At the J.P. Morgan Industrials Conference, United Airlines Scott Kirby have a detailed explanation of how he believes that customers choose an airline.
Some customers choose on schedule and price. They may not value the difference in product across airlines, or may not be aware of them. To Kirby, those are basic economy customers – show them the lowest price and give them the least. (This may be a mistake, I will explain below.) Others choose on product elements. Those are the customers to fight for.
If you’re you need to think about why customers choose an airline. And broadly speaking, I think there’s two ways they choose. There’s a large set of customers who typically are infrequent, don’t travel a lot, they choose an airline based on schedule and price. That’s what we talk about in the industry a lot, schedule and price.
They’re much more commoditized customers. And there’s a large segment of the important to us. There are two we can’t ignore it. That’s what Basic Economy, in particular, has done for us. And we’ve gotten to a point where we win we’re going to win our fair share of brand of those price sensitive customers.
But the real game in airlines is to win brand loyal customers. What I mean by brand loyal, these are people that fly a lot. They’re typically not out price shopping on every flight. What do those customers care about? Well, first, they do care about schedule and price.
The price is generally on a large level the same on average, it’s the same at all the big airlines. So we kind of almost put that aside. They care about the schedule. So if you’re a brand loyal customer, you’re going to fly a lot, you live in Dallas, you may like or dislike things about American Airlines, but you’re going to be American Airlines brand loyal customer. If you live in Atlanta, you’re going to be Delta.
That typically is number one. But in all those competitive markets and most of the country is competitive, whether you’re in Chicago or New York or Los Angeles or Nashville or Grand Rapids, all of the other parts of the country that aren’t people that don’t live in those big hubs are up for grabs for brand loyal customers. What do those customers care about? Well, the schedule matters, but the schedule in most of those cases is equal between one or two airlines. So then their choice comes down to whose frequent flyer program do I like, whose club programs do I like, whose service do I like better, whose airplanes do I like better, I want to be on an airplane that has seatback entertainment, do I care about the Wi Fi.
All of those things go into the mix. And the important point about those those customers is that they are sticky. Once they decide to switch to an airline, they tend to stay there for decades or beyond. They get the credit card, they tend to stay. And the best example or a good example at least that I can use for brand loyal customers, two of the markets where we won well into double digit market share are Denver and Chicago.
And it’s not a knock on those airlines. United has done a lot of things to just win brand loyal share. But those also are two markets where we’ve had over 100% growth in credit cards from 2019 to today to last year. In five years, both well over 100% growth in credit card sign ups because as customers switch to us, they get the credit card, they’re sticky. The point of all that is those customers are sticky.
Those customers are typically choosing the best airline in any given market. If you live in Denver, you’re trying to choose the best airline. And And if you’re second place, you don’t get a fair share, you get dramatically less traffic if you’re second place. And so trying to be the number one airline for customer choice in each of the big markets we fly has been our strategy for brand loyalty.
Schedule And Price Matters, But Only In A Few Markets
Kirby argues that, to a first approximation, all of the big airlines have roughly equivalent schedules in most markets that aren’t fortress hubs. If you live in Atlanta, you’ll fly Delta. If you live in Charlotte you’ll fly American. But for cities like L.A., several airlines have a major presence. And for smaller cities, they mostly have equivalent connecting options.
So for repeat-type customers in most of the country, you aren’t competing on schedule and price since those are roughly at parity.
And so that means competing on:
- frequent flyer program
- lounges
- aircraft interiors, entertainment and wifi
- service
United NEXT Interior
Winning these customers is valuable not just because they spend more and take the airline’s credit card but because they stay loyal “for decades or beyond” which means the gains pay out like an annuity.
United has been offering the best product for frequent flyers in Chicago and Denver, according to Kirby, and that’s why they’ve grown co-brand credit card numbers in those markets by over 100% in five years. It’s the strategy he laid out seven years ago as a reason for upgauging the airline’s network. He argued that size in the market increased relevance and generated co-brand signups.
Now he’s saying that there are outsized returns to being the best option in a market for these customers – he used to talk about an airline’s ‘natural share’ of a market but his framing has shifted and says being number two in a market earns an undersized return.
The Trouble With Intentionally Offering A Poor Experience To Lowest-Fare Customers
Giving customers are not (yet) brand loyal your worst possible experience in Basic Economy seems like a lost opportunity. Making travel difficult – until recently basic economy customers traveling without a checked bag weren’t even allowed to check in online or using the mobile app – isn’t a way to win repeat business. It’s a way to get your airline crossed off the list for next time. And rewarding few (United) or no (Delta) miles for the itinerary is a way to disincentivize the customer signing up for your mileage program – which keeps you from building a direct relationship, marketing to them, and turning them into a more profitable customer.
Today’s basic economy, price-sensitive customers won’t all be resource-constrained and choosing largely on price in the future.
United has increased the average size of aircraft flying domestic routes, and as a result has more unsold seats to liquidate at low fares. They see basic economy as a tool to segment customers – offer those low fares, without cannibalizing higher fare business. They’re afraid that offering a better (non-basic economy) experience to those customers would encourage their higher fare customers to spend less. And that’s probably true in many cases!
Price discrimination is hard. Airlines used to do it with Saturday night stays and 14-day (or longer) advance purchase requirements, but with so many carriers no longer imposing those they aren’t viable. Basic economy is the ‘new way’ to charge higher prices to those willing to pay more, while charging lower prices to those that aren’t. But there are downsides to the approach.
So Who is The Best For Infrequent Customers?
Let’s assume flyers in Atlanta, the Upper Midwest, and Salt Lake City are going to fly Delta. So will real New Yorkers. If you’re in Dallas, Miami, Phoenix, Charlotte, Washington D.C. or Philadelphia you’ll fly American though Dallas and Phoenix have Southwest as viable options. For those in San Francisco, Chicago, Denver, Houston, the Northern Virginia suburbs and on Staten Island will fly United (though Southwest is an option in Chicago, Denver, and Houston).
In competitive markets, where you’re choosing beyond the dominant carrier, infrequent travelers should probably avoid United. United has the most punitive basic economy fares. They won’t let you bring a full-sized carry-on onboard when traveling on a basic economy fare. That means you’ll have to check any bag, which they charge you for. In other words, United is more expensive than American and Delta flying basic economy even when the price is the same.
Southwest used to be best for the infrequent traveler. They didn’t have basic economy restrictions. They didn’t charge extra for checked bags, and didn’t assign you worst-in cabin seating on the lowest fare (though to position for a better seat you need to pay extra for early boarding or at a minimum check in exactly 24 hours prior to flight). But things begin to change starting May 28 and into next year, as they move to assigned (paid) seating and charge for checked bag fees.
Sometimes Southwest is more expensive, with checked bags included in the fare and no penalties for changing tickets. It often made sense for an infrequent traveler to pay, since you could cancel and Southwest trip credits didn’t expire. That matters more for someone who doesn’t fly often! But Southwest is ending that generosity, too.
Delta is better for basic economy, so is JetBlue, both have screens and free wifi – United isn’t fully there yet.
Which Is The Best Premium Airline?
Delta ‘won’ New York by doing a deal for slots with US Airways at LaGuardia and United at New York JFK (and even got back the antitrust-mandated remedy slots awarded to WestJet as part of the US Airways deal, with the feds asleep at the switch). It’s increasingly dominant in Los Angeles over American and United. United largely won Chicago over American. Alaska is the clear winner in Seattle, having managed to prosper despite Delta’s building a hub there.
In competitive markets, Delta offers somewhat better reliability (though they’ve been slipping the past several months); marginally friendlier employees; better entry-level lounge provisioning (but often lines as a result); and a competitive international business class as long as you avoid Boeing 767s which have the worst product among U.S. carriers.
United is more reliable than it once was, but not as good as Delta. United crew aren’t as friendly as Delta’s (and Delta’s can be a mixed bag at times, even). United’s wifi is still paid on most planes, and not as good as Delta’s. United’s clubs, while improving, still lag Delta’s. United’s Polaris lounges are better than American’s Flagship lounges, and there are many more of them than Delta One lounges (which are nicer still). United has a better app.
Polaris Lounge SFO
It’s a little bit strange that United is deemed a premium carrier, actually. They have a lot of premium seats. Their business class seat is ok, but not better than American’s. They have good business class bedding. And they are putting screens in coach, and starting to add free fast Starlink wifi. They also sell a decent amount of buy on board in coach, which is premium compared to American. Their wine program recently got a big upgrade.
Before the pandemic Delta really was on a path towards premium, rolling out coursed meals, welcome drinks, and hot towels in economy. That effort was abandoned and never restarted.
In terms of mileage programs, Delta’s is a dumpster fire. United’s is ok largely because of Star Alliance partnerships, but MileagePlus overcharges for awards (just compare pricing to their partner to the north Air Canada). American’s would be clearly better if they priced their own-metal business class awards reasonable or had more global partners – oneworld simply lags Star Alliance.
Across the Atlantic I’d fly Air France and KLM over Delta and United.
Delft Houses: KLM’s Departing Gift For Business Class Passengers
Domestically, the only true premium carrier is JSX but they aren’t in most markets.
United is the ‘#2 premium carrier’ largely by American’s default. It will be tough for American to dig out, for cultural reasons, because they’re starting from so far behind, and as Kirby observed elsewhere in his session because American doesn’t have the same strength in the most premium markets like New York and Chicago (and also San Francisco).
My main takeaway is that people who live in Staten Island aren’t real New Yorkers.
I think that you might miss one key type of infrequent traveler that could still direct them to US3 or WN.
The infrequent traveler living in a non-fortress hub that has a direct flight on one of those four airlines from their city. They love having a direct flight to the hub or focus city they travel to with some frequency or if WN has a P2P. They may become a co-brand member on that airline and proceed to make loyalty-based illogical decisions when having to connect to go other places. For those that fall below the co-brand card threshold could be a huge amount of the money left on the table by WN’s decisions.
I’m calling BS on United’s Scott Kirby. He starts out as Captain Obvious and states “…you live in Dallas, you may like or dislike things about American Airlines, but you’re going to be American Airlines brand loyal customer. If you live in Atlanta, you’re going to be Delta”. Fair enough, thank you Captain Obvious. But, he then goes on to crow that “two of the markets where we won well into double digit market share are Denver and Chicago”. Ignoring Chicago for the minute, Denver is no different than Atlanta or Dallas: United has the lion’s share of the Majors at roughly 47 % of traffic (The ULCC’s of SW and Frontier add another 41 %, meaning nearly zip for Delta and American). For him to claim that American in Dallas and Delta in Atlanta are gimmee’s, whereas United somehow “won” the Denver market is garbage.
You missed that AA is still a real option in Chicago. They’re not #1 and have pulled back some, but it is still a hub and major operation.
Chicago is the sweet spot for locals because they have choices from AA, UA, and WN. It’s not all direct, but I struggle to think of a city with better competition for domestic flights. (It is much less competitive for international travel, as one might expect for a landlocked city in the middle of the country.)
Gary! Your ‘real’ New Yorkers comment had be doing a spit-take. Niiice.
@LAX Tom — New Jersey can have Staten Island, so long as we get Jersey City—I don’t care what anyone thinks, it’s more a ‘borough’ than that place the ‘free’ ferries go. I’m all for some NYC-area banter. Let’s freakin’ go!
My take.
– None of the airlines are consistently better or worse than others. It depends on the plane and the route and a lot of other things you have no control over. (Exception was back in the day when American was offering more leg room in coach. But they ended that.) If an airline wants to stand out they have to do better than they are currently doing.
– In the US almost all seats are lousy, even in first.
– So it really comes down to routing (departure times, layovers), price, and how much I have to pay for a slightly better seat. I’ve never flown basic economy, and won’t. But I’ll pay extra for fewer legs, better layovers, departures where I don’t have to wake up at 4am. It really kind of blows my mind how crappy of flights people will take to save $50, which they have no hesitation to spend on other things like drinks with dinner.
Flight searching and booking hasn’t improved in many years. Maybe we need a massive AI improvement in the process showing the exact seat you’re going to get, the food you’re going to be served, the bathroom on the plane, etc. Then maybe airlines would be motivated to compete on features instead of being commodities.
Living in San Francisco, United was a logical choice for me. I flew over 2 million miles on United. I got fed up and switched to Delta. Much less convenient but the product and service made it worthwhile. One reason was that the second flight was usually a full size jet and not a regional one. However, if I had stayed with United, I would have made 3 million miles. 1K for life. Now I’m not sure if the switch was a mistake. However, I must say, Delta has treated me very well.
We need to stop calling JetBlue and Southwest ULCC. They are NOT that and haven’t been for years. Southwest with their new owner is rushing to their death with the retooling and doing away with any positive differentiation. They will be bought for slots, pilots and jets to help another airline grow. JetBlue had differentiation with their seat back entertainment and leg room but nothing special today. Same deal at WN – buy it for parts very soon.
United isn’t any different in domestic US flying than Delta and American. Zero differentiation – all lousy legroom seats and with the heavily over-subscribed lounges that pre-flight experience is now gone. In most cities you can’t get into the lounge within a reasonable amount of time. Why stand in line for 90 minutes to simply get a free coffee and mini muffin and need to head to your flight moments later? The only differentiation these days is on international business and first class, and there the competition is significant. Code share lets me get points on the big three, but Scott Kirby is kidding himself if he thinks United is better product domestically than American or Delta. Just go fly on those airlines…if you don’t look at the safety card in the seat back it’s all identical – commodity product, and a sad one at that.
@Gary –> Let Scott Kirby make of this what he will — my home airports have been LAX, OAK, and SFO — ,but here is my Top Ten airlines (in terms of the number of flights taken):
10. Jet Blue (10)
9. USAir (11)
8. Delta (11)
7. AirCal (12)
6. PSA (15)
5. United (51)
4. American (79)
3. Southwest (102)
2. Alaska (121)
1. Virgin America (131)
I was a Delta Million Miler25 years ago when Gold would get a domestic upgrade almost every time.
Since retirement I’ve had Southwest as my domestic #1, but with the degrading of the program they’re back in the bunch with only AA as no-fly for me. I pay for airfare with credit card points so earning rates are irrelevant. I might have to look at Spirit if things get much worse.
not to split hairs, but your point about choices out of ORD early in the article is missing the fact that AA has a hub at ORD and there is still a good chunk of us that have stuck with the airline in the vain hope that it’ll bulk back up to how things were prior to COVID 🙂
Most coach passengers buy strictly on price. If you’re flying 1-3 times a year, or less, that’s going to drive your decision. You might stay away from the ULCCs that have gotten a reputation (just look at the videos on Youtube) as prison planes.
If you’re a FF and live at a hub like I do you’re likely to fly that hub airline. DL might be a better airline than AA but living in MIA do you really think I want to deal with a connection in ATL eight months out of the year? Some FFs fly whatever the corporate policy says and most fly in coach, unless they pay out of pocket to upgrade.
So there’s not a significant amount of “brand choosing.”
I will bet that 90% of domestic coach flying is unprofitable for airlines but no airline can be PanAm. So airlines have developed other sources of more profitable revenue to offset that flying.
Basic economy fares are there to fill planes and provide cashflow. As long as airlines continue to add planes and routes they will need that customer base. No airline can fly around half filled planes. This is not 1970. But there’s very little incentive to have much in the way of unique product offerings other than maybe free wifi and/or AVOD.
@Gary: “Across the Atlantic I’d fly Air France and KLM over Delta and United.” #metoo and throw AA in there too.
Flying Blue may often mean flying on Delta somewhere in the US, but having been run off by AA over outrageous transatlantic award pricing I am now looking to AF/KLM.
BTW: I find tickets typically ~$200 cheaper on AF/KLM’s websites vice letting Google Flights take you to Delta.
While it’s nice to hear a US Airlines CEO at least **talk** about needing to reward frequent customers, for years every US airline has been increasingly screwing over their frequent customers — if not outright charging them more for tickets because the algorithm tells them that you’ll pay more for the ticket.
I’ll believe they care when I see it. In the interim, the wife and I have 3 international business/first class flights this year and NONE of them are on a US airline.
Everyone including Kirby misses an additional criterion that really matters to both infrequent and frequent flyers – operational reliability.
To me, AA is an “avoid where possible”. 5 of my last 6 AA flights were significantly delayed (>30 min) for mechanical or administrative issues. When there is going to be a delay, AA will not give information about it until it is obvious, and will board pax and make them sit through the delay in a horrid seat. And, of course, complaints to AA are met with a meaningless and perfunctory “sorree” or are simply ghosted.
And, the lack of seatback screens makes AA’s “download and enjoy” pseudo-strategy completely useless when you’re sitting at the gate waiting for a mechanical to clear or the broken down catering truck to show up, and the wifi isn’t functional until you take off.
B6 has its own issues. Flights to/from LGA will always be late. Because it’s an ATC delay, it’s treated as “too bad, so sad”. 4 of my last 6 B6 flights (all from LGA or EWR) were significantly (>30 min) delayed.
I agree with @Russ – a nonstop always wins over a connection when I book.
On long haul-no contest – give me a non US carrier any day. Current favs are SG going to Asia or Australia (a connection at SIN is a party), and AF or VS going to Europe
lawyer,
what is lost is that UA continues to define winning by how well they do at airports and not metros.
More of UA’s hubs are in metros with multiple airports which means UA’s share of its metro areas is much larger than AA and esp. DL.
DL is the largest carrier in local revenue in 6 of its 8 hub metros (not including NYC where it is the largest domestic carrier but not in overall revenue or SEA). UA is the largest airline in local market revenue in fewer metros than AA or DL.
WN is the largest competitor in UA’s metro areas and WN’s comeback or not has enormous significance to UA’s plans to grow its network.
AA, DL and WN are all as large as they are in the domestic market because they dominate regions of the country, something UA does not do in any region. UA is often 4th or worse largest in most non-hub markets – #6 in Florida.
While UA is desperately trying to fix its domestic position, it will have to pry market share in many small and medium size cities out of AA, DL and WN’s hands and that is very unlikely to happen.
As usual, UA cherrypicks the definition of market success to include only what they want to talk about.
1) legroom in economy – my customers pay economy fares
2) fly to/out of airports that don’t suck – transit connected is a plus. Embrace smaller airports when that’s not possible
3) LAX is the worst airport on the planet and there are a half dozen other nearby airports airlines should use instead. I’d rather drive go San Diego than LAX
Living in NYC, I’ve many choices, but I’d never fly scary American.
@Ron — But, like, why? Just ‘shittin’ on AA–no particulars. Like, give us something, sir.
Like, AA’s treated me ‘fine’ outta JFK, LGA, and EWR–new Admirals Clubs (EWR A, LGA B) and the premium lounges at JFK T8, SoHo and Chelsea, are epic–like, DeltaOne or Polaris-level.
And that right there is why we don’t even consider United. I fly semi frequently ( 10x a year), and used to be a Delta loyalest. Now that all the loyalty programs are crap, I have no loyalty. I’d rather save money on the flight and spend it in my destination, so I generally go for the cheaper options, basic economy is fine with me. But why would I fly United’s shitty option? I’ll fly frontier over United because at least the flight attendants are friendly. Other than that, United is a ulcc in my eyes, and usually considering I have to pay for bags each way, never come out cheaper. I’m willing to pay a slight premium to fly Delta, but if the price or schedule don’t work out, American, Southwest, frontier, allegiant are my options. Flew United once in basic economy, and that was the last time I flew them.
We are leisure travelers who most frequently fly TATL business from NYC. There’s almost always a clear choice based on schedule and price. JFK or EWR is a toss-up. I don’t find that much of a difference between airlines to make it worth choosing based on soft or hard product. There’s usually more of a difference between specific aircraft than between different carriers.
Status and loyalty programs don’t make that much of a difference for us.
FWIW, the worst operational issue we’ve had in years was a DL flight where they discovered an engine wasn’t working properly after pulling back from the gate, resulting in a multi-hour delay. I was chatting with a DL 360 and DL wasn’t able to do anything useful for him. General operational efficiency and high status didn’t help there.
I guess we’re not typical.
Scott should spend less time at Furry conventions and more time understanding his business. I live in Maui, but it’s always been all about schedule. My time is valuable. I could give two f÷/ks about one airlines lounge vs another. Now if the price is 3x maybe I’ll be wiling to wait a couple hours. Flying only upfront for last 7 years. And now that only 13% of upfront seats are upgrades he should realize business people don’t have loyalty to airlines just like airlines don’t have loyalty to people. We need timely travel, comfy seats and that’s about it.