United’s President Hates Fare Sales, Thinks Their Product is Good Enough

United Airlines President Scott Kirby is probably the most interesting airline executive to listen to in the country because he lays out his thinking clearly in public. I think most everything he does is bad for his customers. But he has a model for how the world works and he defends it. He spoke today at the Bernstein Strategic Decisions Conference.

In January he laid out his plan for United Airlines and investors hated it. He claims that investors are climbing onboard with United’s growth plans.

Despite rising fuel prices he thinks airlines aren’t having to behave with too much of a short-term focus anymore. Airlines ran sales to generate cash now for flights in the future. They ordered planes to get a good cash deal up front with big capital expenses later. He doesn’t see that happening because of strong (consolidated) airlines that have run profitably for several years. United is passing on three-fourths of fuel price increases in higher fares.

Kirby says United’s biggest competitive advantage is “our route network and our hubs” although they compete on product rather than price although “part of our product is our schedule.” To Kirby offering flights means earning revenue.

And on what most of us think of as product he says “a lot of what we’re doing with the product is keeping up with the Joneses.” United invests in product so that they can offer what their competitors offer, rather than focusing obsessively on what customers want.

He thinks their product by the way is good. Kirby says “we are competitive today” on hard product, “when we finish rolling out Polaris it will be” the best premium product. I certainly understand an airline President being a cheerleader for their airline. Kirby though is usually incredibly earnest, and the claim that United’s new business class seat is the best premium product among US airlines is simply delusional.


United Polaris Business Class

Polaris is a good enough product. It is fully flat with direct aisle access and the innovation is precisely that it accomplishes that without taking up more real estate on the aircraft than earlier seats. Getting the seats rolled out will mean customers shouldn’t actively avoid flying United in business class (though they haven’t even announced a plan to add these seats to their Boeing 787 aircraft which fly their longest flights such as to Singapore and Sydney). American’s seats are better, and Delta’s new suite is better.


Delta One Suite, credit: Delta

He says “nobody is doing wifi well.” “It’s a must have.” It’s a defensive move to have good wifi or they’ll lose customers. That’s why he eventually signed off on adding wifi at US Airways, when he saw they were losing ticket sales.

Since he thinks that “demand is inelastic” for airfare, when prices go up revenue goes up, people don’t stop flying. He says when they go into a market like Rochester, Minnesota they don’t lower fares. They get their natural share of the market because customers in Houston are going to start looking at United for tickets. He thinks airfares can rise because airline revenue as a share of GDP is lower than what it used to be. And he thinks lowering fares is self-defeating, it doesn’t bring in more sales it just lowers the revenue earned from each ticket.

  • I’m sure if pressed he’d have to acknowledge that price does affect the amount of tickets customers buy, it’s just that small changes may not measurably affect demand. If airfares doubled leisure travel would plummet. Some business trips would be replaced with conference calls. Some conference events that involve large numbers of people flying wouldn’t make sense.

  • And at the same time driving down prices stimulates demand, people do take discretionary trips when fares are low and lower ticket prices pull people off of buses and out of cars.

Increasingly customers are happier with their interaction with United’s employees. And he claims investors are buying into United’s growth plans.

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. United used to have the Tuesday night weekend fare sale. We used it often to go to places we otherwise would not have thought of. United filled seats, maybe at lower revenue, but then they were empty at the higher revenue fare.
    It was a win-win.

    Too bad Mr Kirby doesn’t have institutional memory.

  2. Mr. Kirby *IS* completely delusional! For example, take SFO-EWR in “regular” Economy, 9/18 – 9/22/2018:

    1) UA flight 414: d. SFO @ 9:12 am; a. EWR @ 5:44 pm
    UA flight 1885: d. EWR @ 6:06 pm, a. SFO @ 9:20 pm
    Boeing 757-200s
    Total price: $497.40

    2) AS flight 1180: d. SFO @ 9:35 am; a. EWR @ 6:00 pm
    AS flight 1193: d. EWR @ 5:29 pm; a. SFO @ 9:12 pm
    Airbus A320s (VX metal)
    Total price: $292.40

    Which does he think I’m going to fly?

    And in Business/First? On the same flights, UA is $4,147.40 r/t, while AS is $1,996.40. Hmmmmm, let me think….

    In either class of service, the difference is between taking the flights, or not.

  3. Well that explains why I haven’t seen any good United fares since around 2016. And since introducing basic economy, there’s almost no reason to fly United over Spirit. If Spirit doesn’t service that route, then there’s no reason to pick United over Delta or American. The United product is garbage being sold at ridiculous prices.

    Scott Kirby needs to go. He has done more than Smisek to run United into the ground. With him around, Oscar is just a puppet.

  4. Scott has been smoking some of that recreational stuff. This multi year 1K’r is flying Transcon tomorrow on JetBlue (Mint) and back Saturday on Alaska…by choice and not for $$ savings.

  5. Agreed! Living on the West Coast, I don’t get to fly JetBlue as often as I’d like (Mint is fantastic!), but to add to the comparison…

    TO:
    B6 flight 16 d. SFO @ 7:00 am; a. JFK @ 3:36 pm —> $175 BluePlus/$909 Mint
    or
    B6 flight 426 d. SFO @ 11:51am; a. JFK @ 8:35pm —> $165/$1,249

    I think it’s AS SFO-EWR (or JFK), and B6 Mint on the return! ;^)

    RETURN:
    B6 flight 915 d. JFK @ 4:15pm; a. SFO @ 7:56 pm —> $175/$1,249
    or
    B6 flight 1415 d. JFK @ 8:05 pm; a. SFO @ 11:53 pm —> $165/$565 !!!

  6. What makes me shake my head is that UA has been in decline for years and years mostly due to exactly what Mr. Kirby’s thoughts are, garbage. First their product is lame dirty planes and lousy customer service. They are the home of the “ghetto bird’s”

    Then price wise, Really ?

  7. As usual you jump all over the place…very tough read/tough to follow your train of thought.

  8. No company has ever become great by just matching what the competitors do. Guy is an idiot.

  9. Let’s see. United Polaris TXL – EWR today. No Polaris seat (how many years has that campaign been running). No Polaris lounge (“sorry it’s only open for employees to look at”). No champagne. Some super cheap Prosecco. Passenger had a malfunctioning seat and my seat seemed rather constrained.

    Food was fine. Flight attendants were chipper. So that wasn’t the issue.

    But your core product vs. Lufthansa, Turkish, pretty much any other airline that has a real business class (so no Icelandair)? Far from good enough.

    Scott can think whatever you want. But I’m only buying United Polaris when it’s on discount.

    But thanks for changing the frequent flyer program where everything is unbundled and people who have the credit card get Group 2, and it’s all about revenue now. I’m now a happy free agent who can just chuckle about anything coming out of Scott Kirby’s mouth and simply focus on whatever airline gives me the best premium deal. I earn more miles through credit cards than through any frequent flyer program after all.

    Only guy more clueless than Scott is the one running American Airlines it seems. You see I’m already forgetting who runs these airlines as I don’t care. All I’m paying attention to is the lowest cost business ticket with the best service. Next time a recession hits I don’t see a good future for American or United because they deserve better CEOs with a customer centric business model.

  10. Im going to be honest. As a GS and a Diamond Medallion if I you asked me a year or two years ago how UA is doing I would say terrible. However, I’ve lately been suprised. My interactions from employees (excluding GS) has gone from consistently rude/bad to consistently acceptable/sometimes even nice. Of course there are outliers. Flew DL One Suites; it was good. Seat was ok but not great (door wasn’t amazing). However in my experience the Polaris lounge access is so much better. While it is not the best business class in America, I have to admit, lately I’ve been pleased.

  11. @Gary — If “Polaris” is understood to include the ground experience (Polaris Lounge), I don’t think it’s crazy for Kirby to say United will be the best when Polaris rolls out.

    You’re focused on the seat—-just one part of the experience—but United is a bit more competitive than you let on. Yes, the amount of space the seat takes up on the plane is smaller than Delta and American. But if you just take people off the street who know nothing about pitch and width and put them in all three seats I think they’d actually be divided on which is best, with some choosing United. The “suite” label for Delta is a bit of a marketing gimmick; it’s just a cheap divider, not at all comparable to the Singapore Suites that they’re aping. In most of the Polaris seats (though perhaps not the ones facing out towards aisle), there’s basically as much privacy as you would have in a Delta “suite.” There’s plenty of room. So while reasonable people could disagree, I think United’s new seat is basically competitive, even if it’s a slightly tighter squeeze.

    But the seat is just one part of the puzzle. On other areas United’s new service clearly beats Delta and AA: The Polaris Lounge really is a cut above. No a la carte dining service is offered to biz class passengers on American or Delta. Though slow to roll out I do think it’s fair to think that they’re trouncing what the competition offers in business class on the ground.

    Plus even post cutbacks, the United bedding is massively better and more comfortable — and their research (objective metrics that Kirby probably values) shows that getting a good nighr’s sleep is the number one most important factor to people buying biz class tickets. I would argue that, when the flight attendants aren’t in the midst of a union dispute, the soft product on United is on par with or even better than Delta in biz.

    So from Kirby’s perspective, the hard product is basically equal, soft product they’re at least arguably better, and ground services unquestionably better (when Polaris is fully rolled out). Based on that, whether you agree with him or not, I think he’s speaking his honest opinion. It’s not really fair to suggest that he’s not being “earnest.” You may disagree with him but I don’t think his statement is so obviously wrong that it suggests he’s being disingenuous. To the contrary, I’d probably agree with him, assuming we’re talking about when Polaris is fully rolled out (and Delta and AA’s newest product are fully rolled out).

  12. He sounds delusional. You can’t at one point say that UA needs to introduce basic economy to be able to compete on price win ULCCs (which is debatable in and of itself) while also saying price doesn’t correspond to demand.

  13. A decade or two ago, the majors had PR departments smart enough to stop executives like Kirby and Parker from running their mouths. Somebody somewhere in the corporate food chain understood: It’s never a great idea to brazenly tell the world that your strategy is to raise prices and keep the customer experience mediocre. Nor is it a great idea to essentially brag that you’re doing this because you’re part of an oligopoly.

    At least these statements resemble the “glory days” of the 90’s in one respect. At the height of the dotcom bubble, the “pioneers of the new economy” pounded their chests and declared that the business cycle had been defeated. Recessions and the fundamentals were so 20th century. They would never lose money again!

    When something becomes costly and miserable, Parker might be surprised at the amount of time, technology, and effort that businesses will spend avoiding it.

  14. @Ray I think you hit the nail on the head. Both UA and AA are in a race to match Spirit in terms of cabin comfort. However, their cost structures are fundamentally different, and so they are unlikely to ever be able to match them on price. If I’m going to be patently uncomfortable, it better be the cheapest fare. Also, if given the choice between buying up to regular economy from basic or getting the Big Front Seat, I’ll take the Big Front Seat.

  15. Demand for air fare is inelastic? Does he really think that? If he does, he should stop by the Economics class that I teach and calculate elasticity of demand for tickets with my students. Trust me on this, demand is very elastic, as I think we all know. My point of inelasticity is around $700 for a ticket to a tourist destination. Its a little bit higher for my students, but then they live in a higher socioeconomic are. Regardless, lets say that $700-800 is where we start to move away from flying and into taking staycations or a quick driving vacay. Your number may be different, but fares are most certainly not inelastic.

    If this schmuck really believes that, then he’ll drive United even further into the ground.

  16. ” “It’s a must have.” It’s a defensive move to have good wifi or they’ll lose customers. That’s why he eventually signed off on adding wifi at US Airways, when he saw they were losing ticket sales.”

    Hold on, hold on.

    I thought the mantra was time and time again that

    ONLY FARES MATTER.

    Nothing else.

    CUSTOMERS ONLY SHOP ON PRICE.

    And yet….here he is saying that customers are looking beyond price at amenities.

  17. The only problem with Polaris lounges is that they are of most use to connecting passengers. I fly out of O’Hare, and I’m not leaving home or office an hour earlier than usual just to eat in the lounge. I’m not sure if incoming international traffic making a domestic connection can use Polaris after clearing immigration. It’s a significant investment for a fraction of the international business customers. Perhaps the connecting customers have more choices, and that are the real targets, but I’d rather the investment be in the air experience.

  18. Remember when Harvard B-School created a superb case study delineating how Southwest took on Braniff-and beat it in 1971? Well, it’s time for Harvard to expose what most of us here clearly understand:
    1) The rush towards M&A to create the legacy US3 carriers to eliminate competition; boasting of newfound profitability, while conveniently forgetting how they went B/K and dumped their pension on the taxpayer.
    2) The Sovietization of the US3 to disdain, shirk away from competition, or, even being competitive.
    3) How the “C” students from Marketing took over the US3 stupidly thinking their race to the bottom to be at the level of Spirit is where their “real” market existed. Really? Tell that to their actual market that is perpetually disgusted by the physically uncomfortable seats; Guantanamo produced food; and sitting next to obese, well tattooed hillbillies in shorts, clogs, and a sleeveless t-shirt, wearing a dirty hat.

    The ignorance of the travel market by airline and Amtrak executives continues to amaze us. Perhaps with the introduction of Flixbus from its success in Germany, we might yet learn something about how transportation is to be marketed? We were far better off when we were also served by TWA, Continental, Eastern, and PSA. Competition is the magic elixir that separates those competent to understand and timely react in a positive mode to their market. Thinking that by flushing service, amenities, and passenger comfort down the toilet is being competitive any fool can do–as we now see.

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