Andrew Levy, United Airlines Executive Vice President & CFO, spoke today at the Citi 2017 Industrials Conference.
D0 Comes to United Airlines, Customers Experience Should Suffer
The presentation opened with United’s operational performance. They want to run on-time because re-accommodating passengers after cancellations and misconnections is expensive. However they’ve formally changed the metric they look at from arriving on time to departing exactly on time or early (“D0”), which is clearly the influence of United President Scott Kirby coming over from American Airlines.
In fact, Scott Kirby told this to employees in a letter a week ago.
At American a laser-like focus on pushing back exactly on time has meant flustered gate agents who:
- begin boarding before scheduled time (frustrating crew, and passengers who turn up on time to find overhead bin space gone)
- have an excuse not to process upgrade and standby lists correctly
- do not come onboard to move passengers up from economy to first when a check-in passenger doesn’t show.
While it’s true that the number one controllable thing you can do to make planes arrive on time is ensure they depart on time, a singular focus — with tremendous pressure on gate agents — has a real cost in terms of customer interaction and employee morale which we’ve seen at American.
Levy noted that Kirby is a big spreadsheet guy, and that’s been my experience for years, if you can’t quantify it on a spreadsheet more often than not he isn’t concerned about it. So it’s not surprising his favorite metric would come over to United. Since ‘you get what you measure’ they’re likely to improve on-time departures (although American’s success here has been fairly modest) but the question is at what cost?
Basic Economy is a Tool to Upsell Even High Revenue Customers
Levy laid out United’s initiatives to squeeze more blood from a stone extract more revenue from customers.
The core to this is ‘segmentation’ most of which is about Basic Economy (giving customers less at the same price, in order to increase the amount that passengers pay). At the same time they’re also considering introducing international premium economy still.
Levy underscored that Basic Economy is a strategy now across all North American routes other than Hawaii and for upselling all passengers: “if there’s a single economy seat for sale, you can buy it as basic economy.” (Later in the year we’ll see Basic Economy expand to Hawaii flights and Latin America routes.)
Now that’s not quite true, it’s almost true. For instance here’s Chicago – Dallas without Basic Economy being offered:
However you see it at its extreme in markets like Washington Dulles – Los Angeles one way this afternoon. Even though the ticket costs $819, the passenger wouldn’t get an assigned seat while booking (only check-in, and then auto-assigned), wouldn’t get to bring on a full-sized carry on bag, and would have to board last.
This isn’t about competing with ultra low cost carriers like Spirit or Frontier. It’s about trying to upsell every passenger. They think they can get the walkup passenger to give them $844 rather than $819.
Put another way, this isn’t treating their highest-revenue customers well. It’s about squeezing them.
And maybe it’s true they can be squeezed, but the relevant choice isn’t “$819 vs. $844” it’s “$819 vs. $844 vs. what United’s competitors are offering.”
Now all of United’s remaining Washington Dulles – Los Angeles flights today are selling for $819 one way as Basic Economy. That’s true for the 7:26 p.m. In contrast American Airlines has a flight within half an hour that’s less than half the price — without Basic Economy restrictions.
United Thinks Basic Economy Works, If You Ignore Customers Who Now Avoid United
Levy says that when presented with the Basic Economy choice that “60% – 70% are choosing to buy the standard product over basic” in other words they’re succeeding at upselling. However this seems to be the breakdown of passengers who actually buy tickets, and doesn’t account for sales lost to competitors (or customers who may not travel).
Get Ready for More Seats Squeezing More Passengers Onto the Same Planes
Basic Economy and other forms of segmentation aren’t the only way that United plans to make air travel worse, however.
American Airlines had announced a plan for introducing the most uncomfortable seat in the history of US legacy airlines — with as little as 29 inches of pitch (the distance from seat back to seat back) compared to 31 inches in economy currently and less padding (slimline seats) — when it receives its first Boeing 737 MAX aircraft. That’s since been updated to offer no more than 30 inches of pitch (which is still less than what’s offered today).
Levy says that “adding more seats is the most profitable way to grow” and so United will
“continue to pursue densification projects going forward.”
“Densification” means shoving more seats into the same space, making passengers less comfortable.
Put another way, United believes customers must like the abuse or they wouldn’t buy so many tickets from us.
Customer Experience Matters at United, Sometimes and Not Very Much
What’s strange about Levy’s presentation — and United’s claims across presentations to investors — is that they emphasize the need for replacing regional jets with larger mainline aircraft in order to attract customers, though at the same time suggesting that all that really matters is price (or price and schedule for business travelers).
On the one hand they believe customer experience matters, on the other hand they’re squeezing customer experience because they claim it doesn’t matter for their business.
@Gary
In the UA example, I’d be inclined to just purchase the F seat, especially for that long of a flight… until I checked out the AA fare.
I have to wonder how much WN is going to benefit from this. I know that when I would travel in Europe before the legacies started playing the LCC game, I’d pay a $50 or perhaps even $100 to fly a legacy instead of RyanAir or EasyJet. Why? Because my first thought as as consumer is “how much am I actually going to end up paying? What happens if I miss something, and get nailed at checkin or the gate or whatever?” I’d happily pay the legacy a few extra bucks to *know* I wasn’t going to get screwed later. (And the European LCCs will really get you on baggage charges if you’re not careful.)
It’s funny, I read your blog, but buy very few tickets — think once or twice a year. My current thinking is to always check WN if they are an option, and I’ll pay *them* a few extra bucks to avoid the real uncertainty of not knowing what my ticket is truly going to cost me.
United and the mainline carriers will pay a price for their stupidity. Business travelers who have a choice and larger travel budgets aren’t going to fly across the country in uncomfortable slimline seats crammed in like sardines. I was 1K for more than a decade and I haven’t flown a single UA flight this year. For the first time ever I actually flew SWA non-stop from LAX to Chicago and it was far more comfortable. For $15.00 I received early advance check in and had a comfortable aisle seat with onboard TV and wifi. Why would I put my body through flying UA? I would rather get my miles through a credit card and choose the airline which provides the most comfortable way to get from point A to point B. As far as I am concerned they need to earn my business based on many factors but comfort and convenience are most important to me. Unless it’s an enormous price difference I would prefer to pay a higher fare and actually have a comfortable flight. I can’t speak for the Spirit and Allegiant customers but I can speak for someone who runs an international business with a significant travel budget.
Aaaaand….. lets all blame ME3 for bad image of US3, shall we?
@Mark : let’s see ….. me as a Platinum I can nearly guarantee emergency exit row window seat with at least 38″ pitch if I book earlier, and board at my leisure ….while you can pay full fare “business select” with A1 boarding position and be stuck at non-reclining middle seat next to the lav if god forbid you miss your boarding position call for whatever reason. thanks but no thanks.
@henry…As a Million Miler I can get exit row seats on UA too but that doesn’t give me an escape from slimline seats which are one of the worst inventions by the airline industry. The extra leg room is nice but having leg and back pain for three days after the flight isn’t worth the extra leg room to me. I just can’t tolerate those horrible seats. If you can handle having no padding on your rear or back that’s great but I’m a big guy and to me they are like sitting on a rock hard park bench for 4+ hours. No thank you!! Happy flying in the friendly or not so friendly skies.
@henry LAX
I like the rhetoric. You know if you miss your boarding time for whatever reason, you won’t even get on the plane, right? The last time I flew AA F, I kid you not, they paged me while I was standing in line for the jet bridge… because they were going to give away my F seat to an elite. So no, you can’t quite technically board at your leisure.
The problem with “D0” coming to UA is that if you don’t know what time boarding actually starts, you may very well lose access to the almighty overhead bin space.
I think we all know that elites have it a little better, but not everybody is an elite…
Being an elite on UA and AA is nice and has some perks but we don’t get extra padded seats unless we fly in F. Sometimes that is not possible even when we’re more than happy to pay for it. When the mainline carriers started downsizing their fleet with tons of 737’s they effectively reduced the amount of first class or business class seats in their fleet. That is why upgrades are not as common and sometimes on popular flights buying a FC ticket is just not an option. Even 1K’s and Globals can end up in economy.
@Dan : try again troll. I talked about WN exact boarding moment and you managed to change it to the entire 30+ min boarding window at UA. Clearly comprehension or logic is not your best forte.
@Dan : ps loser, last month AA clocked in worse A14 than UA
In the past year, whenever possible, or more correctly, whenever they have nonstops, I’ve shifted nearly all of mine, and family/friends who ask me to book trips for them, to Southwest.
And I live in NYC where Southwest’s nonstop routes are but a few.
For those that live in cities where Southwest has a larger share of the market than NYC, they’d be wise to choose Southwest, even if the “headline” fare is higher when doing initial searches for flights and “base fares” on other airlines.
Just as Scott Kirby does, I, too, use spreadsheets to compare airfares.
Others would be better off to do this, too!!!
Set-up a template in your spreadsheet program of choice, and then input all of the additional costs (aka “nuisance fees”, “nickel & diming”, etc.) one expects to pay by the time all costs for “extras” (or “perks” as the con artists would like one to now believe…as if being able to check a bag and sit together with one’s children are “perks”…but I digress) as you begin looking for flights for your next trip.
Be sure to add in fees to sit with your loved ones or young children; checked bags; “priority” boarding meals (buy onboard or at the airport); change fees and penalties, wi-fi, etc.
Then look at the final total of those fares and compare against Southwest.
Then add in Southwest’s usually much better employees and service product.
Chances are Southwest will always be the better overall value.
Also be sure to note that on Southwest’s 737-700’s there’s an additional inch of pitch at 31″, and on their -800’s theres a relatively “luxurious” 32″ pitch in most rows!!!
I flew United recently in a “standard” coach seat of 31″ on a 737-700. I’m NOT tall nor “fluffy”, and yet I found this seat very crowded and uncomfortable.
Fortunately, it was for a short-hop to RDU, so it was “bearable” for the 2-hours I was stuck in that lousy seat. (There was a ground stop)
However, if it was for a 3 hours or more flight, I would’ve found that seat downright UNbearable. My knee was jammed up against the seat in front of me the entire time — and in fact, I felt so crowded in that seat that I removed the entire contents of whatever was in the seat pocket, too — and my knee was still jammed against the seat in front of me.
I find this outrageous. And again, I’m average height and build. I can only imagine how unpleasant these seats are for people who are taller or wider than myself.
For anything more than a short-hop, I have and will continue to go out of my way to avoid any airline that has such ridiculous seating pitch.
Southwest has better overall service and has yet to get addicted to fees the way other airlines have become crack…er…I mean fee…junkies.
Even jetBlue is going down the route of the “Big 3” with its ever expanding and increasing array of fees.
Just the same, they still offer reasonable seat pitch and a better inflight product than the “Big 3”.
For how long? Who knows? But for now, they’re still way better than AA, UA, or DL.
If one “must” fly on a legacy airline, then Delta is the best of this sorry lot.
They’re fee happy, and they’re into the densification race to the bottom in terms of seat pitch for “standard” coach.
But…they’re NOT into the extreme product degradation now underway at AA, UA and BA…so this is a plus of sorts.
In fact, contrary to the three crappy legacy airlines just noted (AA, UA and BA), each of whom has begun cramming ten teeny-tiny seats per row in their 777’s, DL recently announced that they’re sticking with NINE seats per row in their 777’s when they undergo their cabin “refresh” over the next year or two.
So for that, plus other more passenger-pleasing approaches to their service product, Delta is the best choice if one absolutely must fly on a large “network” legacy airline.
But AA, United and now even British Airways should be avoided at all costs whenever possible.
Their product sucks. And they’re interested in one thing and one thing only: treating the vast majority of their fare paying customers like crap, and laughing all the way to the bank while getting away with it.
Can someone tell me why ANYONE bothers to fly the “legacy” carriers? There’s nowhere they fly within the US that can’t be reached by another carrier¹, at least the major and most mid-sized domestic destinations — I am sure that, in some of the smaller markets serviced by the regional carriers under the “cover” of the legacy lines (American Eagle, Delta Connection, United Express), that may be more difficult to do.
And as for international flights, there are certainly more than one option . . . and still avoid the ULCCs. ;^)
_______________
¹ I am not suggesting, nor am I referring to, the “ULCC’s” (Spirit, Allegiant, or Frontier). Rather, I’m thinking of Southwest, JetBlue, Alaska/Virgin America, and even Hawaiian.
Screw you Scott Kirby.
Anyone want to bet that they will sell most, if not all of those crappy seats?
Still watching that US Airways cancer spread.
It was only a matter of time before Scott Kirby began his alleged cost-cutting plans.
For all of those UA fliers rolling their eyes at the AA D0 initiative (and the chaos that ensued), get ready for the cranky UA gate agents and air crews to get worse.
It’s sad that there will literally be very few differences between the US3 legacy carriers since all of their management will come from the same family.
And this is just the beginning. I wonder if the UA crew uniforms are beginning to itch already?
Good for them. It won’t be me sitting in one of them. It will probably be some cheap Spirit or Allegiant customer. The future of air travel on mainline carriers will be like the former Jerry Springer show. There will be more fights, more arguments between passengers and crew and just a circus like atmosphere. Don’t count on doing any work or relaxing because those days are over.
D0 is so frustrating. Flew three AA flights last month and all three were nearly fully boarded by the time I got to the gate at the boarding time printed on the boarding pass. Now I face the lovely choice of enjoying the lounge and getting to the gate at the prescribed boarding time to find no overhead space or leave the lounge 30 minutes early so that I can get overhead space and sit on a plane for 45 minutes. Sorry for the UA elites that are getting the Kirby Cancer.
I fly American 99% of the time but over the past year –
Been platinum for 3 years, last year just shy of exec. I have been reevaluating my choice…. I live in Phoenix (moved from Chicago)… I was contemplating moving to United since American has been doing things I don’t appreciate including the understandable reduction in flights from Phoenix… but now I am thinking ill back off that plan, and may head over to Southwest… I had to fly them recently for the first time in over a decade, I never liked it much, mainly not getting an assigned seat, but now that AA/UA are taking away the few things that kept me on legacy carriers, the benefits of SWA like changing your ticket at no charge are swaying me. I can live without the international network and patterns especially considering now I get half to less than half the miles on partner airlines, the seats will be Spirit quality, upgrades barely exist, D0 really sucks, etc.
Some business can and do successfully compete on price alone but it’s a mistake for legacy carries to think they can have it. Sure if it came down to Spirit vs UA/AA I would pick UA/AS but if that’s the game plan for these two, my belief is that this is a race to the bottom which will result with an airline with two tiers of customers ultra premium and basic economy. The middle will be gone and I don’t think they’ll like the results because Spirit fliers aren’t going to make up for the loss of the middle.
D0 on AA yesterday: pushed back on time for PHL to CLT, so D0 accomplished. No complaints there, but… there was weather in CLT, which I am sure AA’s dispatch is aware off. So we waited on the tarmac for about 30 minutes. Captain, one of those jovial, friendly types, is keeping us abreast from upfront, pointing out where we are in the cue, and when we will eventually take off.
Upon landing in CLT we wait another 40 minutes as there is a gaggle of planes that have sat out the weather before being allowed taking off, so all gates occupied, and a line described by our captain as “a conga line of planes” taking off on the runway we have to cross to even get to the terminals. We therefore arrive at the gate in CLT almost an hour late. D0, humbug!
(PS not complaining about weather – that is always possible. Could we have waited in the PHL terminal instead of on the plane? Probably, but that would have screwed with D0. And it was close to 100F in PHL yesterday, and the airport A/C had stopped working in many parts of Terminal C. So not sure if waiting at the gate instead of on the plane would have been a better option from a pax experience point of view anyway).