United Hopes Upgrades Will Bring $3.1 Billion in Returns
Joe Cortez June 23, 2016
Value-driving initiatives include commercial enhancements and cost structure improvements.
United Airlines is hoping to improve their bottom line by over $3 billion by 2018, through a number of improvements and upgrades to travelers. In a presentation to investors, the airline outlined their plan to increase profits and improve performance for shareholders.
During the call, the airline acknowledged their pre-tax profit margin lagged behind their major domestic competition, including Southwest Airlines. The deficit was attributed to a long and complex integration with Continental Airlines, declining seat shares in domestic markets and losing premium customers. However, executives also noted a strong overall value proposition, including their overall network strength and an ability to save $1 billion on non-fuel cost savings.
The next phase of profitability for the airline includes improving the customer experience and passing the cost on to flyers. The airline expects to add $1.8 billion by the end of this year in “customer choice” commercial enhancements, alongside another $400 million through the MileagePlus program.
During the presentation, United pointed out additional “customer choice” segmentation would come from increasing their premium economy seating by around 20 percent, while increasing their business and first class availability by 30 percent. In addition, the airline would expand their sales through third-party channels, with all factors expected to add an additional $750 million in revenue by 2018. The remaining $250 million in revenue would come from introducing entry-level fares to attract price-sensitive customers and bundled products for customers who wish to improve their flying experience.
“We continue to accelerate our business performance while making strides in earning back the trust of our employees and customers,” Oscar Munoz, president and CEO of United, said in a press release. “All of the building blocks are in place for United to unlock its full potential.”
The announcement is the latest move to improve performance for the airline, after a contentious investor battle earlier this year. In March, two hedge funds moved to install new directors due to the carrier’s lackluster performance.
[Photo: Getty]
Lost cause. United should look at why it lost its premium customers. Instead of bragging about the $1 billion it will save from reduced services, maybe it should have considered providing a decent meal on its formerly lucrative TPAC routes. Value proposition? Are they being sarcastic? Where is the value in sitting 8 to a row in business class on the B777 TPAC flights? The only people who fly United in the premium cabins on TPAC long hauls now are US nationals too afraid to fly on the better quality airlines like BR, CX, NH or even AC because they are "foreign". United long haul offers dirty airplanes, miserable and rude personnel, a poor on time performance, poor baggage service, and one of the worst in flight experiences in the developed world. It's too little, too late. Delta started investing years ago, That's why Delta is doing much better than United.
The link to the presentation would not work, but I wonder what their thinking is on domestic versus international in saying they intend to increase their business and first class availability by 30 percent. For someone usually either buying or looking for upgrades on international, and not particularly wedded to any particular airline when buying outright, increased international business class availability is probably going to be a good thing.