entropy

Not only that, but in addition to not achieving ANY synergies thanks to their new network and all that garbage (remember, UA and CO didn't overlap much), the combined airline is saddled with structurally increased staffing costs due to their inferior (slow and clumsy) IT infrastructure for agents. Where 1 GA could handle a WB flight on UA, it takes 2 to handle a NB. Even at just $15/hour for agents, the amount of agent-time must be staggering.

The $2 Billion number they pulled out, more than 50% was already in the works (ongoing fleet replacement).

gengar

IMO the usage of stage-length-adjusted figures is fine as another methodology to compare revenues and costs, but to refer to it as a "real stat" while dismissing actual revenues/costs is fanboyism at its worst. Let me know when banks start allowing airlines to deposit stage-length-adjusted revenues and maybe you can talk.


Note TED was an abject failure that cost UA tens of millions of dollars.

BearX220

Possible. When I cross-shop WN and DL for coach fares, WN these days is invariably more expensive regardless of stage length. I don't think an F cabin is a magic yield machine. WN's "peanut fares" market profile is long gone.

Looks credible to me.

YQ charges have been decoupled from actual fuel costs for years. We've had short-term oil price slumps before and YQ was unaffected. It's not indexed. It's become a semi-fraudulent add-on, like a mandatory resort fee at a hotel that has zero relationship to the cost of towels and chaise lounges.

fly18725

I think there's a general misunderstanding of stage-length-adjusted figures, which results in them being summarily dismissed when convenient.

Stage-length-adjusted unit revenue and costs are critical when comparing unit revenue between airlines, a popular past time on FlyerTalk. The adjustment normalizes unit figures for the different networks and supports an "apples-to-apples" comparison. Without the adjustment, you're left with the conclusion that Southwest or US Airways are, by far, the highest yielding carriers in the U.S.

Stage-length-adjusted figures are not generally needed when comparing month-to-month or year-to-year unit changes for one airline, which is why they're usually not part of the discussion when UAL's traffic results are critiqued in unnecessary detail.

Stage-length-adjusted figures are not an indication of profitability. The strange thing is, I don't believe anyone ever claimed they were. Yet, some posters continue to dismiss stage-length-adjustments with this point. It's like responding to a claim that the sky is blue by saying its raining...

fastair

So with airline stocks taking a beating that makes the overall market's decline look mild on fears of a worldwide travel slump due to pandemic, has anyone in hindsight changed their mind about UA's capacity discipline relative to their peers? If wall street is right, those that thought UA's reductions/slow growth could be saying that UA made the right play by being conservative vs the aggressive capacity growth of it's peers. Clearly these results won't impact the Q3 numbers, but they could impact the forward looking results.

BearX220

Au contraire, I think we ought to be more worried about UA's performance in a downturn, not less. We've been through three or more boom years, and UA has struggled all the while. If the bottom drops out of the economy, or there is a protracted global Ebola scare, I think UA is less well equipped to ride things out.

entropy

Does anyone here conclude Southwest, with no first class cabin, gets a bigger mix of premium flyers and fares than Delta???

They only make sense if they properly capture the economics. Stage length adjustments might make sense to account for the impulse cost of takeoff fuel cost, airport fees (which are incurred once per trip thus have an outsized effect on trip cost) and thus are reflected in prices being higher for a shorthaul vs. longer haul.

I might accept that measurement on a domestic basis. However, in reality, the diversity of fleet types, and the very real cost of ULH flying, makes its utilization dubious. I'm sure there is a 'sweet spot' for aircraft that is not reflected, e.g. a 777 flying a 300 mile stage would have high unit costs, flying a 3500 mile stage would have the lowest cost, and an 8000 mile stage having high costs (2nd crew, tankering fuel). What those curves look like I do not know, but I'm pretty sure that the sqrt stage adjustment simply doesn't capture it.

entropy

Hard to do when you're making lease payments on shiny or plastic-y new planes, easier to do when you have a bunch of 30 year old DC9 variants that were paid for 10 years ago that you can just park.

FlyingNut724

The A320s used by TED saved UA post 9/11.

FlyingNut724

I think those people that still have to fly will keep flying. Since UA now appears to be catering to people that have never flown them before (or Joe credit card holder), they could feel the brunt more than other airlines that have been welcoming to UA refugees.

BearX220

You can hypothesize that an airline more exposed to discretionary travel by less loyal, more price-sensitive customers is at greater risk in a protracted travel downturn.

787fan

I don't recall either spirit or Ryanair clinging onto life support during 2008 era

The contrary position one can also argue the airlines more at risk are those with reckless expansion during better times (buying too many planes and plane sizes too big)

But then again its all academic

FlyWorld

I'm not clear how cutting the size of the airline to fly fewer people at higher margins will necessarily provide an advantage in the face of a pandemic-induced downturn in air travel.

There is a lot of flying that's been done since 2012, and the data shows that DL, for example, has captured a lot of the profit from that travel by expanding to serve demand, which UA chose to forgo so that it could shrink to improve margin metrics that maximize Smisek's personal bonus.

If it turns out that UA does better than DL in a downturn, we'd have to subtract from that "savvy" decision all the revenue they lost that UA and AA gained since the takeover and subsequent mismanagement of the company.

But, if air travel decreases by x% due to the pandemic fears, then wouldn't that x% decrease affect all airlines the same, assuming each experience an x% decline? In other words, if UA traffic falls 5% and DL traffic falls 5% then don't they both fall 5%? I don't see how the "shrink to margin metric" strategy would change this fact.

Further, if the pandemic fears result in changes to profitability of specific routes, both airlines can cut capacity on the routes where demand fell, so that they manage their ongoing exposure to the drop in demand.

Also, isn't it widely accepted as fact that DL has a greater revenue premium than UA? So, then, doesn't it follow that they can afford to take more loss than UA? DL's revenue premium is caused by HVFs who pay lots of money to buy expensive tickets whereas UA's margin enhancements come from the introduction of annoying fees and cutting of costs. The fees they charge will be just as vulnerable to a downturn as ticket revenue. The only conceivable advantage here is that the operating costs of the airline have been cut down, but they still have a high overall cost base despite this.

Finally, I think the real impact of this scenario will be linked with route-specific exposure. UA, for example, has several flights directly into the affected region. One might expect those flights to take harder hit than other flights that are farther from the situation.

Seems to me exposure to route specific factors will have a bigger impact on the results of such downtown than Smisek's decision to shrink the company as a general approach to running the airline.

denuaflier

United's cost structure is no way close to Spirit or Ryna. United can not compete on price with these airlines. In a downturn, united revenue management will not be able to extract higher fare as they are doing today.

fly18725

If you discard stage-length-adjustments, the date would indicate that Southwest generates better unit revenue than Delta. Hence the value of the adjustments when comparing airlines to each other.

If there's a different analytical objective, different metrics may make sense. However, people only want to compare United to Delta, which makes adjusted metrics relevant and accurate.