Buying Business Travel interviewed United Chairman and CEO Jeff Smisek who made several interesting comments.
If He Repeats the Claims About Gulf Carriers Enough, They’ll Finally Become True
He described Emirates, Etihad, and Qatar as “rely[ing] entirely on taking traffic from others” as though people flying United and other carriers belonged to those airlines, while repeating the trope that those airlines are more subsidized than his (remember, the US government picked up pension liabilities from United in bankruptcy to name just one item).
Continuing on the point of whether United received subsidies, he made the rather silly statement that,
Bankruptcy protection is not a subsidy whatsoever. The people who get hurt in bankruptcy are creditors and shareholders.
The major US airlines continue to embarrass themselves by appearing in public not knowing what a subsidy is.
I think what Smisek means to say is that the creditors and shareholders are providing the subsidy not the government, but he conveniently omits the issue of pensions — United’s $9.8 billion default on pensions was then the largest in history. (The government’s Pension Benefit Guarantee Corporation picked up about two thirds of it.)
Smisek conveniently ignores that the beyond rights in Tokyo acquired by Japan acquired from Pan Am were originally carved out of the spoils of World War II. He brags about “a $500m facility in LAX” that’s mostly paid for by local government. And ignores that he sat at dinner with the Chairman of the Port Authority of New York and New Jersey and was asked for a personal flight to Colombia, South Carolina in exchange for favorable government action — and then United gave him that flight. He simply can’t claim to be something other than a crony capitalist.
I’m not going to sort through which airlines are the most subsidized, I don’t think it much matters. He certainly shouldn’t act as though some claims in the US airline ‘white paper’ on Gulf carrier subsidies weren’t fabricated or that Emirates hadn’t responded to the allegations in the paper literally point by point. But when Smisek says “we don’t like protectionism” that’s like Donald Trump continually crowing the same thing as he blames “trade deals” for a substantial portion of the nation’s ills. (In many ways Smisek is Donald Trump without the charm… or the fake $10 billion.)
United Is Eliminating International First Class
It’s been obvious for some time that United had no commitment to a three-cabin international strategy. Legacy United had a first class international cabin, Continental didn’t, and only those aircraft that already had it continued to operate with it.
As the legacy United 767s received retrofits, the first class cabin went away. Catering has been essentially the same in first class as it has been in business. It’s simply not been a product anyone should ever pay a premium for, except that United’s business class hard product has lagged the industry as their flag beds don’t provide privacy and require passengers to climb over each other to use the lavatory.
“It’s a money loser, and we will be eliminating it over time. For example the 767s that have it today, as they get retrofitted you will not see it reappear. The problem is that it takes a lot of real estate, and people are not willing to pay for that. I suspect the other carriers, apart from the subsidised Gulf airlines, would say the same thing.”
United “Global First”
I wonder why people aren’t buying…?
Smisek’s claims about other carriers are of course disingenuous. Not only do even his Star Alliance partners continue to offer better and better first class products, rather than leaving them to die on the vine wishing they didn’t have them, but so do many of his competitors in Europe and Asia.
Lufthansa, Asiana, Singapore Airlines and ANA all continue to offer first class on many long haul routes, and have upgraded their first class products.
First class doesn’t make sense on every route, of course, or for every airline. And both Asiana and ANA offer the product on only a handful while Lufthansa has eliminated it on some (though they still offer it on the vast majority of their widebody aircraft).
Still, having Smisek clearly admit that it’s going away – while not surprising – is a first that I’ve seen.
He Sort of Throws Lufthansa Under the Bus
Lufthansa’s ongoing dispute with global distribution systems, forcing Lufthansa prices to be higher through others’ systems than buying direct from the airline, isn’t something that Smisek would comment favorably on. In fact, you can buy Lufthansa flights through joint venture partner United now and undercut Lufthansa’s higher fare on those systems.
Which brings us onto the thorny issue of distribution. Smisek won’t comment on JV partner and fellow Star Alliance member Lufthansa’s €16 GDS fee, nor will he comment on whether United is considering a similar move. But he’s happy to talk distribution generally. “My view is we want to be on as many distribution shelves as possible,” he says. “It’s great that our app and direct distribution is growing rapidly, because that’s a low-cost system for us. But if passengers want book through a high-touch travel agency that’s fine. Travel agents can deliver high-yield customers, we are always willing to pay for that.
(HT: Miles to Memories)