United’s CEO Says Higher Airfares are Good For You (You Just “Don’t Understand”)

The President of United Airlines thinks airfares should be twice as expensive as they are today. United’s CEO Oscar Munoz takes things a step further: paying United Airlines more is good for you, you just don’t realize it.

His argument is that more money for the airline means more money to invest in the product. You as the customer benefit even if you “don’t always understand.”

Munoz said policies like raising customers’ baggage fees will help the airline operator achieve these customer-oriented goals.

“It’s important to reinvest in the business…I think it’s one of the things about this industry that people, our customers, don’t always understand. All that money that we’re getting back is being piled back into the business.”

“We want to make you, as our customer, feel good about flying us. And so our customer-centricity, our customer properties, are something we really want to sort of engage.”

United was first major to increase bag fees, dumping the news out with the trash the Friday afternoon before Labor Day. Munoz says higher fees are good for customers but pointedly despite higher prices United doesn’t offer a checked baggage delivery guarantee like Delta and Alaska do.

Live and Let’s Fly thinks Munoz’s point is reasonable, that higher revenue gets reinvested back into the airline for the benefit of customers since United is making several new investments in travel experience, though concedes that most customers won’t be persuaded.

I think that Munoz has it exactly backwards.

  • United’s isn’t ‘returning some of the revenue to customers’ they are investing in their product so they can make more money by attracting more business especially premium business.

  • They introduced their worst product to date, basic economy, at a time of record profits.

  • Their product investments don’t all benefit the same people, for instance they are improving business class seats and introducing business class lounges but business class customers don’t pay these bag fees.

  • At best the Munoz argument suggests that during the most desperate of times US airlines have tended not to invest in their products because there wasn’t much premium business to attract and their competitors weren’t investing either.

    However he doesn’t draw a connection between higher bag fees (where the payoff is greatest in tax avoidance for the airline) and a struggle for survival.

Customers may be willing to pay more to travel — United’s President frequently says that demand for his product is inelastic, they can charge you more and you’ll still buy. However checked bag fees fall disproportionately on the most price sensitive customers — non-elite flyers buying coach tickets for leisure rather than expensing the charges for work.

Rather than telling customers they should pay more and like it, a far better strategy is to work as hard as possible to deliver a better product at a lower price. At least that’s how it works in competitive industries.

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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  1. Might as well make the whole airline basic economy because without a high quality first class Or a leading business class I plan to never fly them
    Maybe make basic Economy 900 bucks each way ?
    That could help their bottom line

    My last flight in First Class out of Chicago on UA was awful only flown
    as my primary carrier sold out
    The service the inedible gop they call dinner and the worst boarding process experienced in my lifetime
    Good luck to them
    Did I mention their award availability sucks?

  2. The greater the profits have become for the US3 airline cartel kingpins, the more miserable these airlines have made the passenger experience in the main.

    Main cabin seating on the US legacy airlines has become more miserably uncomfortable than it was even 15/20/30/40/50 years ago, and yet these carriers profits have been huge for the better part of the past 15 years within which they have made the main cabins so cramped with tighter seating arrangements, smaller aisles, smaller bathrooms, and the elimination of included food service and checked luggage service for most unique passengers on the big 3 US airlines.

    If history repeats itself, these airlines are unlikely to make thing generally better in the main until the cost of not doing so becomes so high that they have already become unprofitable and/or obviously become sub-optimizing in the short term on the profit front.

  3. Wow any doubts that Oscar is just a puppet CEO while Scott Kirby calls all the shots are now shattered. I dare to say that United was better off under Smisek because with Scott Kirby at the helm United has been getting much worse very quickly.

  4. Please tell me any 2 mergers where customers benefited, especially in a market such as airline travel. The race towards the bottom is amazing, and its not just UA going there. Part of the American exceptionalism is competition, and we are losing that. If we aren’t going to have competition, we need regulation…right now we are stuck with almost neither.

  5. Actually I tend to agree with Oscar… as long as you trust that money isn’t going to more stock buy-backs!

  6. What on earth would make anyone trust that money was not going to stock buy-backs with ANY American company?

  7. As I get older, airline CEO;s are getting dumber. Oscar is no Bob Six, Eddie Rickenbacker, Crandall.

    Is it written that because you are richer than me, you are smarter? The more fees Oscar unloads on us, the worse his overall product becomes. That just defeats his argument.

    In fact, one of the prime reasons I was against the last tax cut was because money repatriated was not invested in the product. It went to stock buybacks, boosting share price.

    So, tell me, Oscar, just how all that additional money that I have given you, has built a better airline?

  8. Munoz is right in some respects. Higher fares are good for many passengers because they mean more redeemable miles and qualifying dollars under revenue-based systems. Higher fares are not good for employers and those who shell out more and more of their own dough for these fares. I wonder if Munoz also favors higher taxes because they mean higher levels of investment in government services and products. Yeah right.

  9. I may not have a choice when I have to position from SAT to IAH for international flights (thanks Oscar for monopolizing the gates!) but I sure as hell do have one on every other flight I take and that most certainly will not ever be on UA, one of the top two, if not the worst (AA is really trying hard here) of the legacy US carriers. This article points out exactly why. Everything about the experience on this airline sucks, from the boarding process to the incessant nickle-and-diming of everything down to the air you breathe. If I could, I’d require Oscar to fly economy anonymously on an overseas UA flight in economy once a week for six months, and then try spouting this nonsense.

  10. What @Cassandra said. Orwell would be flattered that [modern/2018] reality imitates him so faithfully.

  11. What the airlines appear to be missing is that passengers are not getting shorter (30” seat pitch) they are getting wider, especially in the area that is 17.5” wide and called Economy, MCE, Comfort Class, ad nauseam.

  12. While I agree that this is less-than-customer-centric approach is a strategy that is doomed to fail, I also think that you are mischaracterizing what Oscar said. The point about “not understanding”, was about reinvestment in general, not about the link between higher fairs and higher reinvestment. So he did not say that we don’t understand that higher fairs mean more reinvestment. He merely said that we don’t understand that the airline industry is reinvestment driven…

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