What would inhibit an airline from growing in 2023? A lack of pilots? A lack of airplanes? Perhaps poor infrastructure? For United Airlines CEO Scott Kirby, the biggest indicator is not even what might be coming, but how airlines are performing now when irregular operations inevitably take place. Specifically, Kirby points to the poor performance of Southwest Airlines and Frontier Airlines, United’s two largest competitors in Denver, to argue that it is “blindingly obvious” that their growth plans are not achievable.
United Airlines CEO Uses Southwest And Frontier To Make Point That Airlines Cannot Possibly Grow As Promised in 2023
I’ve been mulling over the United Airlines’ investor conference yesterday and continue to be drawn to United CEO Scott Kirby’s insistence that capacity growth is unrealistic for most U.S. carriers in 2023. He asserts that other airlines are fooling themselves when promising growth this year.
Here’s what Kirby said in full context, in response to a question about whether airlines would face more regulatory scrutiny if they scaled up flight schedules but experienced horrible operational performance.
“Well, I think what it’s going to lead to one way or another is less capacity. You just — it’s not mathematically possible for all the airlines to achieve their aspirations. And now, I’ll just give you the data. I’m not trying to pick on these two airlines. But, like this seems so blindingly obvious to me. And we talked about it a year ago, we were right all this year with capacity coming in 7 points lower, and I feel even more confident that we’re right today. And the data I’ll give you is snowstorm started — pretty big snowstorm started in Denver yesterday afternoon and it continued through this morning, 11 inches of snow. So, that’s a tough operating environment. There are 3 large airlines — there’s three airlines, so two in addition to United have big operations there.”
While Kirby does not name the airlines, he’s talking about Frontier Airlines and Southwest Airlines, which both have a large presence at Denver International Airport, often referred to as United’s most profitable hub. Kirby goes on to distinguish United from Frontier and Southwest, particularly in terms of completion factor, meaning the percentage of scheduled flights that are completed.
“Yesterday in Denver and our mainline, we had a 100% completion factor, so no cancellation. One airline canceled 12% of their flights, the other one canceled 27% of their flights. Starting off today, we’ve canceled a little less than 1%. Each of them have canceled 33% of their flights, like this isn’t new. And there’s like a dozen of the Wall Street analysts that breathlessly publish a weekly report on industry scheduled capacity. You guys are looking at the wrong data. If you want a forward indicator of what’s going to happen with capacity, you should watch completion factor.
“One of you should start looking at completion factor because airlines that are running like that, it means they can’t fly their schedule, and they’re going to have to adjust one way or another. That’s my thesis. That’s what happened last year, is what I think is going to happen next year. And all of the structural issues are multiyear — I mean all of them are three years at best to address. And you put all of them together, this is a long-term structural issue.
“And I think, it challenges us too, but we just did more to invest for that future, saw it coming earlier than others and are better prepared to deal with it than everyone else. But it does challenge us too. But really like don’t take my word for it, don’t take the others’ word for it, just watch the data. That’s what’s happening with completion factors, and that’s going to tell you whether we’re right again this year or everyone else is right when they say they’re going to achieve their aspirations.”
United’s growth has not matched earlier targets because it has built in more slack into the system. Kirby asserts that Frontier and Southwest still have not done so, meaning there is little room for error. So when bad weather hits, the weather itself may be the catalyst, but the ultimate cause of the flight cancellations is simply a lack of resources (mostly human, but technological as well) that can deal with such disruptions.
This is a very interesting theory to me, seems to make sense and one that I will be watching closely in the days and weeks ahead.
How is it that one storm can have such a dramatically different impact on carriers operating from the same airport with identical (or similar) aircraft types? Kirby says this problem essentially illuminates why other airlines will not grow in 2023. I think he’s right.
image: United Airlines
United really should focus on trying to get Southwest to retreat in Denver. A lot of people used to like Southwest, which I never understood, but now a lot of the people I know that used to be Southwest loyalists are avoiding it.
Southwest knows they are screwed and is charging even lower fares to try to get customers back. For example I was just booking travel to the Super Bowl for 10 of my employees, and Southwest was less than half of everyone else. This is an example of how desperate they are to get people back. But one of my employees said they’d rather fly Spirit than Southwest, so I think that says it all.
It is obvious this brings a golden opportunity to United on how to capitalize Southwest’s failures and advance even further on those slots and new gates. You could say this landed on Kirby’s lap with a bow on top. DEN was already well on its way to becoming United’s biggest hub, now this will truly help United leapfrog and consolidate itself as the only main player. This will help United create the fortress hub it always dreamed of in DEN. Now remember this Jared, we’ve discussed this before. United is in an expansionary cycle, AA is contracting. If Kirby plays his cards right, he should totally go after AA at JFK. It not only has the aircraft and technology to do so, but it has the capacity to grow the wide body orders to spare and develop that hub in a way AA could only dream of doing. United’s main goal should be to consolidate as the largest international player in NYC absorb the capacity that’s there for the taking and bringing the battle to Dl face to face in their home turf. Finally , United will get AA to push out and retreat to shitty Philly!! Lol Again, remember my main thesis, the origin of this paradigm, United is expanding, American is retreating.
Hard to argue with any of that.
As much as I have hated some of the things this guy has done in the past, he seems to be cleared-eyed, no BS, and a decent leader (for a gigantic US corporation). United gets a lot of things right most of the time.
It really feels like the United/Delta duopoly is coming soon. Sucks for consumers (higher prices), but might actually make the airlines improve their products.
Southwest has already said they pulled forward a lot of future growth plans (new cities, routes) during the pandemic, and that they wouldn’t be adding much in the near-term… and their order book is largely replacement for 737-700s. Plus, of course, a lot of focus is going to turn towards internal process and that’ll distract from growth opportunities. So Kirby isn’t really revealing too much there.
What an idiot.
How much money did this guy waste trying to run Spirit out of Dallas when he was at AA?
Barry Biffle, Frontier CEO, is that you?
How much of United’s regional feed did they cancel to preserve that completion factor?