lhrsfo

This is the point. UA has to be ready to resume business to China and TPAC generally when the emergency subsides. Indeed, there might be some pent up demand, so having the capacity to fulfil it is important. Whilst on a day-to-day basis I have no doubt that they could sub in a 777 here and there, they can't schedule it months out as the frame might be needed back on its principal routes at any moment.

Meanwhile, as long as this continues, they will be losing cash in large quantities in that division, which the odd sub of a 777 on a domestic route is simply not going to recover. My guess is that they will increase the hot standby situation at their hubs, and try to bring forward any maintenance or repainting as the shop capacity permits.

uastarflyer

My guess is they will be conservative ramping back up though. Start with SFO, stagger the other hub restart dates. Maybe wait a bit before resuming 2x HKG from SFO, maybe 3-5x weekly instead of daily, things like that.

My worry is certain routes never make it back - ORD-HKG, something from LAX, that type of thing.

We may see some Y award sales to Asia though.

Dublin_rfk

Oh please yes. I have two TPAC's that have rescheduled to March/April. That said I don't see any chance of it actually happening.

EWR764

Long-haul flying is much more labor-intensive than domestic flying, and domestic yield, especially in “premium” markets WB capacity could be allocated to, largely exceeds China.

This might be the best alternative deployment of assets that cost a fortune to carry (77W and 787... depreciated 772s admittedly can be parked in the short-term more easily).

MysteryTour

Look for United to act defensively - cutting costs - to try to prop up the bottom line. Park the planes. Furlough the people. Cut costs on other routes. Delay spending money on capital improvements. This is the standard corporate playbook for a decline in revenue.

Trying to grow the business in the short term on other routes - in what is traditionally the slowest time of year for travel - I don't see them doing much in that regard.

EWR764

China has been an overall drag on Pacific yields and unit revenue for some time due to the aggressive capacity growth and fragmentation of the market. China is important strategically (slots/route authorities) and for corporate business, so there is little doubt the flights will be back, but until such time as high-value corporate travel demands the resumption of service, I don't think UA (or others, for that matter) view the suspension of service during a seasonal low period to be a tremendous negative. At worst, there are some benefits to be derived from the temporary suspension of what are, in all likelihood, marginal or loss-making services at this time of year.

spin88

I had frankly not thought about this, so glad you raised it. There is some evidence for the fact that Delta and AA were not making $$$ on their (far more limited) flights, likely as they are not in hubs that have high demand to China by an large, and so were carrying lots of connection traffic. This may be part of why they suspended for longer and did so more quickly than UA.

I had understood that UA makes money on it's china flights (in large part due to a strong base of corporate accounts) but that it has fallen as competition has gotten much fiercer as the Chinese carriers went from being clearly sub-par in service and product to being in a few cases (Hainan, China Southern) better airlines than UA by a lot....

JimInOhio

AA and DL are the #1 and #2 carriers at LAX which is the 2nd largest market in the US.

uastarflyer

But LAX has a glut of China (incl HKG and TPE) capacity. At SFO it isn’t quite the bloodbath. UA is likely doing better wrt China because if SFO and its key corporate contracts.

Kacee

An interesting point, but UA obviously has quite a bit invested in both the routes and equipment, so while the pre-NCV ROI may have been sub-optimal, I would assume that a zero ROI is even worse. Which leads back to the question of "what will they do with the equipment?" Personally, I'd love to see the return of bountiful $1100 RT P fares SFO-NYC, and easy 1K CPUs to HNL
LAX is a competitive bloodbath. Better to have well over 50% share at ATL or MSP (or DEN or IAH) than 30% share at LAX.

EWR764

That would be good by me!

Part of the issue with China is the fact that route authorities are use-it-or-lose-it, and they are essential for business traffic, so airlines have a much higher loss tolerance. During a seasonal low, especially over CNY, I wouldn't be surprised if not operating at all is a net positive. That won't be the case for long, though, and despite the fact that China hasn't outperformed the rest of the Pacific network in a few years, prolonged suspension will have a negative impact on revenue.

My point is that it probably makes more sense to actually fly the capital-intensive asset (by reallocating it elsewhere in the system) than park it until the situation improves... at least it can generate revenue to offset carrying cost. I think we can expect that the suspension of long-haul, low-yield flying will have a favorable short-term PRASM impact, but it's not meaningful because it's the result of an aberrational extrinsic circumstance.

Kacee

We are in complete agreement. Parking aircraft in the desert is not the answer.

I think that depends on the degree to which the extra domestic capacity impacts fares in the short term and whether they can maintain relatively high load factors. Which is where J. Edward's prediction we may see elite qualification promos comes into play.

EWR764

If the past 6-8 quarters is any indication, UA has maintained high load factors and incrementally increasing PRASM despite aggressively adding domestic capacity.

As for goosing elite qualification, UA is sufficiently diversified across a number of geographies (some of which are outperforming, like domestic, Latin and TATL) that I don't think even a several-month suspension of China service will necessitate the sort of promotions we saw during the recession of the late-aughts. China has been lagging for several years and HKG's performance in the last 6 months has been abysmal, so this is unfortunately just exacerbation of negative trends in the region.

If Taiwan, Singapore, Korea and Japan sustain a major drop in demand and yield as a result of the 2019-nCoV outbreak, that might cause me to change my position.

bocastephen

It's not only China, the global economy has been slowing before this outbreak, and overall business travel is scaling back. The virus situation just amplified and sped up what was already happening anyway. We still don't know how this virus thing will pan out - it could be a couple more months, or it could be longer, or it could turn into a global catastrophe that decimates our way of life. Too many variables at this point.

Having said this, Kirby only works in one direction - if the customers pull back and stop flying, he will only slash the product and tighten the screws even more. Remember USAir in the weeks and months post 9/11 under Balndanza-centric leadership where instead of enticing people back in the air, they decided that only full fare tickets would qualify towards elite status, and the attitude was either fly us or buzz off. That's all the insight we really need into his likely line of thinking, there won't be a soft landing or free lunch for anyone, but rather a move in the opposite direction, perhaps with significant capacity reductions.

moondog

I have fond memories of UA's objection to DL's first ATL-PVG application in ~1999. They had a graphic of the ~30 daily O&D passengers next to CRJ-200. UA beat out DL handily during that allocation with SFO-PEK or ORD-PEK iirc. These days, ATL-PVG is my most frequent transpac. I've never seen it full, which I like, but I've never seen horrid load factors either (even mid week). And, of course Detroit isn't as strong a market as Chicago, but if my destination was a different city in the Midwest, I would definitely go out of my way to take the 350 to DTW. SEA is a bit tougher because HU ensures that fares (especially premium) are very low.

As for AA, I went to one of the NBA exhibition games here a few years ago, and sat next to a bunch of AA execs (AA is a sponsor), and they flat out told me that they were getting destroyed in China. This was before they gave up on ORD.

While I'm certainly not a UA cheerleader, I would never say that HU or CZ are better than them from a strictly qualitative standpoint. Their onboard service and planes are okay enough, but Chinese airlines tend to suck at operations (less and less, admittedly) and customer service. That having been said, when you take price into account (e.g. HU almost always has $1500 business class fares on offer between somewhere in the US and somewhere in China), my tune changes a bit.