United Airlines CEO told his airline’s pilots that he was going to force American Airlines to de-hub Chicago.
- United is growing at O’Hare. The airport is taking gates away from American and giving United more gates and doing it in pretty clear violation of the airport lease and use agreement.
- Kirby told the excellent Brian Sumers that American Airlines is losing $800 million a year in Chicago.
“Here’s just the facts: American is now losing, on a run-rate, about $800 million a year in Chicago,” he told me. “That’s not sustainable.”
Seven years ago American admitted to losing perhaps over $100 million cumulatively just flying Chicago – Beijing although not in a single year, and that route was $50 million a year below ‘passable’. There are certainly still numerous money-losing routes from Chicago.
However, Kirby’s explanation of American’s financials are not plausible.
“Look at their financials,” he said. “This year, they got a billion-and-a-half benefit back from their sales distribution, supposedly, and their margins are getting worse,” he said. “I’m not trying to criticize it, but they spent it in Chicago. That’s what happened.”
Note that Kirby drops ‘supposedly’ in there with respect to American’s improvement with managed business travel. He knows. Those numbers are illusory, and so American isn’t spending that money to subsidize O’Hare.
American says they’re making progress bringing back business travel but their revenue is not going up so this billion isn’t money that they are spending, let alone spending it in Chicago.
And they’re unlikely to be growing Chicago to defend turn if they were actually losing a billion dollars a year. To get to negative $800 million in Chicago requires some very creative accounting, or ‘doing it wrong’ by attributing revenue that wouldn’t exist for American without Chicago flights to other activities (like co-brand credit card revenue in the Chicago market, something Kirby specifically knows you can’t do because he’s talked about this himself).
It seems strange, though, for Kirby to be promoting that American will be forced to eliminate its Chicago hub at a time when he’s in court fighting to take gates from American, for two reasons:
- If American’s de-hubbing of Chicago were inevitable, the court fight would be irrelevant. American would be giving up gates on its own. The outcome of the case wouldn’t change that.
- But it seems like pointing out the fragility of competition in Chicago hurts his case in court. United is about to dominate in Chicago, and that’s bad for Chicago customers – it means fewer choices and higher fares.
Indeed, Kirby’s comments underscore that the legal position of the City of Chicago to cram down American’s gate position at O’Hare is one that helps risk competition. Although I suppose Kirby is also saying that competition will be diminished whether the City of Chicago helps kill it or not (even so, handing more preferential use gates to United, excluding other competitors, is an odd policy to pursue).
I agree with you that it was very stupid for Kirby to say AA is “losing lots of money at ORD and will have to close its hub” while, at the same time, defending in court a questionable move by the airport authority to strip AA of ORD gates. I think Kirby is hyper competitive by nature and can’t help himself. FWIW, I could believe AA is not making money at ORD, but I cannot believe it’s losses are anything near $800 million. I also don’t think they’re going to de-hub ORD.
If you are the market leader in a highly regulated industry, I don’t think it is in your best interest to suggest that you are causing massive financial losses to one of the few competitors at your company’s scale. It’s begging the government (or courts) to intercede on your competitor’s behalf.
Keeop your mouth shut and keep quietly winning.
@ThatOtherOtherGuy — Unless… we now live in an ‘attention’ economy, so, making loud noises and picking fights is the key to engagement and profits. I, for one, enjoy greater competition, and the usual benefits for consumers and workers that this brings.
Also, a loud ‘boo hoo’ to the majority shareholders who may not gain excessive profits… (less so for the airlines, more so in other industries, like oil and gas, which, in the USA at least, still collect absurd subsidies from taxpayers, while raking in obscene wealth and raping ecosystems and the poor, globally.)
AA needs to keep those gates and undercut UA on those flights that matter. Not the worthless flights .
AA needs to show that UA is over charging the residents and making it so that UA has become a thorn in ORD side. That if UA abandon’s ORD they will become a DEAD airport
Why is it that people here can realize how bad it is for Kirby to be talking about eliminating competition whether it Chicago or anywhere else but UA’s board don’t recognize it even if Kirby and his execs can’t see it?
DL and UA are the only two US airlines that are currently generating profits at levels necessary to be long-term viable. It isn’t just about Chicago. It is across their systems.
The US is on the verge of having to deal w/ the reality that deregulation has failed to increase competition and the last solution will be to allow 2 airlines to dominate any more markets.
and let’s also not forget that AA is paying much more for labor than UA which has SIX, count them, SIX amendable labor contracts representing virtually its entire non-pilot unionized workforce.
UA’s profits would be mid-tier at best – probably closer to AA than DL – if UA was paying the same for labor that AA, DL and WN are paying.
United is the maga airline.
@Walter barry — You know nothing.
Kirby and United will wear whatever hat they have to in order to survive, as will most businesses, even under authoritarian regimes, lest their CEOs drink radioactive tea or ‘fall’ out of a window, like in your motherland.
Walter. This website is for grownups with viable interactions that move the discussion forward. Be Quiet. Your need to bash MAGA shows a huge disrespect for the people on here who actually hererate useful debate.