Earlier today, I wrote about United’s ultimatum at New York JFK: give us more slots or we will pull out. It’s a gutsy demand and not entirely reasonable, but represents a shrewd chess move with little downside.
Analysis – United Airlines Is Shrewd And Unreasonable In Latest JFK Demand
How United Reached This Point
First, let’s trace back how United Airlines got here. Less than 20 years ago, New York JFK was a bustling focus city for United. In addition to frequent transcontinental flights, United also offered service to London, Tokyo, and Washington Dulles. But with disgraced ex-CEO Jeff Smisek at the helm, the carrier pulled out of JFK completely in 2015, leasing its slots to Delta in an exchange for Newark (EWR) slots that ultimately backfired for United.
JFK is an important market for New York City and West Coast residents and the unintended consequences of leaving JFK were the loss of corporate business in other markets since many travelers are averse to flying into Newark (EWR).
Very early in his tenure as United’s President, Scott Kirby made clear he wanted United to return to JFK. The pandemic finally made that possible, though United was only granted sufficient slots for two flights per day between its west coast hubs, San Francisco and Los Angeles, and JFK.
The Current Problem At JFK
Understandably, the limited flight footprint dampened the appeal of service at JFK. Indeed, the limited flight schedule did not produce the sort of premium demand United was hoping for, leading the carrier to pull its premium-heavy Boeing 767-300 jets on the route for its aging Boeing 757-200 jets, representing a sizable premium capacity reduction (though overall capacity increase due to more economy class seats).
Leveraging The American Airlines – JetBlue Northeast Alliance
Now United is strategically trying to use anti-trust concerns over the JetBlue-American Airlines partnership to gain free slots at JFK. Make no mistake, the timing of this salvo to the FAA is an attempt to position United to benefit from any slot divestment requirements that would likely be part of a deal between the U.S. Department of Transportation (DOT) and JetBlue-American in order for their Northeast Alliance to proceed.
Of course, United is not so explicit in its intentions. Instead, United argues that airport improvements at JFK over the last decade should mean more takeoffs and landings are possible.
The problem (and ask anyone who flies out of JFK) is that the airport is still heavily congested. While the runway work may have helped to mitigate the congestion, there is still extreme congestion in the afternoon hours that routinely leads to waiting times of 30-40 minutes to takeoff. United rightly points out that it does more with less at Newark (three runways instead of two), but United’s operational performance at Newark has been poor this summer and the case of Newark is hardly a compelling argument for more slots at JFK.
United’s Cozy Relationship With Biden Administration
Yet, United is right to try. Over the last two years, it has courted favor with the Biden Administration through its early vaccine mandate, carbon capture initiatives, COVID-19 vaccine and baby formula deliveries, repatriation flights for Afghan refugees, and investment in electric aircraft and energy-efficient supersonic planes.
This is where, as the old adage goes, one hand washes the other. While granting any sort of favoritism to United would be denied, United has laid the foundations for this moment over the last several years. Its cultivation of key relationships with the present administration makes it at least possible that FAA authorities, even while insisting this is for competitive reasons, give in to United’s demands.
Slot Waiver Restrictions Set To Expire
There’s another issue at play at JFK: slot waiver restrictions. Over the summer, the FAA extended slot waiver restrictions to carriers at JFK. This includes waivers for international operations only and is set to expire on October 29, 2022, which will mark the early stages of the winter schedule for the northern hemisphere, generally a period of reduced demand between the U.S. and Europe. Delta was a huge proponent of this waiver, blame staffing issues due to COVID-19 for its inability to operate a full schedule and the FAA has gone along. Now United is using this as a wedge to argue that allowing it to add more flights will be better for consumers than a further extension of the slot waiver. Ironically, if the slot waiver is not extended, United will lose its current slots at the end of October.
The Ghost Of US Airways
Finally, Kirby should realize that those who play with fire often end up getting burned. Let us not forget that it was Kirby who orchestrated the great slot swap between US Airways and Delta in 2011, which gave Delta an unprecedented foot in New York LaGuardia (LGA) in exchange for more slots at Washington National (DCA). In retrospect, the move was a huge blunder.
Here, though, United’s flights are not performing to expectations at JFK and the threat to suspend service provides a nice cover for bailing on unprofitable routes. Even so, multiple sources within United tell Live and Let’s Fly that JFK remains a huge priority for United and that if given the opportunity, it would launch up to 20 daily flights between the West Coast and JFK.
CONCLUSION
United’s latest chess move at JFK is unreasonable in that United willingly walked away from the airport in 2017. Even so, the latest demand provides strategic cover for canceling an unprofitable route and if it does work, United is prepared to quickly ramp up services at JFK.
Do you think United will gain more slots at JFK?
Anyone flying to anywhere out of JFK has so many better options to chose than United. United would be my last option so I could not care less how many slots they have there. Life is like a boomerang. What they did to JFK in the past is now coming back to bit them.
Give me a break. United never had a “bustling focus city” at JFK. At most they had just over 30 flights? 6 a day to LAX, 6 to SFO at peak, 3 to london, 1 to Tokyo, and 5-6 50 seaters to Dulles. If you go to pre 9/11 add in a flight to Buenos Aires, a flight to Sao Paulo, and a flight to Seattle. That’s 25 flights. Maybe a few special ones here and there. Not a bustling base at all. Need to be realistic. Even if they had that level of flying today they’d be DWARFED by all others and irrelevant. Newark is the best thing that happened to United to serve the area. Sure they cant serve everybody, but the traffic is high yield at Newark and United has it mostly to itself. Is it as “glamorous” or as “prestigious”? No,
Will it serve every customer in the tri-state region? No. But neither will JFK or LGA. but it’s theirs. and it’s high yield, higher than JFK. tbd as to what happens but no matter what, even if they were still at JFK, they wouldnt be relevant.
Dwarfed yes, irrelevant no. The two flights per day on the crappy 757-200s make UA unattractive to all but the most die-hard loyalists. People will still book UA based on price, but UA cannot enjoy a revenue premium with its current arrangement.
United had its most profitable years ever during the late 2010s when it didnt serve JFK. Sure some people might fly somebody else and not fly United, but they certainly didnt suffer not being there. Newark has higher yielding traffic and lots of corporate traffic that cannot be served from JFK, plus lots of wealthy leisure traffic. Though not as glamorous, United owns it. They’re doing just fine.
But you can’t blame UA for wanting its cake and eating it too.
I think there was a shuttle between ORD and JFK that ran almost hourly. Also, there was a flight between JFK and CCS.
Matthew… good analysis, but note that United current JFK slots are available precisely because of the exemptions. They don’t own the slots they are using. So, at the moment, absent agreement otherwise, they’d have to cease service on 10/29 as the waivers expire then. The 767 > 757 replacement is actually a capacity increase, but not of the “good” variety. 767s are substantially all deployed overseas.
United is willing to lose a LOT of money to make JFK work. But they can’t do it without the rights to fly there. And absent a change in circumstances, they don’t have it after 10/29.
Indeed, I should have captured those points more clearly. I have updated my story.
To echo what GKK said above, and from the letter I read from Scott Kirby to employees, if they suspend service next month, I think it is because they no longer have these temporary slots. Whether they want to or not, I think they’ll have to without their own permanent slots.
Honestly I think this threat is a smart move though. It is clear Kirby will do whatever it takes to grow at JFK, and with the AA/B6 stuff going on now it seems like a good time for this. I think United also has a compelling argument. It’s just unfortunate that they only fly 757s on this route if it as important as Kirby says it is.
I think the switch to 757 was due to operational performance and not profitability. LAX and SFO see very few 767’s and they typically come from hubs with a maintenance base. both of those hubs can service 757 which alleviates a lot of operational pain.
You are correct. I talked to my United business account manager last week about it and asked if the Polaris sears will return to JFK, and he specially said the 767 won’t anytime soon because of operational issues. I understand that, the 767 doesn’t fly to LAX or SFO at all right now, so I see why JFK doesn’t make sense for it. However, why not put a 777 on it? There are plenty of 777s at both LAX and SFO. Or even a 787 if you’re feeling fancy.
I’m convinced it was not just operational performance but the fact that the 763s routinely went out with open seats in J and PP.
I understand that a new entrant in a market means that consumers should be better off, but I’m not sure consumers ex-JFK are better off with or without United. There’s some *A Int’l feed on either end, but nearly all passengers would be O/D. That would be fine if they didn’t already have 4 other carriers prying the route. Aside from airline preference, I just don’t see what consumers would get from UA that they’re not already getting from AA, DL, AS, or B6. If slots were added to JFK-LAX/SFO it would make more sense to me to award them to NK or F9 before UA got them. I don’t think UA leaving JFK is a threat anybody cares about, save for the few remaining UA loyalists on Long Island (if any remain).
I believe United will get a few additional slots but not enough to have a busy schedule. The move out of JFK was foolhardy which many saw at the time it was happening.
Building up at JFK is difficult. Look at Alaska Airlines. They have tried hard to do with limited slots.
Kirby just comes across as being whiny here. If United wants slots, let them buy them. Or he could argue that slots should be auctioned off for 10 year terms on a rotating basis “in the public interest”. At least that would sound a bit less self-serving.
It’s interesting to me that we get these deep business analysis posts from you on United, from Gary Leff on American, etc…
But no one ever seems to analyze Delta’s strategy, business model, etc.
Why?
Excellent point. I’m guessing it’s because to the DL fanbois, DL can do no wrong, and they’d never say anything sideways about them, for fear of making themselves look worse.
Delta sucks!
In United were serious they would do three round trips per day on the following routes:
JFK-SFO (one east bound red-eye)
JFK-LAX (one east bound red-eye)
JFK-IAH (to connect to South Am)
JFK-ORD
JFK-DEN
JFK-LHR (they would be the ONLY *A airline to do JFK-LHR)
They should also cohabitate with as many *A carriers as possible in one terminal to provide connections and common *A services such as lounge access.
Ultimately, the key issue is that business travel for the tech sector remains down. There’s no reason to fly cross-country for a meeting if the 6 people you were planning on meeting are only in the office at most 2-3 days a week.
As someone who used to do the SFO-NYC trip frequently, I *much* preferred JFK to EWR (ew), and would be using it, other than the fact that my business travel is way down. And I’m not alone in that respect. That’s why they couldn’t fill the 767 J cabins.
UA’s current slots are temporary. So, if not extended, they have to cease the service anyway. I am not sure if UA would gain much by securing few more slots at JFK. Their Premium Service (PS) from JFK to LAX/SFO was once a standout product, but AA and DL caught up and with now JetBlue’s Mint, there is not much UA can differentiate. For UA to make meaningful revenue operations out of JFK, they need at least 20+ slots (and mostly would be used for LAX/SFO Transcon services). But FAA, for sure, wouldn’t grant that! Apart from operating from a more prestigious airport than EWR (and celebrity heavy LAX-JFK route), UA may not gain much. But that said, I agree with your argument: throw a stone and see if you are lucky to get a few slots. You never know what would happen in airline business. Those JFK slots are always valuable! UA should focus on improving customer experience at EWR. Kirby and Munoz realized that what a terrible mistake Smisek made by downsizing Washington Dulles in favor of EWR. New York airport traffic is highly fragmented and EWR on its own has good O&D traffic. So, UA would be better of focusing more on EWR by making it mostly an O&D airport and use IAD for north-south connectivity.
The original decision to emphasize EWR over JFK was a very poor one. While I think they are right to want to get more back into JFK, whether this will work to get there is a good question.
I wonder how much more capacity for UA that IAD has. The new terminal is years off. I’m not sure about slots, but inside C/D itself seems pretty at capacity. I don’t think you can crowd any more people in. It is consistently the most densely packed terminal I see. One time this summer the non-pre-check security lines in the lower level were backed up to near the UA premier check in area, snaking around several times before you even got to the escalator. I was chatting with one of the security people about the crowd and he said it was pretty much all UA flyers.
Compare the arrival rates at JFK with slot limitations. (See for example https://www.faa.gov/airports/planning_capacity/profiles/media/JFK-Airport-Capacity-Profile-2014.pdf which predates several initiatives and procedures to increase capacity). There in fact is available capacity and congestion can be managed effectively. Hopefully DOT/FAA will make that capacity available to new entrants and limited incumbents as part of an effort to replace the current order. This will be good for travelers and put downward pressure on fares.
Regarding the lease of UA’s JFK slots to DL, is that a permanent arrangement? Will the slots revert to UA at some point in the future?
It’s temporary, but the duration of the agreement has never been disclosed.
As alluded to in the story and comments, Kirby is bluffing his way into a JFK footprint. However, to gain critical mass, he would need 30 to 40 flight in/out of the airport each day. Considering how constrained UA is with its current resources (pilots, F/As, ground crews, etc), not sure it could properly address any expansions without dropping service at other airports. Also, there’s no guarantee Kirby would be front and center if slots became available; other airlines may fight over the carcass.
Also, Terminal 7 is a hinderance. Low ceilings, pinch point TSA, gates butting up against each other, etc. Not an inviting place to pass thru. Reminds me of war torn LGA prior to its renovations. Only advantage at Terminal 7 is interchange with other Star Alliance airlines.
Not to mention, Terminal 7 will be demolished sometime soon after BA relocated to Terminal 8 at the end of this year.
And PANYNJ will be completely re-building a massive T1-T2-T3 joint terminal, requiring both demolition and phased closings of current terminals. So where UA is even going to get gate space is an open question.
When United pulled out of JFK they did not properly analyze the loss in revenue from corporate contracts that they lost from not operating those flights vs. the loss from operating the flights. That is why they want to operate flight to LAX and SFO.
matt; i was surprised to read your comment on sept 7 that UA go out of JFK with open seats in J. Air Canada seem to fill their J cabin up with auctions etc. either at the gate or when the booking is made. There are some conditions of course, especially concerning what fare you have paid in Y class.
When UA running the high J 763 with 44 seats in J and 21 in PP, it was the easiest upgrade in the system and routinely went out with open seats in the back.