United pulled out of New York JFK entirely in fall 2015. Now United President Scott Kirby says that was a mistake.
United reports they lost money on the only flights they offered out of the airport, they were down to just premium cross country flights to Los Angeles and San Francisco and no longer even ran regional service down to their Washington Dulles hub.
However United’s bean counters looked only at revenue and expense for the those particular flights, missing the bigger revenue picture — they had lucrative corporate contracts which made other routes profitable, and which they couldn’t keep without those flights.
“The real reason it was a mistake was it let American Airlines in particular go win a bunch of big corporate accounts,” he said. “People like Disney and Time Warner — two big examples — are corporate accounts that had been United exclusive corporate accounts and not only flew United on the transcon [routes] but flew United from L.A. to Heathrow and all across the country.”
…Many of the corporate contracts were unusual because the companies cared less about pricing than typical businesses, Kirby said. Actors, for example, usually must fly in premium cabins — regardless of whether the fare is $1,000 or $10,000.
United Dominates New Jersey
Newark isn’t New York — New York Mayor Fiorella LaGuardia once refused to get off a plane at Newark Airport, because his ticket promised he’d travel to New York. He was at the time pushing for construction of what became LaGuardia airport (the very first airport lounge was opened at LaGuardia converting the mayor’s private office there). It’s more convenient to parts of the city, however.
United’s market share has fallen from 30% down to 26% since the Continental-United merger. Returning to New York JFK wouldn’t get their corporate contracts back, so that’s not the obvious move.
But Scott Kirby says United’s New York margins are higher than their competitors, and that’s why they want to grow in New York.
United operates a much larger hub than American and Delta at JFK, and that additional scale usually makes flights more profitable, he said.
“We have about 15 percent margins here in Newark,” he told employees. “We estimate Delta in New York has a 4 percent profit margin, even when times are good. And American is somewhere in between.
Of course margins may shrink as they add flights that would have earlier been considered on the bubble. And their margins are especially high at Newark because historically other airlines couldn’t compete there, they couldn’t get slots.
Last fall the FAA dropped the ‘temporary’ level 3 slot controls at Newark that went into effect in 2008. Now other airlines can fly in and out of the airport as long as they can get access to gates. That will mean more competition and lower margins.
New York is the most important air travel market in the country, and the premium New York West Coast routes the most important as well. There was a time of course that an airline could be number one coast-to-coast out of Newark…