United held a call yesterday morning where CEO Oscar Munoz talked about the ways that the airline would cut costs and generate more money from customers.
United CEO Oscar Munoz with United Flight Attendants
That’s never a great story from a consumer perspective – get more from customers, spend less on customers. Anything that emphasizes squeezing more seats into aircraft isn’t going to be popular and I cringe every time I hear the words “slim line seats.” I don’t want to sit in one of those for more than an hour.
Much of the call contained things we already knew about. That’s not really a surprise, since they wanted to get to a really big number ($3 billion) in bottom-line improvement they needed to throw in the kitchen sink including things that have been ‘in the bag’ for quite some time like their re-upped credit card co-brand deal with Chase.
The sleight of hand here is that they’re using last year as a baseline of comparison, when we’re already halfway into 2016. If you use 2018 projections versus 2016 projections you get net improvement of $2 billion, even though that’s not really all financial improvement from today as much of 2016’s has already been captured.
Operationally they say they’re increasing the size of aircraft and offering fewer frequencies. That’s good from a cost perspective, not as good for convenience.
United management kept coming back to needing a theory for each hub. It’s certainly striking that they gather financial analysts on a call not to tell them what their theory is, but that they need one. Reading between the lines, if they don’t understand how all of their hubs operate then perhaps they shouldn’t all exist as they do today.
United needs to continue to improve its operational performance, and part of that is going to be getting the airline onto a single maintenance system. Fewer operational delays will mean paying out less compensation to customers, less overtime to employees, and help it win back premium business.
While the airline plans to better monetize its premium products — economy plus and premium cabin – there is at least a continued commitment to premium products, including increasing the number of premium seats in certain business markets.
Like at American, United will be following Delta’s lead with basic economy later this year. And they talked about their Gemini system replacing existing demand forecasting – similar to recent comments by American President Scott Kirby.
Selling more premium seats, and getting customers to buy up from their new stripped down basic economy fares, are expected to contribute $1 billion in revenue in 2018.
United wants to do more to attract premium customers, do less for non-premium customers in hopes those people will spend more, and cut costs out of an operation which still hasn’t fully completed its 2010 merger. That’s all to be expected, and for the most part things we’ve heard before. The question is how well they’ll execute on that, when their new premium international hard product won’t be consistently available across the network until 2021.
A better operation is key. They get that much. And improving their premium product is as well.
On the other hand squeezing more (less comfortable) seats into planes is hardly new, but it’s also not something to look forward to. Basic Economy — taking away things like advance seat assignments, and elite upgrades — is hardly something to look forward to.
United has a lot of catchup to do with the rest of the industry on both sides of the equation. My takeaway was that their plan seems to be to copy and catch up, rather than chart their own course.