fool.com: United Continental Is Underestimating the Threat From Delta Air Lines
Jun 13, 2014, 1:11 am
#1
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fool.com: United Continental Is Underestimating the Threat From Delta Air Lines
Article: http://www.fool.com/investing/genera...-threat-f.aspx
So, should UA be worried? If DL sticks with SEA, UA could be at a big disadvantage in fuel, cost of AC and time.
I have never heard RA state our "friends in Chicago". He will call UA, AA, US, etc by their names.
Full article puts it in full prospective, in fool.com's view.
United vs. Delta
United Continental CEO Jeff Smisek doesn't seem too worried about Delta's growth. (He doesn't seem concerned about American's rapid growth in Asia, either: but that's a more reasonable position.) At an investor conference last week, he stated, "Our friends in Atlanta lack a gateway to Asia... The best gateway is already taken -- that's San Francisco."
United Continental CEO Jeff Smisek doesn't seem too worried about Delta's growth. (He doesn't seem concerned about American's rapid growth in Asia, either: but that's a more reasonable position.) At an investor conference last week, he stated, "Our friends in Atlanta lack a gateway to Asia... The best gateway is already taken -- that's San Francisco."
However, Delta is likely to continue building up its operation in Seattle in the next several years. By the end of the decade -- either through organic growth or via an acquisition of Alaska Air -- it could grow its Seattle hub to the same size as United's San Francisco hub.
Delta's secret weapon in fighting back against United's San Francisco hub is geography. Due to its positioning in the northwest corner of the continental U.S., Seattle is hundreds of miles closer to East Asia than San Francisco.
Delta's secret weapon in fighting back against United's San Francisco hub is geography. Due to its positioning in the northwest corner of the continental U.S., Seattle is hundreds of miles closer to East Asia than San Francisco.
From many U.S. cities, flying to Asia via Seattle is 5%-10% (and in some cases even 15%) shorter than flying through San Francisco.
The reduced flying distance will translate directly into a cost advantage for Delta. It will also allow Delta to utilize shorter-range planes, which are cheaper to acquire.
The reduced flying distance will translate directly into a cost advantage for Delta. It will also allow Delta to utilize shorter-range planes, which are cheaper to acquire.
I have never heard RA state our "friends in Chicago". He will call UA, AA, US, etc by their names.
Full article puts it in full prospective, in fool.com's view.
Jun 13, 2014, 3:25 am
#4
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I would love to have a one on one with Richard Anderson and especially Doug Parker about just how they personally feel about Jeff. It would definitely be very interesting. I would love to hear Parker's view due to the infamous "ugly girl" comment.
Jun 13, 2014, 4:02 am
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The world could've been a better place had UA married the "ugly girl".
Jun 13, 2014, 4:03 am
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Jun 13, 2014, 4:11 am
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Jun 13, 2014, 4:36 am
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And DL has done just fine setting up shop all the way across the Pacific at NRT. Unlike UA, they are still flying to BKK (and a bunch of other Asian cities) from NRT. Smisek will probably put the blame on UA's NRT gates having worse feng shui than DL's.
Last edited by moler; Jun 13, 2014 at 4:43 am
Jun 13, 2014, 5:56 am
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To further illustrate the author's point about SEA being closer to Asia than SFO, I've mapped out the distance between both to several asia hubs here.
SFO PVG 6150 mi
PVG SEA 5722 mi
SFO NRT 5124 mi
NRT SEA 4769 mi
SFO HKG 6927 mi
HKG SEA 6500 mi
SFO TPE 6469 mi
TPE SEA 6074 mi
SFO BKK 7933 mi
BKK SEA 7459 mi
SFO KUL 8480 mi
KUL SEA 8074 mi
SFO PEK 5913 mi
PEK SEA 5407 mi
PVG SEA 5722 mi
SFO NRT 5124 mi
NRT SEA 4769 mi
SFO HKG 6927 mi
HKG SEA 6500 mi
SFO TPE 6469 mi
TPE SEA 6074 mi
SFO BKK 7933 mi
BKK SEA 7459 mi
SFO KUL 8480 mi
KUL SEA 8074 mi
SFO PEK 5913 mi
PEK SEA 5407 mi
Jun 13, 2014, 6:02 am
#11
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Actually, PMNW established the NRT hub. DL tended to squander its value after the merger.
Jun 13, 2014, 6:17 am
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Personally, I'd like to see some real numbers to back up the author's theory. Perhaps in the example of SLC, the overall mileage traveled is less, but I'm guessing (and I'll admit it's a guess) that SFO is closer to most places in the US than SEA. Therefore, DL's advantage across the Pacific is negated by the longer distance across the US. And the US flying is done by less-efficient narrowbodies.
Jun 13, 2014, 6:27 am
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Personally, I'd like to see some real numbers to back up the author's theory. Perhaps in the example of SLC, the overall mileage traveled is less, but I'm guessing (and I'll admit it's a guess) that SFO is closer to most places in the US than SEA. Therefore, DL's advantage across the Pacific is negated by the longer distance across the US. And the US flying is done by less-efficient narrowbodies.
A sampling of US cities shows that some are closer to SFO, some closer to SEA, but the differences are negligible. Certainly not enough to make up the distance advantage that SEA has to Asia.
SFO ATL 2139 mi
ATL SEA 2182 mi
SFO DTW 2079 mi
DTW SEA 1927 mi
SFO OKC 1384 mi
OKC SEA 1519 mi
SFO DCA 2442 mi
DCA SEA 2329 mi
SFO CLE 2161 mi
CLE SEA 2021 mi
SFO CLT 2296 mi
CLT SEA 2279 mi
SFO ORD 1846 mi
ORD SEA 1721 mi
SFO DFW 1464 mi
DFW SEA 1660 mi
ATL SEA 2182 mi
SFO DTW 2079 mi
DTW SEA 1927 mi
SFO OKC 1384 mi
OKC SEA 1519 mi
SFO DCA 2442 mi
DCA SEA 2329 mi
SFO CLE 2161 mi
CLE SEA 2021 mi
SFO CLT 2296 mi
CLT SEA 2279 mi
SFO ORD 1846 mi
ORD SEA 1721 mi
SFO DFW 1464 mi
DFW SEA 1660 mi
Jun 13, 2014, 6:35 am
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There's no Asia threat from DL to underestimate on UA's part. For all of Jeff's faults, the near-term and long-term Asia strategy is one of the few things United has gotten spot-on since the merger.
1. SFO commands strong O&D flows to many Asian destinations in a way Seattle will not anytime soon, necessarily forcing Delta to be more reliant on connecting traffic at lower yields, with stronger competition, and a SEA feeder partner that, by law, can never be more than a "frenemy" unless Delta pursues a merger.
2. Longer term, while SFO remains the primary Pacific gateway, United will also continue developing the TPAC potential of Chicago and Newark with 787s and A350s that improve operating economics.
With the best hubs for West Coast-Asia, Midwest-Asia, and East Coast-Asia flying, and a fleet mix that will soon enable hub access to any worthwhile TPAC destination on a nonstop basis, what exactly does United have to fear?
1. SFO commands strong O&D flows to many Asian destinations in a way Seattle will not anytime soon, necessarily forcing Delta to be more reliant on connecting traffic at lower yields, with stronger competition, and a SEA feeder partner that, by law, can never be more than a "frenemy" unless Delta pursues a merger.
2. Longer term, while SFO remains the primary Pacific gateway, United will also continue developing the TPAC potential of Chicago and Newark with 787s and A350s that improve operating economics.
With the best hubs for West Coast-Asia, Midwest-Asia, and East Coast-Asia flying, and a fleet mix that will soon enable hub access to any worthwhile TPAC destination on a nonstop basis, what exactly does United have to fear?
Jun 13, 2014, 6:42 am
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SFO is a much larger local market to Asia than Seattle, so while SEA may be positioned better than SFO to take connecting traffic to Asia, SFO isn't nearly as flow-dependent. Further, many of the major markets DL serves on-metal via SEA timed to connect to Asia already have comprehensive TPAC service and a nonstop option to at least some of the DL cities served on the other side. On the other hand, pushing traffic on to AS is a suboptimal strategy from a revenue allocation perspective and building up DL's own network at SEA organically won't nearly be as easy as ALW makes it seem in his blog post. Building a hub is a costly, capital-intensive exercise that generally takes time to deliver returns. This won't be a plug-and-play option for DL from a profitability standpoint.
Finally, an acquisition of AS would be a massively overpriced transaction for the benefit it would deliver to the DL network. I don't see that happening either.
If geography was the most important factor in determining the location of a transpacific hub, we'd see way more pax service ex-ANC.
Finally, an acquisition of AS would be a massively overpriced transaction for the benefit it would deliver to the DL network. I don't see that happening either.
If geography was the most important factor in determining the location of a transpacific hub, we'd see way more pax service ex-ANC.