FlyerTalk Forums - View Single Post - UA Q4/Full Year 2017 Results/Conference Call 23 Jan 2018
Old Jan 26, 2018, 4:17 am
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goodeats21
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Originally Posted by EWR764
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.
Thanks EWR764. Very thoughtful post.

If United is really re-entering markets where they totally pulled out, and AA/DL are also running CR2s, then I totally get that. That also makes sense why some voiced concern about price coming down, as that would be a lot of erosion of pricing power for AA/DL, if they didn't face United competition before.

I had no idea that United had started up service at that many airports that they previously were not serving.

I haven't had time to go back and pull up previous transcripts, but I recall the Smisek team doing re-banks at hubs as well. But I guess that was different, as they should now have more feeders, right? I guess I am still cynical that they can pull off tight connections, with high asset utilization, with reliance on UAX, and not impact their "CASM story". But I would be happy to be proved wrong on it.

Originally Posted by mduell
UAL flights from KDAY:

Code:
year one_cabin two_cabin
------+-----------+-----------
2016 2757 1575
2017 1915 1986
2018 3270 1376
Well the good news is frequency is going up...
Thank you VERY much, mduell.

And I would bet big money that the 2018 2-cabin numbers will actually be much lower, as they continue to pull 2-cabin aircraft out of DAY with every schedule update.
I won't derail this thread any further with it, but I will note that the CR2s are not being used exclusively to restore / enter markets that United previously didn't serve.
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