Plenty of reporters will be covering the United Airlines first quarter earnings call, but largely focusing on the airline’s revenue performance and questions about the fleet – especially the 737 MAX.
For instance United executives were asked whether they have had discussions over compensation from Boeing after the grounding of the aircraft. There were no questions about compensation to customers who have had their schedules changed of course.
My interest is largely focused on customer experience – product, fares, and the loyalty program – and that’s something that gets discussed but not nearly as widely picked up in the coverage. So these are the things that struck me as interesting during United’s earnings call.
- Chief Commercial Officer Andrew Nocella, whom American AAdvantage reported up to when they were devaluing and moving to revenue-based earning, bragged about the carrier’s elimination of award charts and MileagePlus’ win in the FlyerTalk awards. He believes the move is good and also that they’ll win the same award next year.
- He noted that airline is experimenting with increasing the buy up cost from Basic Economy to regular economy, and suggests that when they require more money to buy a fare that allows assigning seats and carrying on a bag. So far he says the tests show people will pay.
first BE was first introduced – domestic gap was pretty static at $50. now the gap is $60 with dynamic variations way above $60 on some domestic routes.
on International – it was $90 initially, now its $110 – $180. the higher it goes, the less incentive to buy regular.
— The Flight Deal (@TheFlightDeal) April 17, 2019
- And also that the airline expects to complete Polaris business class seat retrofits in 2020, and that’s also when they’ll open the Washington Dulles Polaris lounge.
Polaris Lounge Newark - Airline President Scott Kirby noted they’re now in negotiations with Chase over their card deal. Analyst Joe DeNardi suggested their card deal had had a 1% margin deficit relative to competitors but that with Delta’s new deal with American Express perhaps representing 10% improvement that United’s deficit is now closer to 2%.
- Kirby says that even though they have fewer passengers, they’re revenue is strong because they’re in the best markets. He’s pointing out that strong presence in New York, San Francisco, Los Angeles and Chicago means having a base of customers that spend. That’s a point that’s worth American’s paying attention to — as American scales back its role in New York, that means scaling back potential co-brand card spend.
- Their midcon hub strategy is to increase connectivity, where they’ve lagged competitors. Despite rebanking those hubs they still have a gap to close.
- They see Latin America as especially strong going forward. If that’s true and generalizable it would be even better news for American than for United.
- Scott Kirby refused to comment on training programs at Ethiopian Airlines even though they put their passengers on the carrier through the Star Alliance, mentioning only that there are pre-existing audit processes. He would not say whether they would re-look at the carrier in light of their 737 MAX crash.
Given that their card and program are as good and probably better than American and Delta, the only explanation I can think of for why their co-brand does less well is because Chase’s 5/24 rule limits who can sign up. That is the sole reason I have two American cards and no United cards. Do you agree? If so, do you think they are aware that Chase’s 5/24 rule is the reason their co-brand underperforms?
@jeff – the number of frequent chase players is small relatively speaking, I’m guessing more likely it’s the ease of transferring from more flexible Ultimate Rewards points plus other marketing factors or lack thereof…
Disagree with that assessment. I find their free checked bag benefit incredibly restrictive – you actually have to USE the card to get the free bag. For AA and DL you just need to own the card to have the free checked bag benefit.
It actually steers my business away from UA for those lucrative business trips.
Gary wrote “Kirby says that even though they have fewer passengers”. Imagine the following similar statements:
(1) A high tech firm saying our customer base is shrinking, but it is “ok” because we are making a profit.
(2) A car share company saying, more people are riding taxis than before because our prices are too high, but we are making it up on price.
(3) An oil company saying we are making higher profit this year because we are not investing in capex, but no worries, our reserve life has only dropped from 8 years to 7 years.
(4) Or even in airline terms, we make money because we are an oligopoly. Of course, since they are under serving their markets, there is a big opportunity for new competitors to fill the void thereby reducing the pricing power of the oligopoly.
I know some stock analysts like United/Continental. However, I would not touch them with a ten (no twenty) foot pole.
Strange that WSJ was concerned about training at Ethiopian Airlines when the preliminary accident report found no fault with their training or response to the MCAS malfunction.
Is there someone or a title at chase we could send letters to, to let them know that taking away the award chart is a devaluation and we have chosen not to get the card because of that? I was this close to applying for the card. Now I will just keep using Alaska and Sapphire.
Boeing’s stock price is currently $377.52/share. The 52 week average low-high is $292.47/share – $446.01/share. To be honest, I do not get it. In my opinion, Boeing bears significant responsibility for the two crashes. At this point, I think it unlikely that Ethiopian Airlines was to blame. Boeing sold the Max as being the same as old 737, when it had different flying characteristics. In other words, they did not inform the airlines that pilots had to retrain to fly the Max safely. The self driving software had a bug in it (which if the pilots had been retrained probably would not have been fatal). Also, it is possible that the sensor driving the software was faulty. Not having a backup on such a crucial sensor is a design flaw. Finally, they ignored the Lion Air crash. Had they fixed the problem after the Lion Air crash, then the Ethiopian Airlines crash would never have occurred and all those people would be alive.
I think Boeing needs to do an thorough investigation internally and put policies in place to make sure this type of carelessness never happens again. I would not touch the stock at $100/share, but that is just me.
@Bri – if you are rigid on schedule/destination then you are probably getting hosed, but for those of us that use our points for trips NOT over the holidays and have options for destinations there is incredible value to be found.
I just booked a roundtrip from Denver to Canada for 11,000 miles in the fall. Cash price of the ticket is $399 so 3.6 cents per mile. I’m having a heyday snapping up these 5k mile tickets!