United Airlines CEO Scott Kirby sees three concerns that he warns constitute roadblocks to growth, even as United enjoys a return to profitably and strong demand for air travel.
United Airlines CEO Explains A Trio Of Roadblocks To Growth
In a memo to employees and again during an investors’ call over United’s Q2 financial results, Kirby laid out three “headwinds” that may adversely impact growth:
- Industrywide constraints that have created significant operational disruptions, and impose constraints on the industry’s ability to grow
- Sharply elevated fuel prices
- Growing likelihood of an economic slowdown or recession
Concerning industrywide constraints, Kirby noted that they have forced United to be smaller, which leads to overstaffing:
“To address the challenges posed by commercial aviation ecosystem that is straining to handle the number of planes operating today, we’ve elected to keep the United Airlines smaller and overstaffed in order to give us more buffer against these external constraints that we just can’t control. We’ll also continue to prioritize reliability by overstaffing until the entire aviation infrastructure returns to normal. What it means, that there will be cost pressures until that catches up and we can return to traditional utilization and staffing.”
What are these external restraints? Kirby lists several including:
- Pilot shortage, particularly with regional airlines that feed United mainline
- Reduction in longhaul Asian flying
- Aircraft delivery delays
- “Infrastructure constraints” that are impacting all of aviation
- Air Traffic Control issues would likely top that sub-list
Concerning fuel prices, Kirby sees high prices as less an existential threat, since costs are passed onto passengers, than a missed opportunity to increase margins:
“At current fuel prices, United fuel bill would be $9 billion higher than 2019. What it’s worth, we’re building our long-term plans, assuming that this is the new normal for fuel prices. The good news is that rising fuel costs are something that affects all airlines. And at least for United, we’ve seen this largely become a pass through expense today.”
Concerning demand, Kirby believes that an economic slowdown will likely be offset by a continuing surge in demand as the world emerges from pandemic and settles into a new normal:
“We continue to see strong demand. And one thing that is unique for United particularly and aviation in general, is that we’re still probably in the sixth or seventh inning of the COVID recovery. So there are two macro demand trends, recession versus continuing COVID recovery, working across purposes. And for now, at least, the COVID recovery trend is at least cancelling out and arguably exceeding the economic headwinds.”
The result will be growth of 8% in 2023, which is lower than United had forecasted earlier this year. This, Kirby explains, is necessary to prioritize operational reliability more than anything else.
Anything else, perhaps, except margins. Kirby was known as a bean counter at America West, US Airways, and American Airlines and that side came out in this comment in which Kirby assured investors United was on track for a 9% margin in 2023:
“And that perhaps is the most important point, at United, we will do whatever it takes to hit our margin target.”
“Whatever it takes” is strong language. If you ever wonder why United does not invest more in soft product, ponder on that statement.
While Kirby sees three headwinds to growth, two of the three he does not view as inherently problematic (higher fuel prices are passed on to customers and a recession will be offset by still-growing post-pandemic demand). That leaves the industry itself – the unknowns and the known problems of the pilot shortage, aging infrastructure, and aircraft delivery delays all of which may adversely impact United and the entire industry in the months ahead.
In other words, UA’s Polaris premium cabin soft product (in flight service/catering) will continue to be sub-par.. do not look for improvements. At least we have been told that now by United.
I am looking forward to Matthew’s look at UA Polaris catering and particularly – at least currently – how it stacks up with DL and AA on the transatlantic and transpacific flights.
And he said he would create the best airline in the world. LOL!!! Even if money was no problem UA lacks competence to deliver anything with quality.
Does he realize that revenue premium enhances margin – spend on the soft product and it will come
That said it was encouraging he assigned a very senior executive to specifically focus on menu development
Who was that Greg??
No Andrew, who runs the network.
Seems odd to me to have the network guy doing the menu but hey I will take anything at this point.
Agreed! So maybe Jared, now we now what to expect going forward. Waffles in the shape of Japan!! Oh lordy, lordy…
Haha I hope the food is improved. They mentioned Andrew will be doing both the onboard menu as well as the menus in the clubs. Both lag behind the top completion and could be improved so fingers crossed stuff actually gets improved.
The new interiors that Andrew and team designed are great, and the catering is drastically improved and on par with Delta at the new EWR club, so let’s hope we start seeing this system wide.
I flew them last week SFO-LHR in Polaris – the food was better. Printed menus are back. Lime/lemon slices for cocktails are back. An improved experience over June but still some way to go.
I’d like a side order of smile with that please.
This summer United has been pricing their (domestic at least) flights at sky high levels and bringing them down as flight dates get closer if they are not full. For those paying attention you can get some nice future flight credits, I currently have about $700 in FFCs. But I suspect most travelers won’t continue to watch and will be giving United free money. Given these comments I expect this practice to continue… or the return of change fees.
I must be stupid. How can you have a recession AND have strong post pandemic demand? Seems that post pandemic demand would cancel the ability of a full blown recession. And not just in the airline industry. I’m honestly thinking that absolutely no one, including me, knows what the hell they are even talking about anymore.
Because it’s not going to happen. Don’t get me wrong there will be a recession eventually, there always will be recessions periodically. .. just not anytime real soon. Recession talk is wishful thinking by Republicans who would rather see people suffer if it means they can score political points.
We’re not there yet. If the Fed keeps hiking the interest rates to combat soaring inflation, it could trigger that recession.
Everything is stupid right now. Mortgages, cars, airfares, my Wendy’s 4-for-4, they’re all up, but at the same time, stocks, crypto, precious metals, my 401k, are all down. I think something’s about to burst…
Do a story on the dog food on Delta like Boarding Area did. Much more interesting
United CEO lives on goverment bailouts and has popped out more than 2 kids, so he should be castrated.
I hope the CEO will do the right thing and castrate himself and post proof. Is he still walking around bullshitting about ESG while he pops out new human beings? His carbon footprint over the next few generations will be much larger than any virtue signaling he does now.
I think people with no kids should not be subjected to the same ESG restrictions as someone who has 7 kids. Reverse the progressive tax BS. More kids should mean higher taxes. But hypocritical progressives and conservatives will never agree to this because they are bunch of virtue signaling a$$holes at the core.
Kirby knows that Congress will continue to fork over billions no matter what. Protecting unions jobs is their top priority. Screw everyone else.
Whether you chose to believe to not, United continues to have ‘supply chain’ issues from many catering stations abroad. Many items continue to be “substituted” occasionally due to catering issues. It’s been quite the challenge on many areas.
Some other items that continue to be an issue are earbuds for economy cabin and the “green” u-shaped pillows. If you didn’t know, those pillows have a “shelf-life”, and often, then have to be replaced.. and the vendor is having their own issues meeting the quota. It’s very frustrating working flight, and have all some issues not be consistent with passenger expectation.
I’m not defending United.. I know from my experience on int’l flights (believe me, I’m very frustrated at times).. I DO know is that the Company is well-aware of all the issues, and it’s not a quick fix. Everything is a process these days… and things take much longer to get rectified when dealing with vendors.
As everyone knows, airlines worldwide are dealing with their own version of ‘issues’. LH, BA and many others have canceled thousands of flights for the summer. Let’s hope that by 2023, operational issues return with some sort of normalcy, so we don’t have to face all this chaotic mess when traveling through airports.
There a 4th problem: United’s product SUX!!!
Kirby has given bonuses to employees if they would move to other locations that need more workers because of his Covid policies. I’m talking tens of thousands of dollars to hundreds of employees! He spends investors money like it grows on trees. Other policies he has implemented haven’t worked either. A CPA is not bad for business, every business needs one. But this CPA is in way over his head and United and it’s investors need to put a real CEO that can lead United to become the best airline in the industry which it can be with the right leadership. Time for the change.