United Airlines’ President Scott Kirby is a smug man. I don’t even use that term in negative way. Such bravado has served him well at American and now United. But did he step over the line during a recent dressing down of Frontier Airlines?
Wandering Aramean highlights an unexpected answer from Kirby during United’s Q2 earning call last week. The question: Frontier’s expansion in Denver, United’s most profitable hub.
Over the longer term, however, I view this – having watched the ULLC growth over the past decade – as the best news I’ve heard in the past 10 years. What they’ve said is they’re going to run a connecting hub-and-spoke network in Denver. The model that they used to have where they wound up in bankruptcy.
I’m not sure 20+ new destinations in your profitable hub is “the best news” of the last decade. I also think Kirby should not forget that United and his former employer American Airlines also spent time in bankruptcy protection when poking fun at Frontier’s bankruptcy. But he does have a point.
But they’re pivoting from what has the most successful model, point-to-point ULCC, to going back to try to copy what the network carriers do and run a connecting business model. The reason I view that as the best thing that has happened in the past decade is I have believed for many years that the ULCC business model can’t work when a network carrier decides to compete on price, and particularly once we roll out basic economy. And while I have believed that for a long time this is the first public validation that one of the ULCCs is throwing in the towel on the point-to-point business model and switching to a network model.
Is this true? I’d hardly say Frontier is throwing in the towel on the point-to-point business. While focus cities tend to resemble hubs over time, Frontier is still very much focused on point-to-point.
But Kirby insists that by stacking traffic in Denver, Frontier is making a strategic blunder:
It is a lot more complicated. It is one thing to run a point-to-point network but when you’re trying to run connecting traffic you have to slow down the aircraft utilization because you have to wait for passengers and employees to connect and airplanes to be timed correctly. You have to staff up because you have peaks and valleys. You have to connect bags which is one of the most operationally difficult things we do. Today if Frontier has a flight from Orlando to Denver that is delayed 2 hours all they have to do is run the flight 2 hours late but the customers still get there. It is not a good experience but it is not the end of the world. Tomorrow, when half the people on that plane are connecting if that flight is 2 hours delayed and they only have one flight per day to all those markets the choice is:
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Do we delay everything else for the rest of the by 2 hours?
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Do we have half the people on that airplane go to a hotel and spend the night?
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Do we buy half the people tickets on United to get them to their destination that day?
These are good points and we have seen consumer frustration in carriers like Frontier and Spirit centers precisely around this issue. Without partners or other viable means to accommodate distressed passengers, Frontier may find it sheds rather than builds a customer base due to its operational inefficiencies.
It is exponentially more complex to run a connecting model. And for Frontier to publicly acknowledge that the old business model has run out of growth potential in the middle of an IPO process I view as a phenomenal validation that everything we’ve done has worked. I can promise you, they’re now competing on our turf as a network carrier in Denver. That is a battle I guarantee United will win.
A guarantee, huh? We will soon find out.
I actually do think United will prevail, but it won’t be because of Frontier, it will be because United will aggressively match Frontier pricing. Perhaps United will even lose some money for awhile in Denver, but will emerge the survivor and raise fares once against when Frontier finds it simply cannot compete with the deeper pockets of United.
Image: Arina P Habich/Shutterstock
“I actually do think United will prevail,”
When that happens, the reason can always be obsecured, and United can always said, “Kirby was right” or something along the lines.
Figures like him sometimes didn’t need to explain any reason for any statement. The do however, need to make a statement which people remember. A bold and controversial statement sometimes occur.
Al Baker stated grandmas vs young. It may not correct, but it triggered people to compare service rendered between the “grandma” and Qatar. He is sure, Qatar have the edge.
US3 campaign against ME3. The content may all be stupid and lies. But they simply pledge for american, please fly american carriers. Because they know they can’t compete in service, hospitality, destination, even maybe price. So they try the angle of nationalism.
I do think he has a fair point about the complexities of a hub-and-spoke model over point-to-point, and I especially agree that United will be able to take their highly-functioning network and compete on price going forward. I suppose SWA is in a league of their own and cannot be directly compared to ULCCs or legacy carriers, however it always astounds me how expensive transcons are on that carrier (always with a stop!) over a legacy carrier. Shows, as Kirby said, the limits of a point-to-point model.
“I actually do think United will prevail, but it won’t be because of Frontier, it will be because United will aggressively match Frontier pricing.”
Denver based here. Over the past two years during which I’ve flown some ULCCs coming from AA elite, United has never matched price on any of the markets I traveled out of Denver. I won’t hold my breath, but I look forward to when they do. Frontier is an operational nightmare sometimes and while I fly their non-stops, I would study flightaware heavily before booking connecting flights with them.
I don’t understand why Kirby thinks F9 can’t do hub/spoke. They’ve been doing it for years!
That’s pretty rich of United to mock Frontier when United can’t even provide me with a ticket receipt from a flight I took three weeks ago. I have the PNR and ticket number but they want 7 to 10 business days to come up with a receipt. (JetBlue does it in 7 to 10 seconds) Just another reason NOT to bother flying United Airlines.
ticket receipt from 3 weeks ago???!!! should be in your deleted email, or listed in MileagePlus. LOL, that’s a stupid reason not to fly United – but more room for me!
Look folks…
United is terrified of ULCCs. Period.
They ( any low cost airline, people express, value jet, southwest, etc) have historically been the collapse of the profit margin for the legacy airline – leading them to bankruptcy. This time around the cycle will be extreme bc of the mergers and the overhead of legacy union contracts. ULCCs benefit the consumer at the expense of the stock holder.