Summer Hell is Already at United

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In another thread our friend Cosmo chastised me for ranting about UA's poor management and assured me that UA would be profitable as loads increase this summer.

Well, summer seems to have arrived early!

In my rebuttal, I asked how UA would be able to operate with even higher load factors and said that "valuable customers" would be disserviced to an unbearable degree because there is no way to protect them when flights are cancelled.

An acquintance of mine was travelling on UA and received notice of the flight cancellation 1 and 1/2 hours before departure. That "valuable customer" was already at the airport because a passenger must check in two hours before a flight that lasts less time then that. UA rebooked passengers on a flight more than 5 hours later! That means this "valuable customer" will be waiting in the airport for seven hours for a flight scheduled for less than two!

This is happening more and more frequently on more and more airlines.

And yet UA's management is on record as saying they have put "too much capacity into the domestic market"! Let's push loads even higher!

People who can afford alternatives to this treatment most certainly will pursue them. Thanks to poor management in the US airline industry we will see a very robust market for VLJs in the future. And as UA and other airlines lost their revenue first class passengers to fractionals, so they will lose their full Y passengers to new air taxi services flying VLJs. The only passengers left will be those connecting to long-haul international flights and leisure travellers who will skip from airline to airline based on the lowest price.

Is ANYONE paying attention? Or are they simply emulating Silas Marner, counting their millions in the sanctum of their executive palaces?

 

[JAMAKE1]

You're preaching to the choir, Rotate.

 

[WorldTraveler]

loads might have a bit more room to go up but what UA wants is for yields to grow....

the problem is that there aren't a whole lot of places where UA can deploy the capacity it pulls out of its domestic system. And reduced overall capacity means costs are no longer in line... no airline has ever shrunk its way to profitability outside of BK.

 

[rotate]

loads might have a bit more room to go up but what UA wants is for yields to grow....

the problem is that there aren't a whole lot of places where UA can deploy the capacity it pulls out of its domestic system. And reduced overall capacity means costs are no longer in line... no airline has ever shrunk its way to profitability outside of BK.

I understand, Worldtraveler. But load factors are already at levels where service quality is degrading the value proposition.

UA cannot thrive by continuing to price it's product at marginal rates. One cannot claim to differentiate one's product if one is unwilling to price it accordingly.

UA prices it's product as if it were a commodity and then everyone acts surprised when the market responds accordingly. You cannot dump your product for incremental revenue and expect yields to rise.

Of course, nearly every domestic carrier falls into the same trap, which is why the industry continues to be such a basket case even after multiple and, occasionally serial, bankruptcies.

BA prices it's North Atlantic product at a premium to it's US competitors...and makes a profit! They hold firm to their price and the customer confirms the value proposition by either paying the premium...or not.

Any airline that wants yields to rise must allow customers to walk if they won't pay their price. US consumers now KNOW this will not happen. They have become benificiaries of great prices and terrible quality.

Everybody is losing.

Someone at some carrier needs to develop some...er..."courage" and hold fast to a fare increase even if it is not universally matched.

Otherwise, you can expect to see a return to bankruptcy.

 

[whlinder]

loads might have a bit more room to go up but what UA wants is for yields to grow....

I totally agree. The load factor for April was incredibly high. 85% leaves so little room for operational error with the barebones staffing. UA really has to get their yields up.

 

[Cosmo]

In another thread our friend Cosmo chastised me for ranting about UA's poor management and assured me that UA would be profitable as loads increase this summer.

Allow me to set the record straight. I didn't chastise you "for ranting about UA's poor management" -- I chastised you for characterizing Tilton as evil when there is so much true evil in the world today (see Al Qaeda as only one example). IMHO, such usage only cheapens the English language and doesn't really contribute to a meaningful discussion.

As for my prediction, I was referring only to the second quarter of 2006, and I stand by my forecast of United's profitability during the quarter. I'll even go way out on a limb here and give a similar prediction for United's profitability in this year's third quarter as well.

In my rebuttal, I asked how UA would be able to operate with even higher load factors and said that "valuable customers" would be disserviced to an unbearable degree because there is no way to protect them when flights are cancelled.

An acquintance of mine was travelling on UA and received notice of the flight cancellation 1 and 1/2 hours before departure. That "valuable customer" was already at the airport because a passenger must check in two hours before a flight that lasts less time then that. UA rebooked passengers on a flight more than 5 hours later! That means this "valuable customer" will be waiting in the airport for seven hours for a flight scheduled for less than two!

This is happening more and more frequently on more and more airlines.

You bring up a valid operational concern to which United must pay significant attention. But sh*t happens. And despite serious operational issues in the first quarter of this year, United's passenger loads and load factors have continued to increase while its average fare in the first quarter dropped by a statistically insignificant 53 cents compared with the first quarter of 2006. I can't explain it in any ways other than perhaps Americans simply have poor memories or they just don't care.

And yet UA's management is on record as saying they have put "too much capacity into the domestic market"! Let's push loads even higher!

Actually, yes, let's do precisely that. Remember that even at an 85% load factor, with United's systemwide average of about 180 seats per airplane, an average of 27 seats per flight for every flight, day in and day out, are empty. So if United's fills just one more seat on average per flight, for every flight for a full year, at an average one-way fare of only $150, the annual revenue impact would be more than $50 million. So if you do the math, you quickly understand why United and the other carriers continually seek to increase their load factors.

And as a passenger, whether premium or economy, does it really matter a great deal how full the rest of the plane is if your row is already full? OK, the wait for the lavs might be somewhat longer. But ya know what, people adapt. To use my own experience just yesterday, my wife and I were on a completely full (so we were told -- I didn't count) LAS-IAD TED flight that left LAS about 25 minutes late. The pilots made up about half of the delay en route so folks could make their connections at IAD. But the onboard service, though limited as usual these days, was good for what it was, with pleasant FAs and a nice movie. Plus I listened to Channel 9 for a while and I also slept for about an hour. And guess what? There were no riots on the plane and we landed at IAD only a few minutes late. Thus, while a near-Transcon TED flight will never be confused with a cruise on the QE II, it was perfectly acceptable for the safe and nearly on-time transportation provided at the fares my wife and I paid (around $400 RT each).

So at the end of the day, provided United can keep on top of the operational issues (and I understand that it's easier said than done), IMHO higher load factors by themselves will not be detrimental to United. The carrier simply needs to provide the services to its passengers that it has promised. And I guess we'll find out soon enough if United can do that.

 

[Cosmo]

Just a few more comments ...

BA prices it's North Atlantic product at a premium to it's US competitors...and makes a profit! They hold firm to their price and the customer confirms the value proposition by either paying the premium...or not.

This is an "apples-to-oranges" comparison. BA's worldwide network is, on average, much less competitive than United's domestic system. And the prices charged in the restricted U.S.-London market served by BA have absolutely no relationship to the prices charged domestically in the United States. This is proven by the fact that United's Transatlantic passenger revenues, PRASM, yield and RPMs increased by 16%, 10%, 9% and 7%, respectively, in the first quarter of this year compared to the first quarter of 2006, in contrast to the carrier's "less stellar" results recorded domestically. In short, Transatlantic service is not where United has a revenue or profitability problem.

Someone at some carrier needs to develop some...er..."courage" and hold fast to a fare increase even if it is not universally matched.

Otherwise, you can expect to see a return to bankruptcy.

Au contraire, mon ami. Any carrier exhibiting such "courage" in the U.S. domestic market is almost guaranteed to make a trip shortly thereafter to the nearest bankruptcy court if other carriers don't match the fare increase and fickle passengers then book away in massive numbers to save a mere $10 on their fares. And it really does happen that way -- why do you think the airlines have large numbers of employees that do nothing but watch for industry fare changes and quickly put matching fare changes in place. So the trip to bankruptcy court might not stop at Chapter 11 but instead go directly to Chapter 7. That's not "courage" but rather it's foolishness and, in more legal terms, likely an abdication of a carrier's fiduciary responsibilities. Therefore, you're not likely to find any carriers that will take up your suggestion that they show such "courage."

 

[UAL_TECH]

Cosmo,

Hope you are my BET instructor...

 

[NewHampshire Black Bears]

This is not a "global warming" comment(though I strongly believe in the theory), nor is this a UAL only comment, but to the prognostication of a "summer from hel*", given that it's only early May, we've had an early hurricane, brutal twisters, severe floods etc. ........ I think it's going to be a VERY interesting summer !!!

NH/BB's

 

[rotate]

Au contraire, mon ami. Any carrier exhibiting such "courage" in the U.S. domestic market is almost guaranteed to make a trip shortly thereafter to the nearest bankruptcy court if other carriers don't match the fare increase and fickle passengers then book away in massive numbers to save a mere $10 on their fares. And it really does happen that way -- why do you think the airlines have large numbers of employees that do nothing but watch for industry fare changes and quickly put matching fare changes in place. So the trip to bankruptcy court might not stop at Chapter 11 but instead go directly to Chapter 7. That's not "courage" but rather it's foolishness and, in more legal terms, likely an abdication of a carrier's fiduciary responsibilities. Therefore, you're not likely to find any carriers that will take up your suggestion that they show such "courage."

Cosmo,

Your contention that any carrier exhibiting courage in the U.S. domestic market is almost guaranteed to make a trip to the bankruptcy court is, of course, your opinion and speculation. The FACT is that chasing each other to the lowest fare DID deliver almost all of the industry to bankruptcy. Airline managements have learned nearly nothing from their court protected reorganizations and continue to be plagued by poor returns by most measures.

I also fail to understand how pricing one's product above one's costs is any violation of fiduciary responsibility. Reason indicates the opposite is true.

Thank you for your deliberate posts. It is good that someone on this board has access to so many company statistics.

 

[Cosmo]

Hope you are my BET instructor...

Sorry, but I don't work for United (or any other airline, for that matter). And the only BET I'm familiar with is a cable TV channel.

 

[Cosmo]

Your contention that any carrier exhibiting courage in the U.S. domestic market is almost guaranteed to make a trip to the bankruptcy court is, of course, your opinion and speculation.

You're right, it is my opinion and speculation. But IMHO (and with all modesty ) it is a very well informed opinion and speculation. After all, why do you think that proposed fare increases are quickly rescinded if they are not matched by all of the legacy carriers and at least some of the LCCs?

The FACT is that chasing each other to the lowest fare DID deliver almost all of the industry to bankruptcy.

Now you're the one offering "opinion and speculation." You're trying to establish a cause-and-effect relationship where one simply doesn't exist. Low fares have not driven Southwest, AirTran, JetBlue, Frontier and Spirit into bankruptcy. What drove four of the legacy carriers into bankruptcy (and brought another one literally to the courthouse steps) was a combination of 9/11, SARS, the Iraq war, the bursting of the "dot.com" bubble, and premium economy passengers who were no longer willing to pay $2,000 or more for last-minute Transcon fares that got them only a regular coach seat.

I also fail to understand how pricing one's product above one's costs is any violation of fiduciary responsibility. Reason indicates the opposite is true.

Well, maybe "violating fiduciary responsibility" is too strong of a term. But continuing down a path that is destined IMHO to lead to bad financial results, even if a trip to bankruptcy court can somehow be avoided, will not endear a company's management to its board of directors or shareholders.

Actually, your real problem here is that you are applying logic to an industry that rarely uses it and even more rarely profits from it.

Thank you for your deliberate posts. It is good that someone on this board has access to so many company statistics.

You're welcome. And it's always good to have a civil discussion, even if opinions differ.

 

[Ukridge]

IMHO, such usage only cheapens the English language and doesn't really contribute to a meaningful discussion.

Cheapen the English language??? Watch out Cosmo! If you continue to use the English language properly it can be dangerous. Others will accuse you of being a snob, trying to sound like the Bard, using words of more than one syllable, knowing what parallel construction means, using exactitude in speech that garners accusations that you wish only to hear yourself speak .....
You see, using the language properly is a road full of pitfalls. Y'all be careful out there or someone could get hurt B)

 

[rotate]

Allow me to set the record straight. I didn't chastise you "for ranting about UA's poor management" -- I chastised you for characterizing Tilton as evil when there is so much true evil in the world today (see Al Qaeda as only one example). IMHO, such usage only cheapens the English language and doesn't really contribute to a meaningful discussion.

Cosmo,

I chose my words very deliberately and reject any accusation that I am cheapening the English language.

It is unfortunate that you have such a high tolerance for evil that the standard is measured against mass murderers like Al Qaeda.

IMHO, corporate officers who profit so obscenely by destroying others' livelihoods are indeed evil, albeit less so than people who murder.

Please reference the following definition from the Free Dictionary:

e·vil (vl)
n.
1. The quality of being morally bad or wrong; wickedness.
2. That which causes harm, misfortune, or destruction
3. An evil force, power, or personification.
4. Something that is a cause or source of suffering, injury, or destruction

Cosmo, I do appreciate your thoughtful contributions to this board. I hope you will reconsider and accept mine as "meaningful".

Thank you.