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…
We (Flyertalkers and blog readers) could have told United (and we did on the boards) that leaving JFK was a stupid mistake. And while I’m at it, HPN/IAD was a dumb move too.
dh
Why would anyone want to goto JFK from Manhattan, isnt EWR much better ?
However United is creepily raising prices on their p.s flights while there is much cheaper prices offered by other airlines from JFK to SFO/LAX/SEA/SAN
@Debit. The JFK experience was a 10 on a 0- 10 scale. EWR was no where near that.
All 3 NY area airports are not really user friendly if wanting to use public transportation.
Is the extra few minutes to/from JFK worth it? That’s for another post.
Right. United moving their “premium service” between JFK and SFO/LAX (“Hollywood”) from one of the world’s iconic and busiest airports in one of the world’s busiest cities to EWR in Newark, NJ, of all places, never made much sense to me…
The airline business is not a free market in the United States, but an intensely regulated and restricted one, in which the government doesn’t even allow non-US citizens to control, much less operate U.S. airlines. As a result we have a cozy cronyist oligopoly which has focused upon cutting capacity to raise their margins, instead of competing on fares, services, or expansion of their networks. New Yorkers and JFK have been the hardest hit by this phenomenon, as airlines have restricted their capacity, with the result that the easiest, cheapest, and sometimes the only way to get from the largest and richest city in the Country to anywhere, is on a foreign airline. United has been, by far, the worst offender. Like any network, the value of an airline is a function of the points it connects, and not any individual route. In failing to see this, United has screwed its passengers, and its shareholders. Comparing UAL from say 1990, to today, leads to the inescapable conclusion that this is one of the worst strings of management teams in any industry, at any place or time.
I prefer EWR myself. JFK is also in the sticks, so it’s really about snobbery: NY vs. NJ. I didn’t care to fly half way out into the Atlantic before turning around and making the approach to JFK. OTOH I am not thrilled about contributing to UAL high profit margins at EWR.
“Why would anyone want to goto JFK from Manhattan, isnt EWR much better ? ”
JFK is cheaper ($5 Air Train vs. I think $15 on NJ Transit) and faster depending on where you are in Manhattan. From home it’s six of one, half a dozen of the other but from work I literally walk down the stairs to the E and I get off right at the Air Train station in Jamaica. EWR fares might be cheaper (it depends), but EWR isn’t a better airport experience
As dhammer53 implied above, all UACO had to do was ask the flyers. Celebrities don’t want to use Newark? Neither do the rest of the flyers. I hear many complaints about schlepping out to Newark from New York flyers. In a city of disgraceful airports, Newark is atrocious even by NY airport standards.
Consolidating around CO’s operations at Newark seems great to bean counters looking at route maps, but no surprise that the real world is different than it looks from a high rise office.
So Queens is “the sticks”? LOL.
Don’t forget people coming from Westchester/Fairfield Counties (read: $$$) prefer JFK too.
Leaving JFK was one of that all time stupid moves. United cut ~30% of it’s TCON capacity net-net with the move, and still you can get round trips to/from EWR for $300-$400 max a couple weeks in advance.
Getting to JFK from a lot of the city is actually very easy – taking the LIRR to Jamaica from Penn Station or Atlantic Terminal is a pleasant and quick train ride that operates around the clock. From there, you hop on the AirTrain which takes you right to your terminal. You can also take the A, E, J/Z or the F to get to the Jamaica or Howard Beach AirTrain stations.
EWR is not super hard either (from Penn), but there are fewer alternative methods, and the train doesn’t run as often.
Leaving JFK was dumb – I have never met anyone that *likes* EWR, aside for them being physically closer.
The decision may have been wrong (according to one executive), but it wasn’t a crazy decision. Lots of pax look for connecting flights…and UA had no regional connections to offer from JFK. One could easily see how it would make sense to run their premium domestic service to one of their large hubs versus a field 30 or so miles away (30 long miles) where they had no other service.
Beyond adding some connecting ability, it also made the high-end premium service accessible to NJ-domiciled pax. UA used to offer non-premium (standard domestic) service EWR-LAX/SFO…at a fraction of the cost of the old PS flights from JFK. Move PS to EWR, and now many of their loyal NJ elites/HVCs would now be willing to fly PS (they wouldn’t schlep to JFK). They certainly won on that part of the decision.
What they seem to have miscalibrated was the consequences regarding LAX/SFO-based HVCs…and the business they lost there. At least one executive thinks that was a lot. How much incremental revenue did they pick up from HVCs in NJ? That isn’t covered. It is certainly more than zero.
The decision is not an unmitigated disaster…just not the screamer they thought.
It is a disgrace that there is neither a proper road or train from Manhattan to JFK, but it is much easier to reach than EWR from Midtown, and anywhere along the E train to connect to the AirTrain (if you have no luggage, but not if you do). EWR can definitely be easier if you are very close to the Holland or Lincoln Tunnels. JFK is nothing to write home about, but EWR is really quite a grim place — kind of like an overgrown LGA but without the benefit of being so close.
Of course it was a mistake, pretty much anyone with a brain could see that, but we all know what is lacking at UA these days. Nobody (including myself) who is flying INTO New York City wants to use awful EWR except perhaps someone getting off the plane directly to a Wall Street meeting. Tourists and pretty much everybody from the village up to Harlem will want the more convenient auto and train connections to JFK or LGA.
As for connections, it would be foolish for UA to cannibalize LGA, but they could have offered select overseas routes to connect with *A partners in FRA, IST, etc. All that money is currently ceded to LH group and others. And of course it would have made sense to offer flights to all its hubs (ORD/IAH/SFO/LAX) which all have decent connections to international flights. But again, UA was penny wise, pound foolish.