Originally Posted by
goodeats21
I am not sure I buy the "connectivity" argument, especially with the dramatic increase in CR2 flying. I always heard that direct flights provide the bigger yields, as passengers are willing to pay a premium to not connect. So now they are saying that the yield solution lies with increasing connectivity from small markets, making connections through hubs. But that means all routes are exposed to competition. Kirby was quite explicit about the connection competition, where each of the 3 majors is a viable option But they are throwing CR2s at the competition after admitting they are not competitive aircraft and caused book-away in the past. Why would a person choose to be not comfortable, when other option is available?
The whole thing is a circular gibberish. If someone can explain the logic I am missing, it would be appreciated.
Oh, and how many times is re-banking hubs going to be presented as a solution. Haven't we been hearing this for years now?
And I admit being cynical, but when United says they want to increase "asset utilization", I would be willing to bet they are not going to be able to maintain their recent operational gains. As they tighten up turns and keep less slack in the schedule, something is going to give out.
I think you're conflating a few of his talking points.
Of course passengers are willing to pay a premium to avoid a connection, but not every city pair has a nonstop option. Traditionally nonstop options generate higher yields, yes. But Kirby's point is that there are many small markets which, despite connections, generate higher-than-average fares and yields but lack the volume for dedicated service. As a result, connections are essential, and hubs with less circuity (a function of geography), better schedules and more desirable equipment as compared to the competition generally fare better. That's the whole rationale for the hub-and-spoke model. United is at a disadvantage because although its hubs are well-positioned geographically, disjointed schedules at lower frequencies result in longer layovers with fewer options, or no connectivity at all. Over the years, United also exited a lot of flying to smaller cities, forgoing that traffic entirely. So part of the strategy is to re-bank ORD/DEN/IAH to maximize the number of connections available at reasonable layovers, to better compete with connectivity offered by DL/AA at ATL/DTW/MSP/DFW/CLT.
The CR2s are a suboptimal solution, but I understand what Kirby is trying to do, which is capture some of the higher-yielding, 'thin' traffic flows from smaller communities and close-in points that United, in more recent years, may have gotten out of in pursuit of higher-volume markets and chasing O&D. There is merit to that approach, for sure, but I don't think you need to do one to the exclusion of the other, and there's no way the CR2s are a long-term play. The economics of 50 seaters are not improving.
Still, if you look at the respective networks of UA, AA and DL, it's clear that AA/DL have something that United lacks: at least one massive domestic connecting complex that can push traffic over a diversity of flows and take advantage of economies of scale. AA/CLT, AA/DFW and DL/ATL each have 700+ peak daily departures with strong ratios of mainline to regional. United doesn't have anything of that scale... even when IAH was at about 700 departures in 2008 or so, fully half (or more) were 50-seat RJs, so the volume was never there. The domestic market has been a huge driver of growth and revenue improvement over the last few years, and United's fragmented domestic hub network did not allow it to fully participate in that growth.
I think Kirby is trying to rectify this issue as quickly as he can, and when we talk about 'structural disadvantages', that's a big one. If you look at the bulk of the cities added in the last year or so, many fall into the 'connectivity' bucket: BIS, SLN, ACV, ILM, LBL, BFF, PUB, ELM, LBF, ELM, CNY, VEL, CKB, SGU, CHO, COU, RST, SGF, STS, etc., all of which were announced in the past year with 50-seater service (and not counting other spoke routes to existing cities). Few, if any, of these routes have competitive two-cabin RJ or mainline service.
I too am a bit skeptical of increased utilization and its possible consequences on operational reliability. However, the last time United tried it, the company was far from integrated, with entirely separate operational groups, systems and fleets. Now, the only workgroup not functioning as a merged unit is the FAs, which should be harmonized later this year. There's a less complexity in the system now than there was in 2013, and by the end of the year, the last major integration barrier will come down. I think that will have a positive effect on the company's ability to better use its assets.