anc-ord772

The network is a very important asset. That being said, companies will not fly an airline with poor reliability. Network doesn't matter if business can't get where it needs to go.

Also, yes UNITED has the routes, but they are having a tough time optimizing it and generating the revenue a network of its caliber should produce.

Given time, I'm sure UNITED will figure it out, but to date... not so much and it is effecting revenue to the tune of a couple hundred million dollars.

Houston Chicago, we have a problem.

FlyWorld

My point is that Smisek has said two things:

1. Loss of corporate traffic, and
2. Loss of unmanaged traffic

Those are facts.

What we don't know from those facts is how many HVFs have left.

I can speak with authority on SFO. For all major domestic and international destinations, we've got direct flight alternatives with other carriers. UA is only distinct in offering the only direct service to second tier cities from SFO.

I know the same is true for LAX, ORD, and NYC area.

So that route network is not as important as he says it is.

And, most of the people with big bucks, with budgets to pay full J fares are going to the big cities where there are alternatives that also offer direct.

I don't think it's a coincidence that VX flies direct to BOS, NYC Area, DC Area, LAX, SEA, etc. from SFO.

If you were to do a pareto analysis on where the true HVFs fly from SFO domestically, it would look a lot like VX's route map.

sinoflyer

Agreed 100%. I am also quite frustrated with UA right now, and I'm of the opinion that I will not spend any extra $ with UA in order to do my work, maintain my MP status, and receive the FF benefits that I value.

If this means anything, I believe DL is currently the best-run airline. They have a clear vision of what kind of airline they want to be, and are actively working toward that end. However, I also think that I understand the things that Smisek is trying to do, and I agree with some of those things.

So, I find myself defending Smisek for the third straight post. In that investor's conference that you are referring to, Smisek concluded by saying that HVF traffic was coming back. Should we believe him? Last March's YOY PRASM seemed to support his claim, because the number should otherwise have been flat or comparable to the other major carriers. This month's number also seems to indicate that HVF traffic did not deteriorate as badly as the other carriers (that have reported so far) have experienced.

Now, to deflect a potential counter-argument to the above, "yeah sure, UA's YOY PRASM was better than the other carriers because it once again cut so much capacity," saying that risks proving that Smisek was right in his "capacity discipline" approach, at least for the time being.

spin88

First, I will restrict my comments to comparing DL and UA (for time reasons mostly, but also as they have similar networks). Second, I agree that PRASM figures while interesting (and all we get from airlines monthly) tell us less about how UA is doing in attracting/retaining HVFers than does a yeild figure. I think that yield is a good proxy for the ability to gain (or the loss of) frequent fliers, whether on corporate accounts (managed accounts) or unmanaged business travelers. As such I have tried before, and will try again, to get a rough yeild out of the PRASM numbers and do some adjusting for the comps so its a head to head comparison of gaining/losing HVFers (the topic in this part of the thread).

Back in April 2012, UA had consolidated PRASM of +4.5%, DL had +11%. UA was over the under booking issues from the shares transition, but had entered its under-performance phase, so UAs April 2013 comps are very easy. DL after a period of rapid PRASM growth for the last year hit a wall last month, and said that this months numbers would be slightly impacted as DL went to a new revenue management system.

Also For April 2013, UAs numbers should be about 2% higher than the April 2012 comps due to "synergies" (capturing more traffic from is own fliers due to bigger network). I have detailed the 2% number elsewhere, and will not repeat that now. However, put another way +2% in yeild, is basically standing still with UA neither gaining (or gaining back) or losing HVFers.

in April 2013 Delta reported a currency impact from the Yen reducing its PRASM by "1-2%" Y/Y. Delta is clearly more exposed to the Yen than is UA, and it is notable that UA did not make any statement about the Yen.

I can then do rough adjustments, using UAs PRASM midpoint (-.5%) UAs comparison is actually (2.5%) once the synergies are considered, while once the currency issue (which does not really relate to the ability to attract high value fliers) is considered DL is at (using the midpoint for the currency impacts) at (.5%) [(2%) PRASM + 1.5% currency impact].

Both airlines had slight falls in load, but did it in very very different ways. UA had its RSMs fall (3.8%), ASMs fell (2.6%), while DL's RSM fell only (.7%) and their ASMs actually increased +.5%.

So UA with an adjusted (2.5%) fall in revenue per passanger is shrinking (which will push up yeild/PRASM) while Delta isgrowing its ASMs. UA also dropped substantially more traffic with a 3.1% greater fall in RSMs than Delta. Given this, the easy comps that UA had, and the very hard comps that DL had, that with adjustments DL roughly beat UA by 2% in yield growth. This says [IMHO] that (1) UA continues to under-perform, and (2) if Jeff wants to claim that HVFers/elites are coming back, I see no evidence of that in these numbers. Given the very weak comps of UA, and the synergies, UA should have been besting DL by 3-5% in yeild growth if substantial numbers of HVFers were really coming back to UA. Yet, DL beat UA by 2%.

Then, UA also tanked its operational numbers. UA ended up at 76.1% OT (it was 81.6% in April 2012) while DL was at 85.6%. UA set a low goal, and when anything goes wrong they are back to poor operational performance. Anyone who flies a lot and gives UA another shot is not going to be very impressed. Trust me, DL is out telling corporate travel managers how they keep besting UA by 10% in OT performance....

no he spoke of corporate traffic. UA has seperately provided figures for growth in corporate account traffic, they trail DL in this measure as well. DL says it is outperforming in NYC, AA in LAX, with this type of managed traffic.


This is correct.

You are correct in your statement, but wrong in the impact it has. UA does have a good network, the best until DL gets its current changes done. BUT, what that says is that UAs numbers should be much better, hence my adjusting for the synergies (see above) so as to get information on HVF traffic/people leaving/coming back.

I think the evidence is mixed, but I don't see the pop in numbers UA should be seeing in yeild given its weak comps, the synergies it has from having combined, and its dramatic cuts in capacity if many of the lost HVFers were actually returning. My guess is that if UA had data to support people coming back, they would release it. That they have not, suggests Jeff's statement was not exactly correct.

Darlox

The Chicago Business Journal posted a rather lightweight analysis of the April numbers, entitled: "Are Passengers Abandoning United Airlines?"

http://www.bizjournals.com/chicago/n...alloff-in.html

Didn't see this posted elsewhere in the thread or forum...

spin88

the article used a sort of odd number (total numbers of passengers boarding mainline (down over 7%, while UX was flat) which is IMHO an odd focus. But that this is published in Chicago and used the headline it did, says that what those of us on FT have been saying "the numbers don't suggest passengers are flocking back to UA for the great operational performance and network" is getting some traction outside of our monthly PRASM threads...

pigx5

Talking about the numbers.....
I remember that some FTers always say that the COdbaUA management has the numbers so no matter what decisions they make (such as cutting benefits and
lower service levels) are correct.
Now, we have numbers to tell us different story.

FWAAA

I think some airline execs mentioned Easter Sunday as a partial factor - last year it fell on April 8, boosting April traffic in 2012 while this year it was March 31, boosting March traffic at the expense of April. Of course, the effect from Easter's calendar position should be relatively constant across legacy airlines, so Easter certainly played a small part in the decline of traffic at UA.

FlyWorld

I think we are reduced to arguing about grey areas for which we have no evidence. Sure, some HVFs might have come back. I doubt the "return" is anywhere near as high as the count who left. And, unless you're an insider, (and I am not), then none of us really have a clue. We're just sitting here guessing based on interpreting a few data points here and there. That's the most true thing that can be said about this.

I thought this seemed like a well reasoned article and provided a lot of points to support the thesis.

At the end of the day, I think this takeover team grossly underestimated the elasticity of demand for what they are selling and further completely misjudged how much abuse and disrespect and outright fraud and incompetence passengers will tolerate. They thought they could get away with a lot more than they've been able to get away with. People actually leave. People actually stop flying. This is destruction of value.

sinoflyer

Agreed to disagree. There will be plenty of months to come when we get to argue whether that gray area is getting any lighter or darker.

FlyWorld

Or, anything else ...

pdx1M

I think many of the comments about loss of HVFs make it appear much too black and white. From what I can tell I am an unmanaged HVF I buy premium trans con tickets and coach short haul. In the past my travel planning started and generally stopped on united.com. Now it tends to hit many sites. I still fly UA but I also fly others. This week I was headed to DC and wanted to take the AS non-stop both ways but the outbound was sold out in first so I checked AA, DL, and UA and in this case UA had the best schedule so I bought first class UA out but first class AS back. That was over $1k revenue that UA lost compared to what they'd have gotten in previous years. Yes the AS non-stop is nicer than a connection but the schedule was a bit less convenient. I suspect that a lot of HVFs of my type are seeing similar patterns where UA simply sees less rather than no business. However, if I do what I just did on 7 or 8 trips per year this does represent 10-15k in lost UA revenue even though they still see me as a semi regular customer. In aggregate this change of where one starts one's travel planning really makes a long term insidious difference. At least in my case and I suspect in others the real loss is that UA has opened the door to the competition by changing the purchase behaviors (where you start looking). A lingering problem with this for UA is that even if 1 decide that they are back, if I continue to plan things the way I now do, I also see that e.g., AS is a couple of hundred dollars cheaper than UA which further weakens their competitive position versus when I didn't really notice that. This stuff adds up for them in the long run and is part of the truth of the old business maxim that it is much cheaper to retain a good customer than to acquire one.

halls120

I'm far from being a HVF, but the above is my case exactly. Last year I had a TPAC in June, and I went out of my way to fly UA on all six legs. This year on my TPAC trip, I'm flying DL out and UA back, because the DL outbound is cheaper and as convenient as UA's. Before 3/12, I would bend over backwards to fly UA as much as I could, because I knew my loyalty would be rewarded. Now, I fly UA when it's convenient and the best value - which means more flying on DL and AA.

demosthenes1

Here's what I find really ironic. I'm probably the least valuable flyer compared to halls120 and pdx1M. I fly domestically, take the cheapest flights I can find, book in advance, and struggle to hit 120 segments. Yet I'm still flying UA exclusively.

So UA has managed to drive away part of the revenue (the most profitable part, by the way) from very profitable customers, while a relatively less profitable flyer is still with them. Insane.

FlyWorld

I think this exactly and completely summarizes what is going on.