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.
Funny how Kirby never seems to comment about the continual EWR meltdowns. Not his direct fault but his smart mouth about American and Spirit will bite him in the butt.
No secret AA has struggled for years at ORD. That’s unlikely to change. However they still need a middle America hub because DFW cannot handle the connecting volume for northern tier markets. Nor does it make logistical sense. AA has too many “outer rim “ hubs located either in a coastal state or border state. They will remain as balcony seat occupants in Chicago and bleed red ink, while UA sits in the box seats. There isn’t another viable mid America hub location for AA.
JerryS,
yes, UA overscheduled EWR for years, they controlled 2/3 of EWR’s flights, and could have brought the schedules down to what the airport could handle at any time.
But they were afraid that a competitor would take market share so they let EWR meltdown – and it cost them hundreds of millions of dollars in revenue just in the 2nd quarter.
Kirby scorched the FAA and DOT night after night on the news in April and May, the FAA put a cap on FAA flights – applied equally and UA lost significant share to DL in NYC as a result and DL is the only domestic carrier at EWR that grew its presence at EWR in June.
whether UA wants to admit it or not, they are receiving karma from DL in NYC for what they are doing to AA in Chicago.
DFWSteve,
remember that AA/US was the last legacy carrier merger and US had already closed several hubs including PIT. AA’s excessive number of hubs means that they fly far more domestic ASMs and get no more revenue than DL – and they spend far more generating those ASMs because they are so reliant on large RJs which will be true of AA at ORD no matter how much they want it to be different.
let’s also not forget that AA and UA’s average aircraft size at ORD is about 110 seats/departure, the lowest of any hubs except for LGA and DCA which are perimeter restricted. ORD is a very inefficient hub for both AA and UA.
Kirby is full of s#!t. I literally can’t think of another major U.S. CEO who spouts insane drivel. Ok, Musk does it too but when you’re the richest guy in the world they tend to call insanity by euphemisms like eccentric or hyper-quirky. Kirby has no such excuse.
@Christian — Not any more; supposedly, “Larry Ellison briefly surpassed Elon Musk on the Bloomberg Billionaires Index around September 10th due to Oracle’s strong earnings and a surge in its stock price related to AI spending.” They all aren’t ‘great,’ but, Elon’s possibly no longer on top… woo… *sigh*
I wonder if Kirby has notified the city of Chicago that he is looking into moving United airlines headquarters to Denver. So the city of Chicago gives him the gates he wants and to say Thank you, he heads to Denver.
I agree with Timmy Dunn for a change!
Scotty is still so bitter about being shoved out the back door in DFW.
Isn’t it about time for Cry-baby Kirby to make another trip to DC for a ball-washing?
He’s going to run United into the ground by obsessing about America constantly. It’s like bro get a hobby or something.
I’m not concerned about Scott Kirby’s comments about American. What I am concerned about is American’s own lack of real and meaningful changes to reverse their course of becoming the U.S.’ largest low cost carrier. All this talk about being more premium is bs. There’s been nothing tangible done to improve the brand for the average coach flyer. For example, they should have announced already that they are going to put seatback entertainment and mood lighting on every airplane but they haven’t. THESE are table stakes now. The minimum you must do to be a premium carrier today. I see nothing.
AA is packed at ORD. This pure bravado by Kirby.
“American airlines” created the Kirby monster when they kicked him to the curb. But the biggest mistake was sending him packing without a non- compete.
Kirby is nervous because American Airlines is making a big customer service come back and is a real threat to United!
He also fails to mention all the melt downs at different cities and their aircraft constantly breaking, in flight emergencies, and poor customer service. He tried to take away employees profit sharing.
The more he bad mouths American and Spirit along with any other airline because he wants to act like a little dictator, his operation and airline will fall! What goes around comes around.
AAs main problem is they went from 450 mainline flights and about 150 Eagle flights in the 2000s to the complete opposite about 200 mainline and over 400 Eagle jets. RJs are just more expensive to operate, RPSM are lowwer than larger jets with alot more seats AA gambled going all jet and expanding the commuter American Eagle and it just didn’t workout. In the 90s and early 2000s UA and AA had robost competition, you just can compete on a route like ORD to ATL, RJ vs a narrowbody.
AA is usually cheaper, planes are clean and rarely cancel flights, all my experience. I want to fly United, but they make it so difficult. MILES/points are hard to use, no way im using 100K for domestic flights.
Please, American Airlines is the one forcing people to choose other options. The US carriers are all in a race to the bottom to include Southwest. United is like my last option since flights are always delayed for maintenance if not cancelled.
Stop worrying about AA Mr Kirby . You were here at AA once we know your story. Take care of your employees, they’ve made you rich. Your embarrassing yourself and the business community. Mind your business and keep your pants on.