At the J.P. Morgan Industrials Conference on Tuesday, United Airlines CEO Scott Kirby said that JetBlue is the only airline worth buying and whether or not United buys them is “in JetBlue’s court.”
Meanwhile, government travel is down and United is replacing that with lower yielding leisure travel. They’re adjusting how their forecasting systems make seats available to do it. And they’re reducing their flying – retiring planes, and cutting back on redeye flying as well.
- Government travel spending is down. Scott Kirby reported that government travel is down about 50%.
Direct government is about 2% of United’s business. Government-adjacent travel is another 2% to 3%. That combined bucket is “running down about 50% right now.”
Then Chief Commercial Officer Andrew Nocella explained that government is about 2% of revenue and indirect government is 4%. The falloff is roughly 50%. That’s more in far-out bookings than close-in bookings, while close-in government bookings remain rather normal.
They discussed a hope that a more efficient government is the long-term outcome, referencing the current administration and DOGE-style cuts, while acknowledging there is short-term pain. They aren’t going to criticize this President!
- They are replacing government travelers with leisure travelers. Government travelers tend to have a distinct booking pattern, closer in and at higher contracted fares than advance-purchase leisure travelers. Airlines will often hold back inventory for them because a late-booking government passenger is worth more than an earlier cheap leisure sale.
So when Kirby says government and government-adjacent demand is down sharply, the first effect is not just empty seats. It is that United’s system is still initially behaving as though those higher-fare bookings might show up.
United’s yield management system had been saving seats for those customers. By April they are not doing that anymore, instead taking more leisure bookings. That is “replacing government with leisure.” But it’s not one-for-one revenue replacement, because it’s at a lower average fare earlier in the booking window.
- They’re cutting flying. United is retiring 21 aircraft early, cutting flying in government-affected markets (bad news for United’s Washington Dulles hub), and canceling redeyes.
Retiring planes saves $100 million in engine overhaul expense. A lot of the cuts are Canada flights as well.
- A big airline merger is a distraction, it’s up to JetBlue whether we buy them. Kirby hates to have things prioritized over their business plan and technology investments in their mobile app, but he wants JFK slots. So whether or not they buy JetBlue comes down to JetBlue (and presumably price). And JetBlue is the only airline to buy.
I would like to have a bigger I’d like to have a presence on the other side of the river at JFK. But man, all the headache, all the brain damage of buying a whole airline to get that, that’s a lot to do. So, yes, really, I think the ball is going to be in JetBlue’s court.
They’re working out a lot of respect for them. They’re working hard. They’re also an airline that focuses on brand loyalty. So from the customer perspective, they have a lot of those sort of core DNA things that are expected there. Also competing with another airline, JFK and Boston that has that too.
So it’s a tough position for it to be in. So it’s sort of their decision on how to sort through that. That’s the only one that I think really is potentially in play one way or another.
Much of Kirby’s presentation was centered around how much he thinks customers love United, how they can coexist with Delta in places like New York, but that there’s really no room for a third premium airline (American) and they’ve stolen Southwest’s customers in Denver.
He acknowledges that United’s cobrand economics aren’t as good as American’s and Delta’s but ascribes that to his deal being older than theirs, but that isn’t really true. United’s deal was inferior to American’s even before it re-upped with Citi in 2024, and United extended its Chase deal to 2029 in February 2020 while Delta renewed its partnership with American Express in 2019. Kirby had a deal back then that ran through 2025, so he’s really saying he’s still encumbered by a deal from a decade ago but United is the one that chose to extend early rather than wait.
“In this economy?”… should also be “under this regime?”… They’ll about anti-trust and enforcing regulations, only if you’re saying ‘mean’ things about them (like the truth; they hate that).
So long as you bend the knee, parrot their lies, pay the bribe, then, by all means, go ahead, merge, acquire, treat your workers and consumers poorly, collude, outright grift, and no one (who matters) will care (or stop you).
That said, I don’t think many of us are actually benefitting from any of this. I think we deserve better. 229 days.
The Chase-United relationship is not just the co-brand, it’s United’s debt stack as well where JPM Chase acts as agent and a major lender, etc. (Chase had the lead role in United’s major 2021 debt deal). I’m sure United will make some noise about exploring options with C1 or whatever, but C1 is much more consumer focused and can’t really replicate the scope and breadth of JPM Chase on the debt side.
They obviously want to buy B6 and to be at JFK – but that’s going to cost money, and I’m sure they’d prefer lower interest rates for any acquisition financing (rates not exactly coming down fast enough, and they may not want to criticize this administration, but the current conflict is not exactly helping the airlines or inflation). So easy for now to put the pressure on B6, hope B6 falters a bit more etc. so it’s possibly cheaper to pick up those pieces, but by the time they are ready to do so, may be hard to get a deal like this done in 2028. Narrow window.
Meanwhile it’s not a great position to be in to try and capture less leisure revenue upfront versus higher paying government revenue later on, but that’s not unique to United of course.
@Peter — Mhm. The era of ‘banks with wings’ continues.
As to “rates not exactly coming down fast enough” … yeah, pretty sure the Fed is gonna keep ’em steady today (and for the foreseeable future, due to the new ‘war’ and resulting rising oil prices, which is inherently inflationary, so a good reason to maintain higher rates, even though the jobs numbers are bad and could get worse, which would be a reason to reduce rates). Tough gig.
As for B6 and United’s ‘partnership,’ in the mean time, could they please do reciprocal lounge access like the AA-B6 NEA… and, if they do merge, would be ‘swell’ if United could adopt Mint’s superior food, beverage, and seat arrangement, instead of reducing jetBlue to United’s weak standards.
Regardless of your political views all, including the ultra liberal 1990, should be glad that government travel is down. One of the first things companies do when facing budgetary issues is look at discretionary items like travel. Sure some is required but you don’t need to always send 10-15 people to the same conference or can use Zoom for monthly update meetings instead of flying in for them. Hopefully our government is taking a hard look at travel and these reductions are permanent. Again, this isn’t a political issue just prudent use of our tax dollars.
Yeah, this government‘s prudent use of our tax dollars. Thanks Pete Hegseth for spending $94 billion taxpayer dollars on Alaska king crab legs, ribeyes, Apple Watches, a baby grand piano and various other prudent decisions.
This administration should all be locked up.