United Airlines CEO Scott Kirby has analyzed industry-wide earnings numbers in a video message to employees, arguing that the future of United Airlines is bright, even if a recession hits and the broader airline industry falters. Unlike in more public settings, Kirby names names here. But even so, there are (self-admitted) warning signs that United is now reckoning with that may soon dampen Kirby’s optimistic outlook.
United CEO Scott Kirby Analyzes Airline Industry, Future Of United Airlines
Kirby begins his video, which was viewed by Live And Let’s Fly, by thanking employees for their work to stabilize operations during what has been a very tumultuous summer of travel. He then pivots earnings, noting, “We’ve now finished the second quarter earnings reports, and we have a good idea of where everyone stands in the industry.”
On Winners And Losers
Kirby believes the airline industry is bifurcating into two tiers, with United, Alaska, and Delta alone in the top-tier:
“[T]he industry has really bifurcated into three airlines, United, Alaska, and Delta, that are at the top of the pack and then everyone else. I mean, it is pretty remarkable. American Airlines is just going to be break even. Southwest Airlines is going to actually lose money after decades of being the industry leader. They’re going to actually lose money here in what is the second-best quarter of the year.”
To illustrate, he presented a chart showing projected 2024 Q3 pre-tax margin for eight major US carriers with United, Alaska, and Delta all at 9%. Spirit, at the opposite end, is projected to have a pre-tax margin of -30%.
UA: pic.twitter.com/hGmoQzwmHb
— JonNYC (@xJonNYC) August 14, 2024
While American and Southwest were singled out, the most scorn was reserved for Spirit Airlines:
“And then the low-cost carriers are just a disaster. These are going-out-of-business numbers for a number of these airlines. You look at Spirit Airlines for example at -30%. That’s a number that is hard to put in context. But if you thought about that at United, if we had a -30% margin, it would mean we actually lose $4.5 billion in a single quarter.
“It really is remarkable how the industry has changed into a few airlines that are at the top of their game, and then everyone else.”
He’s right that Spirit’s current trajectory is unsustainable, though the carrier has responded by totally upending its traditional business model.
On Absolute Numbers
While United can boast of relative success compared to its peers, Kirby lamented that net margin is lower than it was last year and also lower than 2019, the last pre-pandemic year.
“While we’re outperforming everyone else, if you look at our absolute results, they’re still down on a year-over-year basis and they’re down compared to where were in 2019.”
Does that mean a recession is coming? Kirby suggests it does not matter:
“Many of you ask me, is there a recession coming? You’ve been reading about that in the newspaper. You might have seen the volatility of the stock market. People worry about what that means for the future. I want to tell you two things on that front.
“First, we have set United up with the goal that we will never again have a systemwide furlough at United Airlines. And we’ve done that, I’ve talked about that before, by carrying more cash on the balance sheet, by being at the top of the industry in profit margins, and by continuing to pay down our debt. We’ve still done those things.”
Here, I do think Kirby is being hopelessly optimistic. It’s not a Doug “Nostradamus” Parker quip like “American Airlines is never going to lose money again,” but if there is another swift economic downturn, pandemic, or other natural or political disasters, I would certainly expect systemwide furloughs.
(Then again, Kirby is doubtless banking on bailouts again, as he has previously admitted).
> Read More: Doug “Nostradamus” Parker: AA Will Never Lose Money Again
> Read More: United Airlines CEO Banking On Future Government Bailouts, But Only For The Strong
Kirby believes growth can continue even in a downturn:
“That put us in a position where, as we now head into what may be a difficult economic environment, we’re in a position to keep our plan, to keep focused on United Next, to keep growing, to continue hiring people, really to stay the course, while the rest of our competitors are the ones, in this case, that are having to start shrinking. Almost across the board, those airlines on that previous chart are starting to shrink. Almost across the board, they’ve stopped hiring or many of them have already started to furlough employees.”
I just do not see that happening. Yes, Kirby is correct that “United is in a really different position than the rest of the industry,” (though I guess he would lump Alaska and Delta into the classification as well), but United won’t grow if that growth increases losses…at best, he will delay growth. I cannot see Kirby taking delivery of 500 new aircraft if demand stalls or the economy begins to shrink.
And there is so much competition that I am not convinced that a capacity reduction will even occur this winter. As one airline reduces capacity, another will step in, seeing the (relative) chance to capitalize.
On The Path To Success
Finally, Kirby believes the key is execution:
“What do we need to do to keep that going? We need to execute, execute, execute. We’ve got to keep everything happening like it has been happening. We’ve got to run a smart airline. We’ve got to stick to our strategy. We’ve got to take care of our customers. We’ve got to take care of each other.
“If we do that, the future really does belong to United.”
Yes of course–this is obvious. The key is in the details. What does it mean to run a smart airline? Does that mean continuing to devalue MileagePlus? What does it mean to take care of customers? Does that mean catering cutbacks?
One thing is certain: the future is about as clear as mud. The coming months, as the last few weeks of presidential politics have shown us, will be anything but predictable.
CONCLUSION
Kirby is naming names and pronouncing prophetic doom on Spirit Airlines while lauding United along with Alaska and Delta. While I broadly agree with Kirby’s analysis, I think he is far too optimistic about what will happen to United should there be a falloff in demand and that he underestimates how, like a game of whack-a-mole, as one carrier retreats from a market, another carrier will emerge.
In the last two weeks, I have been cancelled by Untied 3 times (no crew, bad weather and a broken airplane) with zero rebooking options and zero assistance from United employees. only a broken app and employees who told me the only way to get on standby for an alternative (but full) flight was to trek to the airport.
My experience has been United is melting down.
Kirby fails to mention that Delta has been paying its flight attendants considerably more for flight and boarding time for well over a year. What happens when United finally has to settle up with the AFA and fork over all that money for pay increases, retro and boarding pay. IMHO, we’re talking ‘apples and oranges’ when it comes to that all-important line expense on the financial report – salaries. Keep it up, Scott, keep drinking the coolaid and hope everybody drinks with you.
He should analyze his own airline first. Fares are ridiculous, SFO-ORD $1,500. Fly Alaska direct. or Delta with a stop for 1/3, even American. And forget the Mileage Plus program. Oct 16 SFO-ORD UA 1142 on 737, 200K points!!!! Guess they want points to pay for all those new airplanes.
And they released an app update and it still doesn’t allow you to scroll and keep premium fares in view. Along with numerous other issues, like begging you to spend your points on economy fares. But at least the app still shows I am a Million Mile flyer, which is the only place it shows anymore.
Mark, you may want to try another search. UA is selling SFO-ORD for $71 on 16-OCT, or there are a few under $600 in F.
Scott is still resenting not getting the top job at AA. But to his credit he is running UAL better than his counterpart at AA.
*bingo*
This sounds like one of those corporate meeting drinking games where every time a buzzword is used you take a drink, except they’re missing synergies and proactive.
“We’ve got to stick to our strategy” – Awesome! Exactly what is that strategy? More legroom than competitors? Offer more frequent flights between big cities? Better food? Have a richer and more engaging loyalty program in contrast to every move of the past decade? PDB’s for everyone? Access the SouthEast without transiting IAH or IAD? I’d love to know more about this vaunted strategy.
How much cash do each of the airlines have on hand?
Mr. Bigmouth once again overloading his wagon. Why does he not “show me” instead of “tell me”.
Because talk is cheap but whiskey costs money.
Cocky, and frankly stupid. Scott Kirby’s comments have shades of Doug Parker’s infamous “We’ll never loose money again”. United is in far better shape than it was under any other leadership in its recent history, but it is still a delay plagued mess, with lousy hubs, bad food, surly cabin crew, and inconsistent service, not to mention an increasingly old and unreliable fleet of 757s, 767s, 777s, plowing its many routes. Kirby is probably right about the US LCCs and it would surprise no one if Frontier and Spirit finally get to merge after JetBlue disrupted that, triggering its very own
spiral into eventual liquidation and into the arms of American Airlines, where frankly, it belongs.
Yes, I will listen to a failed foreign lawyer, racist, internet blogger over the highly successful and educated multi-airline C-suite Veteran. Yep totally makes sense. Real cogent stuff here comrade.
Who are you talking to and what are you talking about?
I disagree that Alaska is in the top tier like Delta and United. They are more like American than Delta. I think Alaska is overrated. They don’t even have seatback screens. Hardly premium.