United Opens the Kimono: Here’s Their Strategy Going Forward

United has been holding off strategy discussions until Investor Day and now they’ve revealed their plan.

The most concrete thing they offered — and which customers aren’t going to like — was the full details of Basic Economy which takes away elite mileage-earning, takes away upgrades, and even takes away the ability to bring on a rollaboard bag from non-elites.

There’s more customers probably won’t like as well:

  • “Densifying both narrowbodies and widebodies” i.e. adding more seats onto planes
  • More Slimline seats (less padding, less comfortable seats to help squeeze in those seats

Last year United said that revenue-based redemptions were coming. They’re still coming, called “MileagePlus Air Awards” and United categorizes them under revenue enhancements from MileagePlus.

And United seems to suggest that brand is much less important than it used to be.

They talked at length about broader strategy for their product, their hubs, and where their opportunities are. Here’s the presentation (.pdf).

United’s philosophy was to be an international airline, with domestic flights meant to connect to international. There’s upside for United in growing domestically, in selling larger premium cabins, and in adding premium economy.


New United Polaris Business Class Seat

They want to make Newark a connecting hub, with Scott Kirby seeming to suggest Newark could be more like Philadelphia is for American, going from 35% to 45% connecting traffic. Denver is their most profitable hub, driven by low costs and high connecting traffic. They believe connecting traffic drives profits, which is anathema to the usual belief that dominating a heavy business market is key (connecting traffic sees the most competition, everyone offers connections). In order to make their connections more attractive they are going to move to a banked hub at Newark (albeit with smaller operational peaks than Philly). They plan to bank Chicago as well and suggest they can do the same in Houston.

    In a banked hub, you have lots of airline employees standing around during down times waiting to bring in aircraft at roughly the same time and send out planes at roughly the same time. This means shorter connecting times, flight connections that show up higher when passengers search, and less total journey time. It also means a more complicated operation that can more easily fall apart. When flights are delayed there aren’t enough gates for inbound aircraft for instance.

Although United has talked about needing to ‘define a role’ for each hub, they’re now suggesting they won’t get rid of any. Washington Dulles, although too high cost (in part because of the expensive train that drops United’s passengers nowhere near their gates) it is effectively subsidized by the perimeter rule which keeps out competition for medium- and long-haul domestic flights (and which United lobbies to keep in place).

United believes that greater segmentation, larger planes (though they are deferring Boeing 737 jets in factor of Embraer regional jets) and more premium offerings along with a better revenue management system, Gemini they’ll be able to drive more revenue. Currently United’s revenue analysts manage two-thirds of flights by hand, a similar story to what Scott Kirby told at American.

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. United can go take a hike. As a 1K for over a decade I’ve had it with that crappy airline. These airlines have lost their minds taking away everything from their most valued customers and treating their other customers like dirt. Their slimline seats are so bad it takes my body 2 days just to recover from a long flight. Not only have they made the seats hard as a rock they also cut the length of the seat cushion to make it appear as if there was more leg room. It’s all an illusion and in my opinion it’s become unhealthy to even fly for a long period of time in the seats. No wonder the country is in such a foul mood because big business like these airlines just keeps pushing and pushing consumers until they break. I doubt this is going to change anytime soon but it’s just appalling.

  2. The trouble with banking flights is that United and especially United Express doesn’t have sufficient timelyness. I like a nice 90 minute connection because I’m on United Express too often.

  3. Why anyone would want to set foot on a United plane after reading the investor presentation is beyond me. They continue to be a despicable company that doesn’t give a shit about the customer. Hopefully people vote with their feet.

  4. The only way UA will change any of this is if people find other airline options. I haven’t flown UA in a year and this will just continue to keep me away.

  5. They forgot the slide that says “Do what Delta does.”

    That revenue management stuff seemed to be really in the weeds and non-strategic.

  6. Looking forward to the day when you make it past the first sentence without a serious grammar/spelling mistake.

    Thumbs up for proofreading

  7. Revenue-based redemptions is going to be terrible. Airlines need to stop using “enhancement” when they mean the opposite.

  8. They opened kimono, and now we’re staring at junk.

    I especially loved this bit: “Improve turn times by: Minimize handling/processing of gate bags near the end of the turn”

    Yes, in the same deck where they introduce Basic Economy fares, which will force many folks in the last boarding group to gate-check their bags. Perhaps with an argument beforehand.

  9. Odd for an airline to say brand doesn’t matter only weeks before launching its heavily branded Polaris business-class product.

  10. Although United has talked about needing to ‘define a role’ for each hub, they’re now suggesting they won’t get rid of any. Washington Dulles, although too high cost (in part because of the expensive train that drops United’s passengers nowhere near their gates) it is effectively subsidized by the perimeter rule which keeps out competition for medium- and long-haul domestic flights (and which United lobbies to keep in place).

    The perimeter rule pertains to DCA, not IAD. Explain what you mean by this. Dulles has room for tons more medium and long haul flights although the crooked Airport Authority makes it too expensive to operate there. (See: jet Blue pulls almost everything out of IAD)

  11. Suppose one has no desire to EVER purchase a basic economy ticket, how would this change affect them?

    Isn’t basic economy to regular Y what C is to F? A reduction of benefit for exercising one’s right to pay less for a ticket?

    Inquiring minds wanna know! I really do because then I might get what the fuss is about.

  12. Ok now that we’ve dispatched with HRC and the BS that she and her entire entourage “WAS” , can somebody please explain to me who exactly DCS is.

    I find it hard to imagine that it’s a real person. Like who actually looks at situation and convinces themselves that it makes rational sense to pay more for something because of a letter?

    I’m not agreeing that you Reduce my right to pay less for my ticket. I’m looking at what someone is selling and deciding if that’s a price I’d like to pay for that product or service.

    Complete Insanity. Nobody actually thinks like that.

  13. On Slide 34

    “New credit card deal

    Rate escalation due to new agreement”

    What do they mean by “rate escalation” – is that referring to what Chase pays to buy miles from UA?

  14. ….and the U.S.-flagged carriers continue to whine about competition from Gulf carriers that take away their passengers…..and just don’t get it. United: this is WHY frequent travelers prefer Emirates, Etihad and Qatar, among others. Because they treat their passengers RIGHT. United should take a lesson, here. I will NEVER fly United or any other American carrier except Southwest. Southwest will take me anywhere domestically I want to go, and Emirates takes me everywhere else. Does it suck to have to go through DXB en-route to NRT? Yes. But better that than United.

  15. @rjb Gary meant that the perimeter rule at DCA means that many flights that would depart DCA in an open market are forced to operate from another airport. Since IAD is the next closest airport to DC, IAD gets the flights pushed out of DCA. This is bad for consumers, since they don’t get to depart out of a convenient airport, but good for United and IAD, since they face less competition for these medium and long haul flights.

  16. DCS you aren’t a business traveler otherwise you might understand.

    Plus as DL has showed it is the start of a slippery slope.

  17. It makes a huge difference. Are they going to have security onboard making sure people who have discounted seats don’t use the overhead? Next it will be pay toilets. These are silly rules which just divide people. Ok, don’t give people seat assignments or make them take middle seats but they keep pushing the envelope. There needs to be a basic standard for all tickets and denying people the use of the overhead bins is stupid and dangerous. It’s also going to create more delays and more arguments. I can afford whatever I want but that doesn’t mean I want people who can’t afford it to be treated like crap. Whatever happened to the rule about treating people the way we would like to be treated?

  18. Banked hubs are a huuuge (thank you Donald) mistake for airports that often have weather or ATC delays (i.e. insufficient capacity). All of UA’s hubs fall into that category with perhaps the exception of DEN (no shocker that is the most profitable). Hard to believe that everything Oscar has done to make UA reliable again will be destroyed by a marketing team that doesn’t seem to understand how flying works. Travelers connecting from INT-DOM and vice versa (as is the case for many at EWR, SFO and IAH) actually want longer connections because they don’t want to miss the sole flight of the day to their overseas destination (or alternatively don’t want to miss a connection due to CBP & security delays). Frequent periodic flights make far more sense than banking. Really that is the dumbest idea of the whole presentation, which is quite a feat given the # of idiotic points. Yet another point in favor of LH, SQ and others who know how to run an airline that keeps customers happy..

  19. @Inquiring MInd — If you could put two logical sentences together it might help. Until then, you won’t “get” who DCS is.

    The questions remain. There is a fare class, BE, with what you will or will not get spelled out, like for any other fare class, and then you go ahead a purchase it and you want the associated T&C not to apply? It seems to me that the solution is simply to avoid purchasing BE tickets, it will flop and it will be pulled. If it is popular because significant numbers of like the low cost while not minding the decreased benefits and BE makes the company money, then that’s capitalism, right?

  20. I think you are missing the point of an investor presentation. United is telling Wall Street how they are going to make more money on the next 2-4 years. We all know United won’t be able to pull this off ( love the part where their operating margins are going to exceed Delta’s in a couple of years – I laughed out loud at that fantasy!)
    They want to get their stock up so they can cash out. No way that travelers will ever pay a premium for United. We all know this! But we get to watch United flop around for a few more years until they change management again. (Scott Kirby – failure at US Air, failure at AA, will take a united down next. )

  21. Well, they can “densify” all they want, but it won’t affect me — I all-but-stopped flying United years ago. Indeed, I have only made two round-trips on United in the past four years, and can easily forego United in the future . . .

  22. I wouldn’t call an Investor Day “Opening the Kimono.” An Investor Day is designed to discuss strategy. If the Investor Day included a behind the scenes tour of something, than maybe. But, a discussion on strategy isn’t opening the kimono. Nice try.

  23. Seriously people! What is all the fuss about? Too much bitching here. It’s what people want. They want to afford to fly! Period. That’s why Spirit and Frontier exists. People shop for the cheapest. That’s what you American couponers dream about. If you don’t like basic pay for premium. Simple! Many choices. Someone will buy the United basic fare BELIEVE ME. Regardless of your bitching, I predict their planes will be about a 90% load factor average. Stop hating!…and fit the guy who mentioned flying Emirates. They have a 3-4-3 configuration on the 777 with slimline seats. Welcome to the new reality.

  24. Salvatore? Did you wake up on the wrong side of the bed? What is it about all this that has YOU so upset?

Leave a Reply

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