort and money to upgrade the systems we use,” he said in a telephone interview. “Customers can absolutely, should absolutely have continued faith in our ability to operate reliably or recover quickly when there is any sort of interruption.”

Jay Sorensen, a former airline marketing director who now runs consultant IdeaWorksCompany in Shorewood, Wisconsin, said the recurrence of United’s malfunctions hurt the airline’s reputation for dependability.

“I’m confident there’s an avoidance factor that’s present now” for passengers, Sorensen said in a telephone interview. “The problem here is that it’s invisible to the consumer and seemingly random.”

The incident yesterday followed a computer failure in August that delayed 580 flights after the loss of automated check-ins at airports and on United’s website. The website and airport kiosks were disrupted in March as the airline combined reservation systems as part of the 2010 merger between UAL Corp.’s United Airlines and Continental Airlines Inc.

CEO’s Pledge

Smisek, responding to a third-quarter drop in passengers amid a jump in late flights, promised analysts and investors on an Oct. 25 conference call that United would end its operational struggles and said, “We are now running a reliable airline again.”

United dropped 2.4 percent to $19.51 at the close yesterday in New York. That was the biggest decline among 10 carriers in the Bloomberg U.S. Airlines Index (BUSAIRL), and pared the stock’s gain for the year to 3.4 percent.

The computer failure lasted from about 7:30 a.m. to about 9:30 a.m. Chicago time yesterday. At least 726 United flights were delayed as of 3:30 p.m., according to industry researcher FlightStats. Of 1,186 departures tracked, 62 percent were on time, and 296 of those flights were more than 45 minutes behind schedule, FlightStats data showed.

The episode wasn’t a safety issue or related to the United- Continental merger, Johnson said. Regional flights were unaffected because their dispatch system is managed differently, Johnson said.

5,600 Flights

United and its commuter partners operate more than 5,600 flights a day. It has hubs in Newark, New Jersey; Houston, Chicago, Denver, Los Angeles, San Francisco, Washington and Cleveland. It had 28 percent of its flights arrive late last quarter, a rate considered high by U.S. industry standards in a period that included summer months free of snow.

AMR Corp. (AAMRQ)’s American Airlines confronted similar risks to its reputation in September as it struggled to contain flight delays and cancellations that management blamed on pilots reporting more plane maintenance issues.

The slowdown followed American’s voiding of its pilots’ contract, and the airline apologized to top-tier members of its loyalty program and then offered extra frequent-flier miles for flights this year as a sweetener.

Technology consultant King, who is based in Hayward, California, said United faces pressure to permanently end the software breakdowns.

“There’s so much riding on it that they have to fix it at some point,” King said in a telephone interview.

To contact the reporters on this story: Victoria Stilwell in New York at vstilwell1@bloomberg.net; Mary Schlangenstein in Dallas at maryc.s@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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