For years United Airlines CEO Scott Kirby has argued that there’s an historical relationship between airfares and GDP. Fares have been lower than they have been in the past, and so they’re likely to snap back. In fact, five years ago, he was essentially arguing that airfares should double based on this natural relationship.
That never happened, and not just because of the pandemic, but he’s not dissuaded. Kirby is arguing that his airline’s revenue should grow 8.8% by end of year, holding GDP constant.
I've written a lot about the gap between airline revenues to GDP (historically ~0.49%), and why the airline industry sees so much opportunity for growth.
Well, @united made a nice little chart on the matter. $UAL pic.twitter.com/3SgMzFRiKq
— Edward Russell (@ByERussell) June 12, 2023
Interestingly, he’s argued in the past that the industry was seeing 0.6% of GDP compared to a past level of revenue of 1.2%. Now the data he’s using shows both current and historical revenue figures as much lower.
According to United Airlines schedule data from Cirium’s Diio Mi, the carrier is publishing 3.2% more seats in December 2023 than they are in June. Airlines do publish schedules aggressively six months out, and cut flights as travel dates approach (usually three months into the future). So this represents the most seats United might fly.
Revenue growth of 8.8% on 3.2% more seats implies higher fares, and in fact it’s likely more dramatic than this since seat growth can reasonably be expected to scale back.
In the past Kirby has articulated a view of airlines as naturally entitled to a level of revenue – as the economy grows airlines ought to take their fair share, rejecting the notion that in a competitive industry price should fall towards marginal cost. But airline revenue as a percentage of GDP has been falling because it’s a sclerotic industry, not because airlines fail to charge enough for the product they’re offering.
Interestingly Delta presents a similar argument about long-term trend of airfares versus GDP, but sees both current and historical levels of industry revenue versus GDP very differently than United.
$DAL does same thing too pic.twitter.com/4Neb148Wb5
— TBU (@typesslowly) June 12, 2023
The role of airlines in the economy has changed and will continue to change. There is less business travel and more price-sensitive leisure travel. Air traffic control and airport infrastructure haven’t kept up and as a result airlines are more of a hassle than they used to be, and therefore offer less of an advantage on short trips. Holding product constant even you’d expect prices to fall and an industry to take a smaller share of GDP, which continues to grow. As digital has grown in importance, why would airline revenue continue to grow automatically at the rate of the overall economy?
This is probably Kirby signalling to other airlines that they should all raise prices. In other words, illegal anti-competitive behavior.
They are already higher than everyone else so I simply buy tickets everywhere else
Besides United Breaks Guitars and beats up passengers
The other David has a point. Except it really doesn’t take much of a signal. Pilots and other personnel are receiving huge raises. The airlines all know fares must rise to cover the added cost. And rise they will.
Prices have been high this year and based on sales, people are willing to pay these higher prices.
The problem is if UA can fill up a plane for x amount. The other airlines will creep their prices up too because then it’s like we should make more money too..
Like checked baggage when it was free. A few airlines started charging without much back lash and the rest followed.
@ Gary — Kirby is delusional
Oh lovely, it appears that keeping people struggling to get by is the goal. There are people who won’t be born for the greed of others.
Kirby is desperately waiting for an increase in revenue to cover new pilot and flight attendant contracts and pay for the $50 billion in airplanes that United is buying. In other words, the numbers as they currently exist don’t work for United and Scott Kirby
He is basically signaling to Delta and AA that they need to raise their fares as well
Oh that’s really rich. Never been more expensive ever to fly United and that is not because of inflation. Ridiculous.
Love all these experts. What do you all do for a living? If not in aviation, sit down.
For no other reason than to raise prices so that the fighting neanderthals onboard can’t afford to fly, raise them they will. And they should. In an industry with rising personnel costs, they should. Flight benefits at the airlines have been dissolved. No one can get on a flight and this benefit was part of the employment package.
You all have no clue.
@NUNYA BUSINESS needs to be thrown out of a plane, preferably at maximum cruising altitude. Piece of shit corporate dick rider. I’m sure you’re the scrawny runt complaining at bag check about fees while the rest of us just pay it.
@ NUNYA BUSINESS — Racist much?
I gotta admit, no airline CEO in the U.S. is as unabashedly entitled as Kirby. He expects everyone to shower him with money just because. Unfortunately, the actual universe doesn’t give a $#!t about him and he’ll have to do something besides make ridiculous grand pronouncements in order to make his wishes into reality. How about spending actual money to bring United’s product up to snuff so that people will pay a little extra to fly them?
Let’s all start a coalition to remove Kirby.
With enough signatures (like hundreds of thousands of United customers), the board would have to remove him, per 18 U.S. Code § 2071.
@NUNYA BUSINESS – go be racist somewhere else