fly18725

Credit card marketing absolutely factor in with less-frequent, leisure-oriented customers, which is why all of the banks who issue airline credit cards are so aggressive in their marketing.

I don't think many corporate or HVFs make air travel decisions based on branded credit cards.

I am not sure where you are getting your figures, but AA lost ($1.9B) in 2012, or ($132M) excluding special charges. Yields to Asia are not that great right now and AA has benefited from its limited exposure and dominant market presence in Latin America.

"The New American" will be a great airline with the opportunity to be the dominant North American competitor. Its advantage will be its network and improved hard product - not its FFP.

All airlines are better off focusing on O&D market share in their hubs than on chasing domestic connections.

Kacee

I wonder how much of DL's relative success has to do with the fact it has at least four captive hubs (ATL, MSP, DTW, SLC).

halls120

I disagree. You have an outstanding lounge at SFO. ^^

entropy

Umm, the *only* reason US airlines can stand up to foreign competitors is because of their FFPs.
United had incentives in place to fly UA metal only back in the day, (lifetime BIS, e-500's qualifying was BIS. why else choose united over SQ or NH transpac?

when used properly, a FFP is a very powerful tool

Sure, if an airline is offering the majority of seats on a given route, passengers going on that route will more likely choose them. a good FFP helps the airlines keep traffic that wouldn't automatically choose that airline on a given trip. That traffic is gravy for them. The credit card associated with the FFP keeps (free) cash rolling in year-round even when the customer isn't flying.

Kacee

Right. Otherwise we would all be flying SQ, LX, AH, CX, and BA (among others) long-haul. The ability to upgrade internationally is a huge incentive for me personally to stick with UA.

UA-NYC

Correction - revenue figures...IIRC, it was projected to come in $2B less than 2011, but instead came in $900MM higher...that's the $3B gap I was thinking of.

Horton did wonders with a crap hand, and $misek was handed the golden egg and made mincemeat with it.

By the way, where are you based and who was your airline pre-merger? I have a working theory of course.

FWAAA

If Smisek is "doing awesome" in 2012 and thus far in 2013, then what adjective would describe Anderson, Horton and Parker, all of whom increased yields and unit revenue more than did Smisek last year?

That's correct. The day after AA filed for Ch 11 protection, the cabal of Wall St analysts were unanimous in predicting that AMR would shrink by at least 10% and that UA, DL and US would pick up that revenue (at least $2.4 billion).

By year end, AMR had shrunk a couple of percent but had increased its total revenues by almost $900 million compared to 2011. So in effect, the analysts had underestimated AMR's revenue by over $3 billion. Whoopsie!

DL and US both had a very good 2012, so it appears that they picked up some of the revenue that fled UAL.

How did "awesome" UAL do in 2012? Total revenues were up by $42 million. TODs, treating elites as "overentitled," failures to integrate the computer systems and other skirmishes with UAL's most loyal customers failed to increase revenues. AA, in its first year in Ch 11, on the other hand, picked up some of those loyal UAL customers and managed to grow revenues by nearly $900 million.

In my book, Smisek gets a C-. Horton earned an A-. Anderson earned an A+.

goodeats21

Wow. Writing off a lot of the country with a strategy like that. Hard to fill up those planes with only home city traffic...there goes the network and frequency.

UA-NYC

Agreed - worked for PMCO, but clearly not for the combined airline.

BearX220

If it were true that "all airlines are better off focusing on O&D market traffic," Virgin America would be making money and UA's vaunted network wouldn't be Talking Point #1 on Wacker Street. VX is a failed experiment because it lacks connecting traffic / throughput, a comprehensive network, robust frequencies, and a useful FF program.

Agree that part of the CO strategy was to put the screws to captive hub customers but they also set a good across-the-board service standard, treated elites well, and served the whole country. I was happy CO Plat for years and never lived in a CO hub.

EWR764

Pre-merger, CO primarily viewed the domestic network as a means of delivering traffic to the international system. International flights were often 50-60% flow traffic vs. local, even routes such as EWR-Europe. For whatever reason, accounting or otherwise, CO's domestic network was never profitable, but the international side made the company a lot of money over the years, and not all of the traffic was local.

This isn't a losing strategy per se, but with United's stronger presence in the few existing high-yield domestic markets, we should be seeing better results.

spin88

New guy comes in posts in defense of UA management, claims to be a 1K, no details are provided. If I had a buck for every-time I've seen this post 3/3 I would be rich!

Pointing out what Hunter Keay said about UA, and how it has not exactly been timely good advice, is not a cheap shot. Aren't people on the street supposed to be judged by their results? Are we grading on a curve? Hunter has been a cheerleader for UA management, and EVERY SINGLE US based competitor has done better financially and in stock market appreciation post the 3/3/12 cut over.

And oh, if you think its childish on my part. Well I posted what Hunter said, if you care to explain how post 3/3/12 his calls about UA have been the best around (or even half decent) go ahead, post away... We are not grading on a curve here.

And if you think UAs management team is "the most savvy" then how come everyone else is doing much better? Even AA (with a war with pilots and major network and fleet issues) is blowing their doors off in revenue growth. Even UA supporters here have admitted that their appears to be absolutely no plan. UA can clearly spreadsheet out the short term cost savings, but so far have been utterly inept at figuring out how it long term impacts revenue. Given the much higher costs that are coming down the pike, thats not a good place to be.


So far the talk on FT about UAs revenue issues has been far more accurate than anything any analyist I know has talked about, certainly we have done better than Hunter

As others pointed out UA has explained its horrible yeild/PRASM and overall revenue growth figures as the result of booking away by "corporate traffic" and "frequent fliers." They said on the 3Q 2012 call that the problem was fixed, they would come back. So far little sign of that though...

On this thread, and others, this very question has been much discussed. I argued in the summer and fall that operational performance was still an issue. But UA has been running what it has now claimed for NINE months is a good opperation. So people are not booking away for that reason, so something else is going on. I think its poor service levels AND changes to the upgrade system, but I can't prove it, other than via the stories I have now heard from well over 200 people on why they are flying UA less. Poor soft product, bad treatment in IRROPS, Boarding process, small RJs, and lack up upgrades lead the list. Although some folks are going to jump ship as CH 9 goes away.

Thanks, the best arguments are these numbers, which look even worse once Merger Related Synergies they gained are considered (which shows they lost even more traffic than these numbers would indicate).

That is a silly basis for comparison, and if you are a banker (at least one who did not lose $50B ) You know that. You claimed UA had "amoung the most savvy management." so why is DL, AS, AA (in improvement), US, WN, etc blowing their doors off?

I am going to credit you with not seriously believing this. People in those foreign countries are not going to join MP or Advantage, they join their home country programs. Most of these carriers don't have competition domestically that they need a FF program to distinguish them. What they need is a program that is not so junky that they are not competitive given their (generally) higher service levels. American carriers are obviously highly competitive for much traffic, hence FF programs driving traffic.

Plus, it has obviously worked well for AA and for PMUA, and also for a carrier like AS which has a good program.


First, no one said that a majority of passangers are FF program driven, they are not. What has been said is that some traffic (and in particular those with a high status level) is driven by them. Clearly if you are IAH based, the program is not going to drive your traffic, but it matters (all aspects, including upgrades) if you are based someplace that has competition.

Good example, AS has also done well.

US on the other hand lost PRASM/yeild when it gutted its program, and UA so far ain't doing so hot. But, DL is somewhat of an exception with difficult redemption.. But, it offers some major countervailing benifits in (1) the best OT performance by far, (2) improved and very good soft product, (3) good CS for elites, and (4) great domestic upgrade percentages.

And VX, well their program is not so hot, perhaps part of their problem in attracting travelers, it certainly effects my willingness to buy.

Well UA is certainly focused on that at EWR Time will tell how well that works out for them.

It helps, BUT, and its a big but, they had these hubs when they were underperforming their competitors, so something else is causing them to outperform their competitors. DL management says its offering better service levels.
I have no reason to doubt them at this point.

Yup. Yup.

Given the advantages they each had, I give Horton an A+, Anderson an A, and Smisek a D-. UA has a better route network than either carrier, the best CS reputation (on the PMCO side), a newer simpler fleet, better placement in top business markets, and should have then gotten a major synergy boost off the merger. Only a "savvy" management team could have done so poorly with such major advantages.

fly18725

I agree FFP and their credit cards are very important to airlines; they’re just not a primary driver in the purchase decision for corporate and high-value customers.

I give AA's management team credit for doing a good job reorganizing the company, but I think your methodology for judging revenue performance is a bit off base.

I am a 1K today. I don't know what my past or location has to do with the discussion.

I believe I’ve made favorable comments regarding the management teams of all U.S. major carriers. Since each of the four legacy airlines are at very different stages of the merger and integration process, it isn’t accurate to draw direct comparisons them against each other.

There is a lot of middle ground between focusing on one market segment and writing off all other market segments. The most lucrative traffic is O&D and international connections, particularly since the network and product provide a larger competitive advantage for these customers. Domestic connections will always help fill the seats, but why would you focus on folks who are effectively competing every U.S. airline against each other on price.

star_world

:-: A point often (conveniently) forgotten here.

fly18725

I've already said I'm a banker working with airlines. There aren't a lot of us and geographic details could shed more light on who I might be than I am comfortable with.

Calling an independent analyst a "cheerleader" is a very cheap shot, particularly when the analysis used to support your position was pretty rudimentary.

No analyst is perfect and they definitely hear about it when there are misses.

I said the current management teams (plural) at the major airlines (plural) are the most savvy in years. Most investors and professional analysts are savvy enough to know that the merger and integration of multi-billion dollar global companies is difficult and time consuming and that the legacy carriers are at different steps in the process. Did UA's management under-deliver in 2012? Absolutely. At the same time, they are dealing with a s*** load of headwinds and are not the incompetent failures some like to portray them as.

"Revenue issues" and "horrible yields" are pretty big exaggerations. You may also want to revisit PRASM performance for Q4 and Q1.

Why do older children do better at sports than younger children?

If FFPs are so important, why do foreign carriers have larger market shares on most routes to/from the US where they compete directly against US carriers?