Four Initiatives That Have Changed United Airlines’ Flight Plan

United Airlines has a long history as one of the largest U.S. airlines. They have been involved in some big transactions, including buying Pan Am’s Pacific unit in 1985 and later merging with Continental Airlines in 2010. They also have made some big mistakes, including trying to become a full travel company called Allegis and creating the ill-fated airline within an airline called Ted. Many joked then that “Ted is the end of United.” One CEO was fired for flying flights considered to be a bribe to the NY Port Authority’s chairman. Throughout their long history, they also were considered to have acrimonious relationships with their employees represented by unions.

Over the last few years, under the leadership of Scott Kirby, the company has moved into a much more positive position. The company is still facing some significant challenges due to a route network that has more competitive pressures than their main competitors. But four key changes under Kirby’s leadership have righted a ship that previously was floundering at sea:

Strong Focus On Unit Costs

Large global airlines like United tend to focus almost exclusively on revenue. They have complex organizations aimed at attracting and retaining higher-paying business customers. This informs them how to design their route networks, configure the seating on their planes, and how their airport ticket counters are set up. These efforts are often successful at meeting the revenue goal, but at the cost of adding significant expense to their organizations.

In their third quarter 2021 earnings release, United focused more on costs than any of their worldwide competitors. The company specifically stated that they expected “2022 Casm-ex (Unit costs excluding fuel costs) to be below Casm-ex in 2019”. This focus on cost separates them in a very important way — they recognize that customers want low fares, and if they can’t profitably serve those customers, their business is in trouble. This doesn’t take away their focus on higher-paying business customers, but that travel is taking longer to return and certain aspects of that travel may not return for many years.

Build On Points Of Strength

Big airlines operate big connecting hubs. Think Atlanta, Dallas, Chicago as the best examples. The scheduling behind these hubs has evolved in various ways. At some point, airlines scheduled in “waves”, meaning no specific time windows during which planes arrive and depart. The theory was that with so many flights, natural connections will happen. Scott Kirby changed this when at American and “re-banked” their biggest hubs. At United, Kirby has followed this same approach while also building up service at their biggest hubs.

This has proven to be very positive for the airline. Consider the Denver to Los Angeles market. A lot of people fly between these two cities, and each of United, Southwest, and Frontier serve the route with regular frequency. In the “local” market between Denver and LA, United is forced by the market to match the prices set by the lower-cost carriers. By adding service to more cities from Denver, United can replace a lower-paying local Denver-LA passenger with a higher-paying Kalispell, MT to Los Angeles passenger. In effect, they have reduced their exposure to low-cost carrier fares by filling their planes with higher-paying customers from more connection cities.

Improve Efficiency By Up-Gauging

When designing a connecting hub, big airlines often use a variety of airplanes. The biggest airplanes flying the heaviest-demand “trunk” routes, and smaller planes allow for good frequency between the hub and smaller cities. These smaller planes have typically been flown by other companies in agreement with the big airline. The customer buys Delta Airlines, but gets on a plane painted as “Delta Connection” and that plane is flown by Republic Airlines.

Small regional jets have lower trip costs than bigger planes, but significantly higher costs per seat. This is because they don’t have many seats. Customer tickets are priced per seat, so if the seat cost is higher than the ticket price, the airline will lose money on that customer. United has addressed this by placing a big order for new aircraft that will replace many regional jets with larger, more seat-cost efficient Boeing 737s and Airbus A320s. This strategy will help them meet their aggressive unit cost goals, but also will affect the level of frequency they can offer between their hubs and the smallest cities. Still, it moves United down a path not taken by worldwide competitors with similar revenue strategies, and in that way distinguishes them as more creative and innovative.

Give People A Reason To Believe In The Future

The pandemic forced the airline industry to look inward and focus on near-term liquidity and survival. When demand dropped with the pandemic, airlines were forced to face fleet, employee, and customer issues in new ways. For the first year or two of the pandemic, no one could fault the industry for focusing more on the near-term than the long-term.

Employees, investors and customers all like companies that think about the future, too. While focusing on costs and buying more cost-efficient planes, United has committed to buy supersonic aircraft from a company called Boom and also placed an order for smaller electric planes to replace more regional jets with a sustainable option. No one thinks these will fundamentally change United anytime soon, but in trying to create a culture of hope and belief in the future, these deals are very effective. This suggests leadership that can focus on the present but keep an eye on the future and what is changing, and this is probably the most significant change in flight plan by United.

United still has problems and is not totally out of the woods. The return of long-haul, international travel is sluggish and this affects them in meaningful ways. They took an aggressive approach on employee vaccine mandates and now the Omicron variant seems to be busting through those vaccines and causing staff shortages. Their hubs are not as well defended as those by American and Delta. Yet, there is a sense of optimism and confidence in their communications today that is refreshing and encouraging. The structural changes they are making in their fleet, hub structure, and cost structure will help ensure their relevance and importance as the industry continues to evolve.