flybit

lets hope they agree to fly the C100 plane from Bombardier. We dont want more E75 and 190s.

Two Bee

1/24/2018 2 P.M.EST

Yahoo Finance, "United Continental Holdings (UAL): Shares are getting hit in midday trading, down around 12%. The reason? United said it vows to match low fares from its competitors and expand capacity. Investors fear already tight margins will be squeezed even further."

AAExPlat

To each their own, but for me, I prefer mainline over regional service any day of the week for a slew of reasons.

prestonh

How is PRASM going to grow when they are going to dump 2000 seats of CR2 on the market? Does UA really expect to get to DL yield from E- in literally the worst aircraft to fly? There is an obvious disconnect in the plan, investors see that and the expansion of a fare war with Sprint, maybe with OAL.

spin88

The truth is that while PRASM falls reflect UA getting less on average for each seat, that does not mean that people who fly a lot end up getting cheaper seats if they go with United. Some of PRASM loss is not filling seats as you try to keep prices up (UA had that problem this quarter, its LF dropped by .7%) Some of it is offloading capacity to aggregators (e.g. before the 77W and 789 reared their narrow seated heads, I booked trips where UA legs were very, very cheap, making the whole trip $400-500-600/ticket cheaper than avoiding UA all together.) Some of it is offering yet bigger discounts to managed traffic (e.g. a recent poster's corporate rate for J was 60+% off the fares UA.com offered). Some of it is discounting around the edges, at times when FFers may not buy tickets. United is also opened up certain fare buckets on some flights booked in advance, in essence acknowledging they can't get higher prices later. E.g. I just booked SFO-LIH at a peak time, and UA was for the first time I had ever seen on this route cheaper than OALs, and the price I bought at was $400/ticket cheaper than United had been before they dropped their prices.

I have certainly seem some good fares on UA - but I've also seen DL be lower in price (for either Y or F) domestically on certain routes. Bottom line is that outside of a few examples, UA's revenue issues have not made United over-all a cheaper airline for me to fly. United has instead offered me less in the way of product, service, and FF benefits, at the same price OALs will fly me.

They are doing much better in this department, having gotten beyond Jeff's "anything beyond 80% has diminishing returns" view of the world. This said, the numbers so far don't suggest that simply fixing the OT issues will cause traffic to return. These folks are gone to other airlines that happen to also be OT. United is going to have to outperform and offer a better overall package to regain the traffic it lost (and it appears is still losing). United's ongoing talk about "natural share", along with more CRJ-200s, and a slow roll-out of Polaris and now PE, suggests to me that they still don't get it

It is not a winning strategy. Very high CASM, unhappy customers, more comfortable competitors, what could go wrong? The entire thing smacks of plan-C. United does not have any small single aisles in the pipeline (the only outstanding orders are for MAX9s), no contract allowing something like the C100 Delta is bringing onboard. So go back to the old pmCO paybook of lots of little planes. Oscar did a nice job of explaining the book away by FFs offered cruddy RJs vs. decent mainline, but he seems to have lost that argument to Kirby who is now running the show.

I don't think there is anything good - from a customer standpoint - in ongoing under-performance. The Analysts push for more product/service cuts and efforts to sqeeze more revenue out of existing traffic (see BE mess), and it gets very hard to push for what UA needs, which is expanded mainline domestic lift and better product.

I think its short sighted to go back to more of what - in part as Oscar admitted - got UA into trouble in the first place. Again, its plan-C, not anything designed to make United into a better airline.

EWR764

Part of the issue was operating those aircraft in prime markets (Kirby always cites ORD-DFW and EWR-ATL) with inferior schedules that drove pax elsewhere. If the aircraft are staying in either short-haul (<500mi), smaller markets where the competition is largely comprised of 50-seaters, or competition is nonexistent, I don't see a problem with it. Kirby acknowledges that UA is not offering a competitive product where other carriers have mainline or two-cabin regional service.

They went to great lengths to characterize this as 'temporary', and I have no reason not to believe this is the case... with fuel back on the rise, maintenance costs increasing (for older aircraft) and limited revenue generating potential, 50-seaters are not a long-term solution. This is the lowest-hanging fruit for UA to spool up some cheap capacity.

Austin787

There is still 1 mainline on AUS-EWR during winter; the RJ flights are on E175 which I prefer over any mainline. At least no 50-seaters. More mainline appears on AUS-EWR starting in spring months.

fly18725

They'll fly the planes to places like CMI, CHO, COU, RST, SGF, and other airports where many people don't recognize the codes. This plays into the strategy United calls 'expanded hub connectivity' or 'improved hub quality.' The small airplanes will be used to fly to small markets that have less competition and higher yields, bringing more connections into the hubs and strengthening the hub network.

This is a particularly bold claim. Can you explain how are more routes, more capacity and lower fares bad for the customers? I get that yesterday's investor update upsets investors (of UAL and other airlines) and gets short sellers excited. I really struggle to understand how there's nothing good for customers.

I also missed where analysts pushed for more product/services cuts, unless you could equate capacity with products/services. Can you please provide a citation for this statement or update your quote to accurately reflect what was discussed at a material event?

minnyfly

The little thing known as competition - or the lack thereof - largely explains the gap.







You are spot on, and I believe you're actually justifying most, if not all, the margin gap between UA and AA/DL. Right now UA is at a structural disadvantage with their hub network with the current economy. For starters their hubs are highly competitive. UA has to compete far more than AA or DL with their fortress hubs and uncompetitive markets. UA doesn't have a single hub without a competitor hub in the same city. That limits their ability to raise yields by constricting capacity. UA has not been able to gain as much from industry consolidation. And second, for quite a few years now domestic has been strong and international has been weak. International flying also is commonly subject to widespread and aggressive competition. UA is much more internationally tilted than AA/DL. Domestic traffic is where the profits have been at. And that's what UA is working on to improve. Some of it is likely of their own doing - not growing domestic in years past when needed - but there's simply no getting around that UA doesn't have a hub that can dominate domestically like ATL, DFW, or CLT can, nor one that boast high margins like MSP or DTW can.

A) You're definitely in the minority of people that feel that way.

b) That's not what businesses want. They want you to pay more for the same or less. They don't want you to pay more unless there's an even greater payoff for them. For example if airlines could spend another $50 per person and automatically get $100 more in return, they'd do it in a heartbeat. But that's not what the general customer wants, and it's a poor way to run an airline if your business model was based on the few people that wanted to pay more to get more.

C) There's no evidence that higher margins leads to universally more consumer-friendly practices. It's poor economics, and the industry displays the opposite behavior.

Part of it is network. UA's hubs are not massive and require more regional jets to maintain economical connectivity. Another is the current state of UA. They're maxed out on large RJs with their scope clause and could use more mainline aircraft. Additional mainline aircraft will be coming over the next few years, and I'm sure the scope clause will come up again when it's time to negotiate with their pilots. Also using 50-seaters does not prevent high-margin operations. MSP and DTW have long been DL's two-highest or two of three-highest margin hubs. And yet they have the highest concentration of 50-seaters in DL's network, and are flooded with CRJs both large and small. I believe currently DL does not have single E175 flying to MSP, for example. What really matters is supply/demand.


It's a misplaced concern. The opposite effect is what we see in general. Airlines spend more and give customers more in areas where revenue or margins are weak.

Economically there's no reason to give customers more just because revenue and margins are high.

Aircraft type doesn't determine the vast majority of yields. For example, recently UA has been aggressively adding routes and destinations in high-yield small markets. That's yield that they didn't even have access to previously. A 50-seater is better than no flight at all.

DL and AA get tremendous yield from 50-seaters and marginally better CR7/9s. UA can do the same.

FreqFlyerCLE

I find it fascinating (and sad) that UA is talking about adding more RJs, especially 50 seaters, to fleet given that SMI/J claimed that a lack of regional pilots and high cost of flying RJs was a major factor to closing the CLE hub. Oh well...

sinoflyer

Shouldn't we wait to see where UA actually deploys the CR2s, before condemning the move? If it means returning to airports like CLD and IPL, and bolstering the schedules of, say, LAX-MRY (I'm thinking LAX-centrically at the moment), I'm all for it. Overall, I'm still skeptical that UA can pull this off, but I sound like a broken record when I say that I'll withhold judgment until UA actually publishes an enhanced schedule.

spin88

There is clearly a tension between Kirby's statements that (a) UA cut capacity too much, particularly into secondary markets, (b) UA could not compete with RJs in the face of "two class A/C", and (c) UA now trying - I think they need to get scope relief before they can do anything - to pour back in single class, no E+ RJs where DL/AA is flying larger two class planes. The whole thing (adding crj-200 flights, counting on BE, and new revenue management) does not sound like a real turn around plan, rather its putting lipstick on a pig.

The call was interesting in how much Kirby tried to pitch the need for UA to grow to be able to compete. I 100% agree with him, the analyists who called for shrinking to more profit were dead wrong, and Kirby certainly calls them out on it. However, I don't detect any understanding of what it will take for United to win back traffic they lost. These travelers have now flown DL or AA or AS for a few years, have miles, patterns, status. United has to do more than simply add some flights into places that are competitive.

Transcript is here: https://seekingalpha.com/article/413...pt?part=single

Things I found interesting (all are quotes):

Kirby
the network is the foundation of everything that we do and for as long as I've been around in the airline business, people have talked about the potential that exists at United Airlines and have been frustrated with when are we going to realize that potential.But I’m going to start by at least taking a minute to talk about the uniquely United strengths and I talked about our strong international gateways. We have hubs in the five largest cities. What's remarkable actually is that the seven United Airlines hubs account for 80% of the premium demand in the United States, international premium demand is coming from the seven United Airlines hubs.

And what happened at United is United was shrinking and frankly shrinking because they're getting pressure from rooms like this to shrink. And as United was shrinking, what United did was took the regional jets out of markets like Rochester, Minnesota and put them into markets like Newark, Atlanta and DFW to Chicago and that caused three damaging effects at United Airlines.First, we lost that high yield traffic from Rochester that used to support the whole network. Second, we put regional jets into competition with American and Delta where they were flying mainline equipment and we lost customers who used to fly us and now we pushed them to our competitors, because they didn't like the product. And third, we had employees who were screaming at us, this is stupid, why are you doing this, and we alienated them and they were right, they were right that we shouldn’t have been doing that.

The opportunity at United is not about shrinking. The opportunity at United is about growing back to where United frankly should have been had it not went to negative 8% growth across the last several years.

Nocella:
We worked with our alliance partners and they and Lufthansa as we really understand how this works, how many people are going to buy it from coach, how many people are going to buy down from business class and we also think this is going to be a big home run for United Airlines. It will take about three years to fully roll out across our international system. There's a lot of aircraft to convert, but in three years’ time, we'll have this product out there and I think it's going to be a great home run.

halls120

a) I understand I am not in the majority.

b) I'm not paying more to get less. If they want to turn the back of the airplane into a miserable sardine can, I'm fine with it - as long as they offer me a more appealing option, like PE. Which, they are finally doing, even though it won't be done for at least another 3 years. In the meantime, I'll continue voting with my wallet and spending 60% of what my pre-merger spend was with UA at UA, and the other 40% with the competition. How is that helping UA's business model?

c) enlightened leadership can produce both higher margins and consumer friendly products. Sadly, enlightened leadership hasn't been a strong suit at UA for a long time. Which is sad for the majority of the hard working front line UA employees who are frankly embarrassed at the product they provide.

I hope it will be a home run. They'll need it, given how behind the curve they are at this point.

spin88

I hope that they (a) roll it out quickly, and (b) come up with a reasonable price structure. I am a little concerned if they are basing projections on ANA and LH, both of which (a) have much better Y product than the new United, and (b) rely much less on elite traffic, and (c) have always had more non-discounted J traffic - and bigger J sections, than does UA. I would expect United to have far more demand for PE given its horrible Y and large number of discounted corporate J deals.

CALMSP

the EWR-ATL was moving towards the ERJ even before the merger. I never understood why this was done, although, after CO dumped the 733/735, the only option was the ERJ or 738. As you say, hopefully this will continue to change towards more mainline.