United Airlines CEO Scott Kirby, speaking at the Alliance Bernstein 37th Annual Strategic Decisions Conference on Thursday, explained his cost-cutting vision as eliminating fat from management and unnecessary processes without touching product investment.
He offered that they will “save $2 billion in expense, not a single penny is going to come from customer product, in fact we’re going to spend more on those things” and noted upcoming product announcements will be coming.
Taking Full Advantage Of The Pandemic
In some ways cutting billions in costs without any impact to the product is a free lunch vision, suggesting that the airline builds up a lot of costs over time and it’s tough to eliminate them.
On the other hand it takes a pandemic to solve for them. It’s certainly been my more modest experience that organizations develop a sclerosis, and there’s a go along get along passivity towards projects that may have begun as experiments but continue because there are constituencies in place that value them rather than because of the value they create.
As Kirby observed later in the discussion many unprofitable routes would have been tough to cut in the Before Times because people liked them and there were employees emotionally attached to them, but now all you need to do is not restart them.
That’s all well and good and crises can be valuable for an organization to go through when they force focus and a fresh start. You wouldn’t wish them on yourself, but you can recognize you’re better off on the other end for having gone through them.
Doubling MileagePlus Earnings Could Be Bad For Customers
One area where I think Kirby is going to have to diverge from his view of cutting costs without affecting the customer is the MileagePlus program. He revealed in the discussion that “spend on airline credit cards [overall is] now up..[and] credit card spend [is] back to over 2019 levels.”
Credit card spend drives the financial performance of MileagePlus, which prior to 2020 lagged American and Delta. Just before the pandemic United inked an extension with Chase that drives more money to the airline’s bottom line. However that revenue growth isn’t enough.
Instead Kirby says the “goal I’ve given that team is to double EBITDA of that business…[in] four years.” And roughly speaking to double earnings they need to double co-brand cardmembers or cut MileagePlus costs. And doubling is tough – it represents 19% annualized growth from a baseline that already includes the new economics of the Chase co-brand deal.