United CEO Admits They’re Getting Rid of International First Class & Makes Several Other Claims

Buying Business Travel interviewed United Chairman and CEO Jeff Smisek who made several interesting comments.

If He Repeats the Claims About Gulf Carriers Enough, They’ll Finally Become True

He described Emirates, Etihad, and Qatar as “rely[ing] entirely on taking traffic from others” as though people flying United and other carriers belonged to those airlines, while repeating the trope that those airlines are more subsidized than his (remember, the US government picked up pension liabilities from United in bankruptcy to name just one item).

Continuing on the point of whether United received subsidies, he made the rather silly statement that,

Bankruptcy protection is not a subsidy whatsoever. The people who get hurt in bankruptcy are creditors and shareholders.

The major US airlines continue to embarrass themselves by appearing in public not knowing what a subsidy is.

I think what Smisek means to say is that the creditors and shareholders are providing the subsidy not the government, but he conveniently omits the issue of pensions — United’s $9.8 billion default on pensions was then the largest in history. (The government’s Pension Benefit Guarantee Corporation picked up about two thirds of it.)

Smisek conveniently ignores that the beyond rights in Tokyo acquired by Japan acquired from Pan Am were originally carved out of the spoils of World War II. He brags about “a $500m facility in LAX” that’s mostly paid for by local government. And ignores that he sat at dinner with the Chairman of the Port Authority of New York and New Jersey and was asked for a personal flight to Colombia, South Carolina in exchange for favorable government action — and then United gave him that flight. He simply can’t claim to be something other than a crony capitalist.

I’m not going to sort through which airlines are the most subsidized, I don’t think it much matters. He certainly shouldn’t act as though some claims in the US airline ‘white paper’ on Gulf carrier subsidies weren’t fabricated or that Emirates hadn’t responded to the allegations in the paper literally point by point. But when Smisek says “we don’t like protectionism” that’s like Donald Trump continually crowing the same thing as he blames “trade deals” for a substantial portion of the nation’s ills. (In many ways Smisek is Donald Trump without the charm… or the fake $10 billion.)

United Is Eliminating International First Class

It’s been obvious for some time that United had no commitment to a three-cabin international strategy. Legacy United had a first class international cabin, Continental didn’t, and only those aircraft that already had it continued to operate with it.

As the legacy United 767s received retrofits, the first class cabin went away. Catering has been essentially the same in first class as it has been in business. It’s simply not been a product anyone should ever pay a premium for, except that United’s business class hard product has lagged the industry as their flag beds don’t provide privacy and require passengers to climb over each other to use the lavatory.

“It’s a money loser, and we will be eliminating it over time. For example the 767s that have it today, as they get retrofitted you will not see it reappear. The problem is that it takes a lot of real estate, and people are not willing to pay for that. I suspect the other carriers, apart from the subsidised Gulf airlines, would say the same thing.”

United “Global First”

Singapore Suites

I wonder why people aren’t buying…?

Smisek’s claims about other carriers are of course disingenuous. Not only do even his Star Alliance partners continue to offer better and better first class products, rather than leaving them to die on the vine wishing they didn’t have them, but so do many of his competitors in Europe and Asia.

Lufthansa, Asiana, Singapore Airlines and ANA all continue to offer first class on many long haul routes, and have upgraded their first class products.

First class doesn’t make sense on every route, of course, or for every airline. And both Asiana and ANA offer the product on only a handful while Lufthansa has eliminated it on some (though they still offer it on the vast majority of their widebody aircraft).

Still, having Smisek clearly admit that it’s going away – while not surprising – is a first that I’ve seen.

He Sort of Throws Lufthansa Under the Bus

Lufthansa’s ongoing dispute with global distribution systems, forcing Lufthansa prices to be higher through others’ systems than buying direct from the airline, isn’t something that Smisek would comment favorably on. In fact, you can buy Lufthansa flights through joint venture partner United now and undercut Lufthansa’s higher fare on those systems.

Which brings us onto the thorny issue of distribution. Smisek won’t comment on JV partner and fellow Star Alliance member Lufthansa’s €16 GDS fee, nor will he comment on whether United is considering a similar move. But he’s happy to talk distribution generally. “My view is we want to be on as many distribution shelves as possible,” he says. “It’s great that our app and direct distribution is growing rapidly, because that’s a low-cost system for us. But if passengers want book through a high-touch travel agency that’s fine. Travel agents can deliver high-yield customers, we are always willing to pay for that.

(HT: Miles to Memories)

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 »

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Comments

  1. It is a money loser but they still charge $10k+ for a seat on that fake first class cabin. Shame on you United!!! AA you should be next to eliminate this fake cabin from your planes.

  2. Thanks for this column and your insight. It provides a tremendous amount of information about how disingenuous United Airlines has been about taking their customers to the woodshed. We should all vote with our feet and fly with any other air carrier, rather than supporting this corporate greed.

  3. It’s easy to predict what UA will now do to international First Class redemption pricing.

  4. @Santastico

    “Fake first class cabin” is too kind. How about sham first class experience from start to finish.

    The cabin is perhaps the least disappointing part of what they sell as an experience for 2% of the passengers on the plane (with the population of passengers being a relatively privileged bunch).

    Superior customer service? Nope.

    Superior lounges? kinda, but I’ve only been in the IAD global first lounge for the late night group of flights. No effort made to refresh anything. Grocery store sushi has gone hard by then. The bowl of hummus picked over and all that is left is caked streaks of dehydrated hummus left in the bowl. (Why do they even leave the bowl out when it is so nasty?

    Better catering on board? No. Still the array of mediocre liquor from miniature bottles available in Y. But oooooh .. . . they add soup to the C meal offerings.

    Assistance upon landing? Well, yes, if you call deplaning at IAD FIRST so you can jockey for a better position on the moonbuggy which take you to customs a “benefit”.

    I have never been able to contain my expectations amply to be ready for yet another let down on UA F. Now I do not have to worry about yet another let down.

    But this will, indeed, create a complete crisis for the NRSA hag FA’s who enjoy the cabin.

  5. We don’t like the disingenuous changes to deltas frequent flyer program; United’s service stinks; aa is still in the throes of merger; spirit nickel and dimes to death; southwest, at least, allows a free bag . . . Pretty soon nobody is going to want to fly on any American carrier. Or are we already there? Certainly going to be interesting when fuel prices start back up.

  6. When they finally phase it out, it’s probably the end of all Star Alliance F award redemptions?

  7. Look at how they talk about their hub captive customers.
    If they are not trying to build a monopoly in front of everyone in the sun shine they then must take most people as really, really stupid.
    The reason why F sucks on USA carriers and J and any other cabin is that their is no commitment to service. Even the strong, heavily unionized Lufthansa and Swiss and AF FT are attentive in F. In the USA carriers they couldn’t care less, not because they are in a union but because mgn couldn’t care less.
    All the USA barriers take their flyers, not just their premium ones for being not just stupid but too politically impotent to do anything about the airlines arrogance. Ironically, when Pan Am was the flag carrier its F was amazing, while it was subsidized, and unionized, and a monopoly!!! Sure Pan Am in Y was a degrading and an insult to the customers and yet they still served food but in F they kissed your behind. Now deregulation has brought us to this point of no competition, no service and no customer rights even for the best customers. and only worse for the leisure travelers.
    Thanks for that.

  8. To be fair, the US tax code creates a situation that favors the elimination of international first class.

    Hear me out.

    Because many major US corporations pick a “preferred carrier”, the mix of US originating passengers on US carriers tends to be higher than on foreign carriers on the same routes.

    US taxes on income are so low (compared to other developed nations), so executives typically seek out the highest salary or salary+equity packages on offer. In the rest of the world, cash income is taxed fairly aggressively, so an executive looking for the best possible compensation package is going to look at things like the travel policy and pick a job where they’re promised first class international travel (and expense accounts, a driver, etc).

    So, if you’re a Lufthansa, your first class is competing for executive business travel. The only US executives in a position to command first class (over biz) are CEOs and the like, who often have the option of using a private aircraft, which typically isn’t in play overseas.

  9. I totally agree. Having worked for UA for 20+ years, I receive my monthly pension from
    the Pension Benefit Guaranty Corp, a government agency. United got billions from the
    US government.

    I recently flew Emirates from DEL-DXB-FRA in economy. Best service I’ve ever had.

    I’m so sick of UA flight attendants saying “flight attendants are here primarily for your
    safety…” In other words, don’t bug us! When I pushed my call button on Emirates,
    they responded quickly and were pleasant. With UA, if they even answer, they are
    usually surly and rude.

    Everyone needs to write to their congressional reps to let them know the UA
    claim of illegal subsidies is all BS. United doesn’t want competition.

    The US airlines industry is, for the most part, is really screwed up.

  10. @malthus actually I think the argument works differently, or at least in offsetting ways, sure income tax rates matter for folks wanting non-monetary compensation [although the IRS has also gotten good cracking down on that, a couple of years ago they were going after generous cafeterias at tech companies], but the flip side is that corporate tax rates are much higher than in many countries that do have bigger international first class markets and so spending more on travel would effectively be subsidized by the tax code since it would shield “compensation in the form of travel” from the IRS.

  11. It was vividly aparent to me last year the the United CEO doesn’t fly his first class product. Atrocious food and dismal service maked United first barely comparable to business on most real airlines. It’s a shame. It would take a lot to revamp F but given current service ‘ United standards’ it wouldn’t be worth it.

  12. Lots of the typical “UA grousing” from Gary Leff and other frequent flyers here, but that Smisek interview is actually quite interesting for its candor.

    I’m not a huge fan of Smisek because I don’t think he’s a “visionary,” but he is a more-than-competent CEO. He’s using the rising tide in the USA airline industry to make billions of dollars for his shareholders.

    UA isn’t investing in int’l first class because it IS a money loser. Sure, it’s nice to fly in your own suite drinking premium champagne, but has anyone reading this ever actually PAID for that experience, or had they employer be willing to pay? You can’t sell a product that nobody will buy. The improvement in int’l business class has made int’l first class a product without a market.

    And, Gary, your continued “lobbying” for the Middle East airlines will eventually come back to bite your credibility. These are massively subsidized enterprises controlled by autocratic regimes that, despite not having any real home markets, do things that no other airlines do. Just common sense should tell you that their finances are beyond fishy. Smisek’s comments about how the A380 is only a airplane for subsidized airlines is spot on: look at Airbus’ order book. Sure, I also love a great flying experience that I’m not really paying for — and there’s nothing wrong with taking advantage of that opportunity — but there’s no reason to make believe the situation is different from what it truly is.

  13. @iahphx sorry but the Smisek interview is a puff piece, no candor, and the claims he makes lack credibility.

    United isn’t going to execute international first class well and shouldn’t have it. That’s true. But his aspersions about it ring false, plenty of airlines make it work, even if its niche to particular markets. He makes sweeping claims that are just demonstrably wrong.

    And I do know plenty of people that pay for international first class by the way. For them it’s not that it’s such a value to buy up from business, it’s that it represents the value option relative to flying private especially for long haul.

    I’m no fan of the UAE or Qatar. I’m not a fan of the business models of their carriers, either. But the US airlines are disingenuous in the extreme in the claims they’re making, they’re hypocrites and protectionists acting against the interests of US consumers. And that deserves to be pointed out.

  14. id have to agree with IAHPHX- you can’t sell a product that no one is willing to buy.

    In fact, I was in the fast food industry for many years, and at Taco Bell, we launched higher quality burrito called the”Chipotle Global First”, and our minimum wage employees where completely unable to sell these $10 burritos- there simply isn’t a market for them.

    Full disclosure- they were just Taco Bell Grande burritos with soup. But none the less, high quality ingredients just don’t make sense and are uneconomic for Mexican outlets to offer.

    Chitpotle is obviously subsidized by the Mexican drug cartels as a money laundering operation, and I would echo IAHPHXs comment, Gary. By advocating for better quality service , you are undermining your credibility and ability to promote Legacy US airlines credit cards- cut it out!

  15. Just another reason why we do not fly UA any more and have moved out of *A to 1W. We love LH and wish they will transfer over to 1W !!!! A LH and BA would work great for Europe award flights.

  16. For avoidance of doubt I am *not* advocating that US carriers produce a better first class. On the contrary, it likely isn’t possible for United to do so. (See for instance my “Here’s How the US Airlines Can Compete And Win Against the Big Gulf Airlines” and “US Airlines’ Hopeless Attempts to Invest More in Wine”)

    Here I’m clearly arguing that Smisek is simply full of it when he impugns other carriers for making that investment, and not even specifically the Middle Eastern ones, for doing site. Indeed, I cite Lufthansa and ANA and Asiana and Singapore (United partners, not based in the Middle East).

  17. With the departure of International First Class we have become closer to both CONTIENTIAL AIRLINES (as in Robert Six) and United Airlines have finally morphed into TEXAS INTERNATIONAL AIRLINES….VERY CURIOUS …FOLLOWTHE THE TEXAS CONNECTIONS….Southwest arrives at Denver International and UA sheds many routes….Texas OIL CEO arrives to dismantle UA….cotinues to push his give away of UA assets to Mr S CAL….follow the $$$

  18. There are four of us who lost our husbands who were working for United Airlines, the pilots of 93 & 175, murdered in the 9/11 attacks. There are hundreds of pilot retirees who like us, lost pensions after United defaulted to the PBGC. Mine is 28% of my husband’s pension in 2001. None of the United pilots wives sued United; we expected United to do the right thing. Take it from me, they will do the cheapest thing. From not securing cockpit doors for the entire flight to now, taking away these first class seats. Perhaps that is why pilots are recruited to Emirates and others, are staying in the Air Force or Navy. He’s running United into the ground.

  19. United doesn’t exist any more. Continental kept the name, United, because, I’m guessing, ‘United’ had a classier public perception than Continental? Continental pulls the strings now.. The new airline formed should be more aptly named CONu!

  20. After reading all of “THAT”S… the main problem for the US carriers are facing today are people want freebies upgrades, to BF/half way along the way the want their wives, or kids to fly the rest of the trip.”ONE FOR TWO “abuse of the system…The M.D E carriers do not allows that kind of things. same people will pay 30.000 on MDE…..If the US government give some 48. billion PAN AM will rise from the grave first class will be fountain of veuve clicquot a gogo.caviar , private room etc…… take a look at the big picture!!!!!!and start putting the money were your mouth is.Also it s not new money.No US carriers will ever purchase A380 just guess why??

  21. I think a small first class is good to offer.
    To truly make it a ‘first class expirience’ however, UAL needs to have the proper amount of staff ( F/a’s) to provide a more personal service.
    As it’s set up now, you have one F/A working in the entire cabin, one F/A in the galley and the purser popping in when they have a free moment. This doesn’t add up to a First class service by any means!

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