Always Flyin

So there has not been a net reduction in the number of international first class seats for sale, yet demand for those seats "is a shadow of what it was 10 years ago"?

Sounds like politician speak to me.

cerealmarketer

I am speaking of demand from US markets when I speak of the 3 cabin debate here.

As noted above I cited a source that shows growth in non US and how the dynamics are fundamentally different for US carriers.

Which is why the cries from others of "if only UA had SQ service" are naive.

nikolastojsin

This thread is becoming genuinely interesting.
A couple of points -

1. Demise of F on major global airlines?
I will speak just about the airlines I fly regularly, so I have first-hand experience: both AF and LH are the process of upgrading both their premium cabins (F and J). For example, my email inbox receives invites to sample the new La Premiere cabin JFK-CDG on a biweekly basis:
http://www.airfrance.us/US/en/common...-airfrance.htm

In other words, two major European airlines consider there is a sufficient premium market NYC-Europe to justify major investment. And that they need a better J product to compete. And a better F product. And both airlines treat JFK as a premium market. (Hello, UA?) And we can discuss who pays for F in NYC - hint: I do not think it is just Wall Street.
Incidentally, these test-our-new-F emails started after my GF flying on UA became regular. (Which means that their IT works, well, better than UA's.)
One more thing: manipulating the number of products available to enhance the premium value of the product is Marketing 101. (Ferrari routinely limits production numbers of its most valuable cars - that does not mean they will stop making them!) So it probably makes sense to look also at the investment and promotion as the metrics, rather than just the actual number of seats.

2. Wall Street
+1 And the same can be said about Jeff Bezos and Steve Jobs, and quite a few others. Let me put it this way - and this comes from someone whose primary office is on Wall Street: beyond early start-ups, Wall Street tends to reward predictability and bean counting far more than innovation and vision, and has traditionally had a blind spot when customer-centric metrics were concerned. Those three (Herb, Bezos and Steve) all went through periods when Wall Street was betting that they will not succeed. And all three were ultimately hugely rewarded by Wall Street - but only AFTER they were proven right (and Street wrong) in the marketplace.
To paraphrase field marshal Rommel (of all people!), if a general (CEO) listens to his supply officers (read: analysts and stockholders) all the time, he has committed himself to slightly-below-average performance. And a general who knows when to ignore bean counters will always eat the lunch of the one who does not. And if perennially slightly-below-average does not describe Smisek and his team to a T, nothing does.

3. Management
I would be glad to be wrong here, but all indications are that current UA team is just not the right fit to run a competitive global airline. Running UA as pmCO is plain misguided. To stick with the topic of this thread, can anyone name ONE other airline CFO who denigrated his airline's premium - and thus presumably flagship - product (and kept his job). I cannot think of one. Also, the fact that they always seem to be following DL management is an indication that they lack confidence and vision - that they need cover for their decisions. So, of course, chances of them standing up to analysts and Wall Street are zero.

4. Unions
I do have enormous respect for unions, and their traditional role to protect workers from bad management. However, in US airline industry, with seniority as the uttermost rule, they are an obstacle to good management. (When did one know B6 was having morale problems? When employees chose to unionize - that was the signal that management had lost them.) As it is now, the seniority system encourages and rewards bidding time and minimum effort, and discourages enthusiasm; add a well-deserved distrust of management to the mix, as well as subpar tools and you get... Sub-par and Divided, dbaUA.
And while both pmCO and pmUA are full of professionals who are proud of their jobs, and do it brilliantly, UA does not seem to have the ability to weed out those that are, well, sub-par. And genuine enthusiasm for the job seem not to be there across-the-board, sadly, and it shows. (No blame here: who would want to work for Smisek?)
As for youth vs experience, I do not think anyone here wants to return to the FlyMe! era. However, as a passenger, I really do not want to be in a position to feel the urge to assist an FA who is not so fit any more either. (I did assist an FA once, and it did not go well.) Would it kill UA to at least try to mix experience and youth, and have training positions open for senior FAs, like LH does?

5. US Regulatory Environment - and a Global Airline
I have a couple of major problem here: from the arcane passenger transfer rules (that even China figured out a way around), to laws limiting foreign ownership to 25%. Former effectively prevents any US airline from operating meaningful transfer traffic, while the latter... well, let me illustrate with an example:
I grew up in Belgrade, Serbia, and still fly there regularly, so I am and was fairly familiar with JU, Serbian state-owned airline, laughingstock, perennially late, perennially losing money, with 30 being the average age of planes and 57 being the average age of FAs (both in years). Anyone wanted surly and unfriendly and lousy service, you got it there.
All of that changed one day less than two years ago when Serbian government, almost-bankrupt and under pressure from EU to stop subsidizing JU, sold a 49% stake, with management rights, to EY. Here is what EY did: renewed the fleet, upgraded the hard product, upgraded the soft product, fired 75% of the FAs (kept only the best pursers), hired enthusiastic young people instead, retrained everyone - and the airline became the pleasure to fly, with service second to none, young and enthusiastic FAs supervised by more experienced pursers, with top-notch food and wines (all of which are stocked!). And it will be profitable in 2015. Do I need to tell anyone what analysts thought about this beforehand?
Anyway, JU is tiny and still has a long way to go (though 40% growth is nothing to scoff about), and EY is about to try to do the same with AZ. Good luck there, but you get the point.

So, let me ask you guys: what do you think IS the purpose of a 25% foreign ownership limit? For the record, I think (for example) EY buying a stake and managing UA (here snowflake and hell come to mind) would end up the same way Daimler's managing of Chrysler did, but should not that option at least be on the table?

Always Flyin

That was not clear before.

That said, is it a lack of demand from US markets for paid F, or is it a lack of demand for paid F on US carriers because they have downgraded the product so far that no one will pay for it, i.e., a self-fulfilling prophecy?

I tend to think it is the latter. While I don't think every route can support a paid F cabin, I fly extensively from the West Coast to Asia on CX, SQ, NH, and OZ. On the first three carriers, in particular, the F cabin seems to do well. I also fly in F on LH to FRA, and it can be difficult to find F seats for sale at times.

But I wouldn't pay to fly in F on UA on those same routes.

cesco.g

Not now. But, there was a time some pax did.

nikolastojsin

I have read your posts and have to respectfully disagree. In many ways, situation is reminiscent of 1970s Big Three (Detroit), when everyone (management, analysts etc. etc.) assumed something rather similar ("no one wants to drive European/Japanese cars in the US, US market is different"), only to be proven very wrong. Let us let SQ (or EK, or EY, or LH, or CX) start a fully-owned US subsidiary and see what happens.

I actually consider your Wall Street flying pattern analysis to be quite accurate; however, I do not think F traffic from NYC is entirely Wall Street-driven any more. (Data point: I have yet to notice any investment banker in UA's GF to Europe recently, though I have seen plenty of NY media types and pharma execs.) As for F traffic TO NYC, UA does not want to even try to go there...

gengar

I really can't fathom why you are so obsessed with the notion that an int'l F cabin cannot be profitable. With only two international destinations other than one ultra-long route on the 77W, AA is obviously focusing on key international destinations and/or specific routes where they believe the premiums work. You don't need to try so hard to rationalize against it.

cerealmarketer

I agree it can be - at a much smaller scale than UA is doing today.

AA has cut its 3 cabin substantially.

Unfortunately pmUA exited the deep South America market from JFK and MIA.

And it exited JFK-Europe.

I think there will be 3 cabin on a select routes 5 years from now on UA. But not much more than that. It's clear they are thinking hard about what scale if any they want to retain on Global First or we would have seen those 777s reconfigured much more quickly.

So far UA hasn't abandoned the First market to the scale that AA has. That 777-200 reconfig is a massive blow.

I don't doubt there are people who pay for 3 cabin first.

The issue is there aren't enough of them for US airlines to support growing it, or even supporting more than a few routes.

it's all about the margin here with these small cabin products.

There hasn't been enough growth in 3 cabin demand from other US based markets to offset the decline from financial services.

It's why AA and every other US carrier has scaled back 3 cabin operations.

High net worth doesn't support a global airline. Corporates are the volume that makes it work.

If Steve Wynn thinks there's a market for a 3 cabin airline, then we can talk.

He's the only Jobs type left in the US who understands aspirational for travel, unless one of you is in a position to raise capital and step up.

Always Flyin

I used to.

But there are a number of carriers who do make it work and they make it work on routes that UA flies.

Again, it won't work when you cut the offering so severely that no one will pay for it.

I continue to believe that UA and AA cut the value of the product, demand declined, and no they say there is no demand for GF. Self-fulfilling prophecy.

While I don't think it will work on every route, there are a number where it certainly will (e.g., flights to HKG).

I disagree that UA will keep a GF cabin on any routes. The is COdbaUA and CO was a two-class of service airline. The brand new 789s are being delivered with a far sub-standard C product. CO still thinks it is operating solely from captive hubs.

CO has shown no inclination to continue GF. They are just too cheap to pay to renovate aircraft that will be retired in the next few years.

Volga981

I do not thing there is such thing as "paid First demand." People do not care about how it is called; people care about the product and substitutes. If there is close and cheaper substitute (business first, or another airline), people will buy it.

There is overall travel demand, and First is a product within this travel good with its price and quality. How many people pay for First, depends on what they get for their money. Improve the product, and the number of seats sold will jump up.

cerealmarketer

You have to realize that corporate contracts forbid classes of service not based on fare but on cabin.

Fewer firms consider "First Class" acceptable from the U.S. than in 2007.

But "Business Class" whatever the price is fine.

It's completely illogical but how much of corporate travel is dictated.

Yet none of them are US based except for the few AA routes we've discussed.

I'd love for a Steve Wynn to step up and make something really aspirational but I don't think that happens unless as noted above foreign investment restrictions change.

Then Middle East and Asia demand subsidizes the U.S. though it still doesn't get around the absurd class rather than fare based restrictions at US corporates.

goodeats21

A very interesting and well thought-out post.

And I agree 100% on your comments about management.

Always Flyin

I'm not buying the argument.

U.S. businesses regularly cut costs without regard to the effect it will have on income.

CX flies between HKG and SFO and ORD. So does UA. CX can sell F seats on those routes because it offers a product that is worth what is being charged. United can't because it offers a crap product that even UA says is effectively business class.

LarkSFO

I bet you that in 2022, UA will still be offering a GF product. (It may be down to the last plane with this configuration, but it will still exist.)

What year do you think will be the last year UA will offer GF?

Steve Wynn is not that dumb.

Perhaps Richard Branson can (find the suckers with the deep pockets to) make this happen?? Wasn't this the Virgin concept?

Singapore_Schwing

All it did was send me to the GPU / Miles and copay page. Declined to take up the offer (standard $600+15k miles each way- No cash only buy-up offered). If it was something aggressive, or if flying with the wife who seems to appreciate GF more than I, sure I might consider it, but meh...

For reference, the overwater was SIN-HKG-SFO.