United Airlines President Scott Kirby is probably the most interesting airline executive to listen to in the country because he lays out his thinking clearly in public. I think most everything he does is bad for his customers. But he has a model for how the world works and he defends it. He spoke today at the Bernstein Strategic Decisions Conference.
In January he laid out his plan for United Airlines and investors hated it. He claims that investors are climbing onboard with United’s growth plans.
Despite rising fuel prices he thinks airlines aren’t having to behave with too much of a short-term focus anymore. Airlines ran sales to generate cash now for flights in the future. They ordered planes to get a good cash deal up front with big capital expenses later. He doesn’t see that happening because of strong (consolidated) airlines that have run profitably for several years. United is passing on three-fourths of fuel price increases in higher fares.
Kirby says United’s biggest competitive advantage is “our route network and our hubs” although they compete on product rather than price although “part of our product is our schedule.” To Kirby offering flights means earning revenue.
And on what most of us think of as product he says “a lot of what we’re doing with the product is keeping up with the Joneses.” United invests in product so that they can offer what their competitors offer, rather than focusing obsessively on what customers want.
He thinks their product by the way is good. Kirby says “we are competitive today” on hard product, “when we finish rolling out Polaris it will be” the best premium product. I certainly understand an airline President being a cheerleader for their airline. Kirby though is usually incredibly earnest, and the claim that United’s new business class seat is the best premium product among US airlines is simply delusional.
United Polaris Business Class
Polaris is a good enough product. It is fully flat with direct aisle access and the innovation is precisely that it accomplishes that without taking up more real estate on the aircraft than earlier seats. Getting the seats rolled out will mean customers shouldn’t actively avoid flying United in business class (though they haven’t even announced a plan to add these seats to their Boeing 787 aircraft which fly their longest flights such as to Singapore and Sydney). American’s seats are better, and Delta’s new suite is better.
Delta One Suite, credit: Delta
He says “nobody is doing wifi well.” “It’s a must have.” It’s a defensive move to have good wifi or they’ll lose customers. That’s why he eventually signed off on adding wifi at US Airways, when he saw they were losing ticket sales.
Since he thinks that “demand is inelastic” for airfare, when prices go up revenue goes up, people don’t stop flying. He says when they go into a market like Rochester, Minnesota they don’t lower fares. They get their natural share of the market because customers in Houston are going to start looking at United for tickets. He thinks airfares can rise because airline revenue as a share of GDP is lower than what it used to be. And he thinks lowering fares is self-defeating, it doesn’t bring in more sales it just lowers the revenue earned from each ticket.
- I’m sure if pressed he’d have to acknowledge that price does affect the amount of tickets customers buy, it’s just that small changes may not measurably affect demand. If airfares doubled leisure travel would plummet. Some business trips would be replaced with conference calls. Some conference events that involve large numbers of people flying wouldn’t make sense.
- And at the same time driving down prices stimulates demand, people do take discretionary trips when fares are low and lower ticket prices pull people off of buses and out of cars.
Increasingly customers are happier with their interaction with United’s employees. And he claims investors are buying into United’s growth plans.