United Airlines CEO Says Other Airlines Are In “Denial” About Growth In 2023

United Airlines did not grow as originally hoped for in 2022. Growth in 2023 will also be more modest than originally forecast. United CEO Scott Kirby explained to investors yesterday that industry-wide capacity constraints will impact all airlines and that many of his competitors are in “denial” concerning realistic growth in the current environment.

United Airlines CEO Says Competitors Are In Denial Concerning Growth Targets

Speaking yesterday via webcast, Kirby first pointed out three problems facing all airlines that will hinder growth in 2023.

First, the pilot shortage continues to represent an industry-wide capacity constraint:

For a host of reasons, we believe the industry capacity aspirations for 2023 and beyond are simply unachievable. But, just like 2022, when the industry capacity was 7 points lower than initial guidance, and we believe that same thing will happen this year for the same reasons. We’ve talked a lot about the pilot shortage, which is just one of multiple constraints. We, along with Delta, American and Southwest alone are planning to hire about 8,000 pilots this year, compared to historical supply in the 6,000 to 7,000 range. Pilots are and will remain a significant constraint on capacity.

United hopes to pick off pilots from non-affiliated regional carriers and low-cost carriers through its Aviate training program and other recruitment efforts.

Second, more employees are calling in sick and are protected by law when doing so. This means more workers are needed to do the same thing:

Post COVID, all companies including airlines and the FAA need to staff at higher levels, lower experience levels combined with sick rates that are elevated because of COVID, and new state legislation that makes it a lot easier to call in sick. We believe any airline that tries to run at the same stepping levels that it had pre-pandemic is bound to fail and likely to tip over to meltdown anytime there are weather or air traffic control stress in the system. OEMs are behind on aircraft, on engines, on parts. Across the board, there are supply chain constraints that limit the ability of airlines to grow.

Kirby attributes a meltdown in part due to a mentality that believes that the same work can be done with the same number of employees as was done prior to the pandemic.

Third, outdated technology infrastructure on both a government level and airline level make smooth operations inherently more difficult.

The FAA and most airlines with the exception of the network carriers have outgrown their technology infrastructure and simply cannot operate reliably in this more challenging environment.

A perfect example is the Southwest Airlines crew scheduling system which was unable to handle the string of flight cancellations during poor winter last month.

More Pilots Necessary Simply To Keep Up With Existing Schedules

That’s why United sees the need for more pilots simply to keep up, not even necessarily to grow:

“Taking all of the above into the consideration, we think at United, we need to carry at least 5% more pilots per block hour than pre-pandemic. In addition to that, air traffic control challenges mean our taxi and in-route flight times are elevated and growing. So, the same number of block hours probably produces 4% to 5% fewer ASMs. Put it together, we need 10% more pilots and 5% more aircraft to produce the same number of pre-pandemic ASMs. Like it or not, that’s just the new reality and the new math for all airlines.”

Kirby implies that this problem is hardly unique to United and that other airlines that downplay this structural change and continue to insist that growth is possible under pre-pandemic parameters are simply in denial.

It’s intellectually hard and takes time to get through the denial phase. What happened over the holidays wasn’t a one-time event caused by the weather and it wasn’t just at one airline. One airline got the bulk of the media coverage, but the weather was the straw that broke the camel’s back for several. This keeps happening, over and over again. And you can see that despite good weather, ULCC still hadn’t recovered even as we entered the New Year.

Kirby believes that these structural changes favor United because United saw these headwinds coming earlier than its peers and has prepared accordingly.

CONCLUSION

Kirby said, “We flew a lot less last year than we’d have liked to fly, but we did it intentionally, because it gave us the breathing room to make even further investments in our technology and infrastructure, and increase our staffing levels.” Confident that it is now in a position to grow, albeit more modestly than originally hoped for, United believes that other carriers are deluding themselves in thinking that growth is possible in the current environment of the airline industry.

image: @scottkirby / Instagram