In 2018, United Airlines appointed former President Barack Obama’s adviser Josh Earnest to lead the communications effort. Since that time, United’s communications have become noticeably more professional, and CEO Scott Kirby appears to have benefited greatly from an improved overall appearance performance. United has taken leadership positions in dealing with the pandemic, and has led the industry in announcing innovative future investments such as supersonic transportation and electric aircraft.
Living in the Washington, D.C. area and following politics in general, a lot of what United do sounds like what happens in our government. By this, I mean intentionally using distraction to focus the narrative on a specific goal while avoiding the more difficult issues. This brilliant object tactic can help keep the organization focused and get investors excited. Recently, the airline threatened to withdraw service from New York’s JFK Airport unless it gained more regulatory access. United operates a large hub nearby at Newark Airport, and JFK accounts for a small portion of the airline’s production. This effort to gain more access to JFK after the airport was abandoned in 2015 is the current illustrious object. The airlines are not government, and behind this approach lie five serious issues that United should think about but not talk too much about.
Lack of axis dominance
Business travelers, although they have traveled a lot since the pandemic, appreciate non-stop flights and travel times. When someone else pays for the ticket, such as a company, other features related to the service become more important in choosing the airline of your choice. Delta Air Lines has virtually no competition for business travelers from Atlanta, Minneapolis and Detroit, and increasingly at New York’s LaGuardia Airport and in Seattle. This is because at each of these locations, they serve more cities and more often than any other competitor. Importantly, there is no competitor even close to any of these locations, although Alaska Airlines is trying to hold its place in Seattle. This local central dominance, a word lawyers hate to use, gives Delta a definite advantage over its major competitors. American has positions similar to Delta, although not reaching as many commercial clients as Delta, in Dallas, Washington National Airport, Charlotte, and Miami.
United holds this position only at InterContinental Airport in Houston. Their other major hubs—Newark, Chicago, San Francisco, and Denver—each have far greater competition than hubs in Delta or America. Chicago is mainly divided between United and America, plus Southwest has a large operation at Midway Airport. Denver is used as a hub by Frontier and Southwest, giving United competition in nearly every destination. Newark is the only major commercial airport in New York that does not have slot controls, making it a place where low-cost airlines, including even Allegiant, continue to add to the fights there. The sum of this is that United has competitors for nearly every one of its customers, something that Delta and American don’t have to worry about as much. No shiny object will fix this.
United has a long history of difficult working relationships. People who say that strong unions come from weak management often use the historical United as a prime example. To his credit, CEO Scott Kirby said the right things and seems to understand that partnering with his employees is a good roadmap. But inertia is tricky, and many employees at airlines are geographically scattered, making communications even more difficult.
This approximate date complicates the current period in which it is difficult to find pilots, and wage pressure affects many roles in the airline. Labor, which typically accounts for 30%-35% of total costs, is likely to pay more than 40% of costs. Airlines, including United, need to find ways to mitigate this while at the same time keeping the hiring pool engaged and motivated. While every airline has existing labor issues, United’s history makes them more difficult to resolve.
Structural loss of business travel
During recent big US airline earnings calls, companies have focused well on the business travel environment. While reporting business travel volumes at around 75% from 2019, they indicated that business revenue is back, or nearly back, to 2019 levels due to higher prices. They also noted that business travel is still recovering, and indicated that it will return to pre-pandemic levels.
But these optimistic forecasts do not fit the way the majority think. Reasons such as video meeting options, personal risk avoidance, environmental, social and corporate governance concerns, cost containment, and more are making many companies rethink the role of regular travel. Big consultancy Bain has pledged to travel 35% less as part of ESG initiatives. Others say there are fewer places to visit with newer work-at-home protocols. These trends indicate that the recovery curve is likely to become flat for corporate businesses and will stabilize at approximately 80% of 2019 volume.
Airlines like United are designed to carry business flights, and they affect every part of their business. Network, fleet composition, loyalty program, airport real estate, staff training, information technology and other business travel volumes are affected. If the 80% threshold is accurate, it will have major implications for United and other airlines that are set up like it.
Uncompetitive cost structure
United, along with its American and Delta counterparts, has the highest unit cost among US airlines. There are many reasons for this, but chief among them is the constant search for corporate clients from companies who pay higher wages. This affects every part of the business, in ways I didn’t appreciate even when I was working for this type of airline. This is a simple example. Let’s say the airline generally charges a fee for checked baggage, but waives that fee for specific customers based on the fare paid, frequent flyer status, or credit card benefit. This simple feature changes the way the airline must train its employees, as the agent will need to recognize which customers the fee is waived. It also changes the IT at the airport, where the agent must be able to print a baggage tag for some customers without payment but confirm payment for other customers before printing the card.
This small example is easy to solve, but multiply this for each airline operation, and it’s staggering how much complexity and costs are, this adds. Follow this complexity in fleet, seating configuration, airport real estate needs, and more, and soon you’ll be talking about measurable increases in unit costs. The upshot is that airlines like United can sell lower fares, but don’t make money from lower fares unless they are backed by other carriers who pay higher fares. Now, Southwest at Chicago’s Midway or JFK’s JetBlue has a real impact on United’s hubs in these cities, as discerning customers often choose an alternative airport to save some money. In a world where more passengers come from price-sensitive customers, the current cost structure of United Airlines and similar airlines is uncompetitive.
Unpleasant product to fly
Even if the other four things on this list aren’t a challenge, United isn’t a particularly fly-friendly airline. Take a Southwest, Alaska, or JetBlue flight and they’ll be glad to see you and want to make the trip fun. Board a United plane, and while that may happen, you will likely be treated to indifference at best and hostility at worst. Depending on the price or schedule, United may be the best option available. But many customers would choose another option if they had a choice. This is difficult to change, and the long history of labor friction makes it even more difficult. United have long since stopped calling themselves the ‘friendly atmosphere’. The pandemic has encouraged larger airlines to offer early programs for some of their senior staff, and this may create a unique opportunity to make some serious change in product delivery.
United is a proud and powerful American airline that plays an important role in the national aviation scene. As they did during the pandemic, they can play a real leadership role in certain things. They have strong leadership including CEO Scott Kirby. Still, constant announcements about things that won’t happen for many years, or complaints about airspace restrictions that United take advantage of in other geographies, is a good thing if it doesn’t draw the company’s attention to major things that really threaten its franchise. Based on their current connections, it’s hard to tell.