United’s CEO: Why Business Travel Will Be Come Back Fully And Why United Will Be The Low Cost Leader

United Airlines CEO Scott Kirby reported at the Wolfe Research conference on Tuesday that leisure demand is back over 100% of pre-pandemic levels, and business travel is going to fully recover too. He’s seen a spike in people using MileagePlus credit cards. And United will win customers with technology, soft product, and lower costs rather than investing in hard product.

In fact, Kirby even argues that United has a financial advantage competing against low cost carriers (like Spirit Airlines, Frontier and new entrants like Avelo).

Business Travel Will Recover And Exceed Pre-Pandemic Levels

Business travel is coming back at United, from down 80% to down 75%. Kirby expects business demand will recover, and those who disagree are just wrong. One “inflection point” already was the change in mask guidance for vaccinated individuals by the CDC. However the airline expects a big ramp up in business traffic come September.

  • Even tech companies will return to the office. However there may be a hybrid work model. Kirby sees people working in the office half the time, and that one “incremental source of business travel” is “people who trade their daily two hour commute by car for a monthly commute by airplane.” However I’d note that people being in the office only half the time means less of an opportunity to travel to their office to meet with them – that footprint declines by 50% as well.

  • Kirby also believes that “once you go back on a business trip, your desire to do more escalates significantly…once you get somebody to do their first trip they’re ready to go on their 2nd, 3rd, 4th trip.” He thinks business travel is “about human nature” and that Zoom doesn’t replace in-person meetings at conferences and over dinner where you get to know someone.

  • He’ll “probably be in the office tower a week a month, on the road a week a month, and with the family half the time” amount to “more air miles” than he was doing before even as his work balance has changed in a lasting way from the pandemic. While people value work from home, he’s taken his 7 year old on two business trips with him.

People Are Highly Engaged In MileagePlus Right Now

Kirby talked about the success of their co-brand credit cards, noting that Chase has shared publicly that there’s been a “6% increase in last few weeks in airline travel credit card spend” (not necessarily spend on United products “but we’re their biggest portfolio”). On the first day of their travel sweepstakes for vaccinated customers over 100,000 new people joined MileagePlus and 200,000 people uploaded their CDC cards.

Airline Soft Product Matters More Than Hard Product

Kirby was asked what one thing he used to believe but he’s changed his mind about. He offered that it’s that “air travel was commoditized,” and that customers only buy on schedule and price. He then acknowledged that “was more true” at America West and US Airways where he worked, and “those are still two of the most important factors” in customers choosing an airline, but he’s “increasingly convinced that air travel doesn’t have to be a commodity, that there are people that choose and people that care and the things you do for customers that make them want to fly your airline.”

He offered that it’s “not the hard product as much as all the things you do to change how customers feel when they fly.” Then he suggested this isn’t actually new, that he “thought that before but that has been proven to me during the pandemic.”

No one has been more known for cost-cutting than Kirby so it’s not surprising to hear he doesn’t believe hard product investment is a top driver of customer behavior. However he’s absolutely right that small touches like United’s ConnectionSaver which holds planes for late-arriving passengers can make all the difference in customer loyalty. Ultimately people just want to be treated like human beings, not self-loading cargo.

Government Subsidies For Airlines Prevented Important Disruption In The Airline Industry

United Airlines was ready to survive the pandemic even if the second and third airline bailouts didn’t pass, Scott Kirby says, but other airlines (presumably he means American Airlines here) were not.

And he says that “capacity-focused decisions didn’t happen because of PSP.” Airlines kept flying the way they always have rather than engaging in real change in their operation, which Kirby claims United is doing anyway. The ‘payroll support’ airline bailouts, in Kirby’s estimation, kept airlines from having to make many of the hard changes they’d have been faced with, and did too much to maintain the status quo.

United Will Consistently Drive Down Costs And Beat Low Cost Carriers

Analyst Hunter Keay got Kirby to confirm that the airline would be offering “a consistent cost story over the coming years,” that United will drive lower costs and “greater efficiency” from front line employees. The airline’s fixed overhead expenses will be lower, and “total labor expense will be lower even as pay rates go up, because we’ve done so much with technology to be productive.”

‘Greater labor productivity’ was a theme of the day at the conference with American offering that they’re moving to single agent boarding at gates, meaning fewer employees needed per flight or unit of capacity than before.

Kirby offered an interesting take on United’s financial advantage over low cost carriers. He suggest that for large narrobody aircraft they have a cost per available seat mile (“CASM”) that’s under 6 cents.

  • They spend less buying planes than an ultra low cost carrier
  • They all pay the same for landing fees and fuel
  • United actually spends less per united of maintenance but that’s not always obvious because low cost carriers often capitalize maintenance costs.

So, he says, “as long as we don’t let management fixed headcount grow” – which he says they won’t – “the only difference in CASM is the number of seats you cram on the airplane.”

Ultra low cost carriers generate low costs per mile flown by increasing their denominator (number of seats) but United “generate[s a revenue per available seat mile] premium higher than the CASM differential.” In Kirby’s telling, United is “the low cost producer of aircraft in our hubs and we generate the highest RASM.”

Kirby Thinks United Will Benefit From Inflation

Earlier in the conference Delta’s President ranked inflation concerns as a 5 on a scale of 1-10, something that might cause issues for his contractors (because of wage pressures) but not as big an issue for Delta directly. Scott Kirby ranked it a 1, despite declaring “I think we’re gonna have inflation.”

Kirby isn’t concerned about inflation because “it’s going to partially be airfare,” and that “we’ll more than pass it on” to customers. In other words, he’s not worried about inflation because it’ll mean higher airfares that more than cover higher costs, and that he believes his margins will go up.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

More articles by Gary Leff »

Pingbacks

Comments

  1. Interesting…Kirby hasn’t figured out how to offer consistent wi-fi on all plans to woo these biz customers back, including myself. Maybe he should start figuring out how United biz customers can be productive flying their product.

  2. @ Gary — Going on one business trip, back to cramped flights with rude flight attendants, worse-than-ever food onboard, in airport lounges, and in hotels will not make businesspeople want for more of the same abuse. He is full of it.

  3. I like when CEOs have common sense revelations such as treating people nice and act like its groundbreaking.

  4. Yes, they are in the people business-ha. They just changed our fall flights again WITH NO NOTICE and put us on a longer duration schedule even thought the original schedule is still available to book.Perhaps they are canceling more routes? Great way to attract customers. 350k more miles and I’m done after 60 years of flying them.

  5. He may “plan” to pass along inflationary increases to customers, but competition and a decrease in demand resulting from higher prices are potential impediments to that strategy.

  6. Wow….I wonder how he figures that when half the world’s boarders are still closed. Lots of talk of opening up, but little movement yet. Kind of hard for lesiure travel to be at 100% when people literally can not travel to most places yet.

    Would love to see businesses in the world realize that they have absolutely no need to have a load of C level execs that make a thousand percent more than what the average employee that actually earns money for the company does. Toss them all out on their greedy rear ends, pay the people that actually do the work more money and lower your prices.

  7. He was aggressive in curtailing flights at the start of COVID. Maybe he’s right now (and maybe he’s not).

    He was also aggressive in conserving cash… including by illegally holding customers’ cash.

    I see no real reason to believe the King of Cost Cutting is going to make flying better, though I’d love to be proven wrong. Certainly, I think it’s possible to earn a premium for customer service (hi, Southwest!), but I genuinely struggle to believe that Scott Kirby is the man to lead Untied to that promised land. It seems more likely to me that Alaska and Southwest and JetBlue will continue to grow, and Southwest may eventually become a “top 3” carrier in the US (not just for domestic passengers, but international as well).

  8. Treating customers like human beings means not reneging on your company’s promises.

    I won’t forgive United for reneging on lifetime United Club memberships.

  9. All these comments do is make me not want to plan future united travel. Guy sounds like a snakeoil salesman.

  10. At least proof read the headline.

    “Travel will be come back fully”

    United’s CEO: Why Business Travel Will Be Come Back Fully And Why United Will Be The Low Cost Leader

  11. It seems awfully convenient that Kirby is suddenly convinced that soft product is so critical when making changes in that area would cost the company little to nothing to implement. While the guy is infamous for being so tightfisted that he’d squeeze a silver dollar until the eagle screamed I’d be truly impressed if he would be willing to lay down some money to improve the hard product that he has only cut back on since taking control. Saying that United has tightly packed crappy seats, mediocre-at-best lounges, and not very good onboard food but nice people only goes so far.

  12. United tickets’ prices are always higher than competitors. Kirby – the King Cobra.

  13. I find his remarks about the importance of soft product versus cost and route to be interesting. To me they are true, and pre-COVID I was a 1K that dropped to Plat due to already shifting to BA on international routes and looking forward to the F&B and service on those flights (and the IAD BA lounge), instead of cringing at the thought of what I was going to get with UA. Currently, though, if UA is doing anything to elevate its soft product into even a semblance of its pre-COVID mediocrity, I am not seeing it.

    Also interesting about his remarks about the Mileageplus card, but I attribute that to their waking up and offering more rebates and spend for miles deals to replace the travel spend emphasis they had before COVID. Amex Plat did the same thing.

  14. UAL has been “focusing” on soft product at the expense of spending money on new aircraft or facilities to the degree that other airlines have for years; it is unlikely that they will move up any more than they have so far even as other airlines are spending money on new airplanes and facilities.

    It is doubtful that airfare inflation will be higher than UAL’s costs; it is hard to believe that Kirby believes they won’t be more squeezed by rising costs than lower cost competitors.

    No one is sitting still including low cost competitors. UAL might be cost competitive w/ large narrowbodies but they fly the world’s largest fleet of 50 seat regional jets which are the most costly aircraft to operate on a per seat basis.

  15. “Kirby also believes that “once you go back on a business trip, your desire to do more escalates significantly…”
    Not with a continued mask mandate and not if travel is on his airline.

  16. Bull. United is expensive, the flights are super crowded, crappy “food”, rude flight attendants, and they constantly change up flights and are late, or cancelled. But, nice try at a bluff!

  17. Do you even have story editors? Just like any other story I’ve read, there are many mistakes with spelling and grammar.

    First and always CHECK YOUR TITLE, MORONS.

  18. What a fantasy alternative universe this Kurby fool is in
    No one charges more for tickets in any class of service then United everyone I know including work colleagues avoid them like the plague.Did I say their food is appalling disgusting food?
    For the first time in 20 years I saw some good fares when no one was flying during covid with the travel bans
    Its a horrible airline that was good many years ago.Now a flying high priced prison

  19. The flight I took pre-pandemic to visit my mother has TRIPLED! And direct flights from my local airport have been eliminated. Will United start adding those back? Very discouraged especially after United received bailout moneys.

  20. I’ve been trying to book a flight from Guam to Manila for the Jun-July timeframe because I need to show the Philippines Consulate office my confirmed round trip ticket before I can get approved to go there. So far I haven’t booked my flight due to the ticket prices by both United and Philippine Airlines (PAL) are from over $3,000 to over $5,000 for a 3hr 15min flight. That is so outrageous and ridiculous! When are they going to lower their prices?

Leave a Reply

Your email address will not be published. Required fields are marked *