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American, United Share Playbook to Please Investors

After their 2017 Third Quarter earnings call, United Airlines’ stock dropped by 12 percent. Announcing the Fourth Quarter earnings, the airline played things different by not focusing on the present, but on their development towards the future. Hoping to stay ahead, executives at American Airlines took a similar stance on building up hub capacity.

United Airlines is setting the future of their airline on building hub connectivity, in hopes of attracting loyal flyers to stay with the Chicago-based carrier. Forbes contributor notes that the carrier is hoping to use increased hub capacity to their advantage in order to make their stock more valuable and sought-after.

During the New York-based call, United chief executive Oscar Munoz and president Scott Kirby outlined a plan to reduce prices and increase capacity by up to six percent every year through 2020, according to an outline of the call by Seeking Alpha. As a result, stock for the airline dropped once more, sparking fears United would begin a fare war.

However, the Forbes contributor notes that United’s plan may have some merit after all. Between the final quarterly profit calls for 2017, the airline’s stock increased by 36 percent, outperforming the S&P 500. With a focus on the increasing traffic in Chicago, Denver and Houston, the contributor believes United may be able to compete against ultra-low cost carriers on competitive routes without starting a fare war.

Days later, American Airlines chief executive Doug Parker announced a similar strategy of reinforcing their hubs with additional capacity. Instead of focusing on their competitor’s strongholds, including Atlanta and San Francisco, Parker said they would rather build their hubs to drive their strategic advantage.

Despite plans to disrupt the low-cost carrier game, Wall Street has not yet bought into their plans. Shares of all three legacy carriers are ending the week trading lower than before American and United announced they would increase capacity in order to seek new profits.

[Photo: Shutterstock]

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3 Comments
L
LINDEGR January 30, 2018

Sad! No attempt to be bold and innovative; just increase its stranglehold on hubs...

K
KRSW January 28, 2018

How about a novel idea -- improve customer service and the customer experience? THAT's the way to attract "loyal flyers to stay with the Chicago-based carrier." Right now our office's policy is to put people on foreign metal as quickly as possible. These CEOs aren't too old to remember what life was like at FL350 in the regulation days. Even though it was before my time, life in the sky in the 1980s and even into the 1990s was still quite pleasant.

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iahphx January 27, 2018

I know frequent flyers aren't necessarily airline management experts, but there is NOTHING really new about what UA is doing. The only difference is that at UA that did some foolish stuff the last several years that reduced "connectivity" at their hubs -- and therefore profits. Scott Kirby, who worked with AA's Doug Parker for almost 20 years, is simply following conventional airline management practice to strengthen UA's business. Not surprisingly, Gordon Bethune -- who managed some of UA's current assets when he was CEO of Continental -- praised Kirby's move. There won't be any "fare wars" because of this. The only thing UA travelers may notice is more flights to secondary cities from UA's hubs. That seems like a good thing, but not a huge development.