United Airlines CEO Scott Kirby said Thursday that he remains fully confident in the airline’s business plan despite early concerns about the broader market.
After an event at United’s hub at Houston’s George Bush Intercontinental Airport (IAH), Kirby told reporters that United Airlines’ broader two-pronged network plan means more He suggested it would grow domestically by using larger planes and expand globally to capture international leisure demand. Forging a successful path for airlines into his 2030s.
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“I think demand is normalizing,” Kirby said. “This is the new normal.”
United Airlines is increasing its global presence by establishing itself in established international markets such as London and Paris, and by adding routes to various hub airports such as San Francisco to Rome. The company is also experimenting with adding flights to smaller cities and destinations that may not yet be served directly from the U.S., especially by U.S. airlines.
These new markets are specifically targeted at leisure travelers, including VFR customers. VFR customers are an abbreviation for the airline’s business term for “visiting friends and relatives,” which is generally a price-sensitive part of leisure. Recent examples include Christchurch, New Zealand. Amman, Jordan and Accra, Ghana.
As countries in Asia resume operations post-pandemic, the airline also plans to restart and expand its operations across the Pacific, with recent flights to cities such as Taipei, Taiwan and Manila, Philippines, in addition to Tokyo and Hong Kong. Announced or started a route.
Recently, however, concerns have begun to surface regarding the outlook for the transatlantic market next year.
TD Cowan aviation analyst Helaine Becker said in a research note to investors this week that record demand and strong pricing power in the summer of 2023 will lead airlines to have excess capacity heading into 2024. expressed concern that it was being added to
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“We believe market traffic will return to more normal seasonal levels, which could result in excess capacity,” Becker said.
While this may be good news for passengers, Cowen’s memo states that “an overcapacity situation is occurring in the North Atlantic, which will likely lead to lower airfares,” United Airlines This will lead to a decline in revenue for airlines such as , which will put pressure on airline profits. Pull back.
However, Kirby disagreed with Cowen’s assessment.
“I think we are exaggerating the challenges of next summer, mainly because we will have more capacity in the winter,” he said. “Still, we feel very good about demand across the Atlantic.”
Kirby said that despite expected strong demand, United Airlines will not significantly add transatlantic capacity next summer and that even if some routes are changed, it will not be until 2023. It added that it intends to maintain roughly the same capacity.
“For United, we’re going to see flat year-over-year sales across the Atlantic,” Kirby said. “The Pacific has finally reopened and our big growth drivers are in the Pacific.”
But for the domestic market, Kirby expects the situation to be even tougher amid slowing demand, continued challenges related to supply chain issues and air traffic control staffing shortages.
“I think domestic growth will slow pretty significantly across the industry,” Kirby said. “A few months ago, airlines’ plans were about 11% [growth]. It has now fallen to less than 5 and is getting even lower. ”
Kirby said United expects to be “closer” to its original plan with enough pilots and currently enough aircraft for mainline operations, but there are challenges across the industry, including air traffic control. He pointed out that it is a work in progress. Federal Aviation Administration.
“The FAA did a great job over the Thanksgiving holiday, especially in New York,” Kirby said. “But the reality is we are 3,000 controllers short in this country.”
Related: United Airlines and American Airlines reduce New York flights this summer due to air traffic controller shortage
Plans to use newer, larger aircraft on domestic routes are likely to help United, at least in some challenges, allowing it to grow while operating fewer flights (by carrying more passengers per flight) and ideally avoid maintenance problems typical of older aircraft. easy to become.
Still, even as the airline marked the maiden flight of the new Airbus A321neo, the first delivered by Airbus since 2002, getting these new aircraft on time has proven difficult.
“Boeing, Airbus, engine manufacturers are behind,” Kirby said. “It’s the supply chain [issues] that [go] Deeper, and in some cases, having to order parts a year earlier than before. ”
Kirby said despite the challenges, the domestic market remained strong for United.
“Demand remains very strong. RASM (revenue per unit, which is a measure of revenue efficiency and profitability), as you know, has declined domestically despite significant growth,” Kirby said. Told. “But the domestic market remains strong for us.”
Kirby has previously cited challenges in the domestic market and said United are ready to meet them. But low-cost airlines are likely to suffer.
At the company’s third-quarter results conference in October, Kirby said, “We had expected that the domestic market would be shaken out, and we now believe it will be faster.”
Mr Kirby said LCCs would face difficulties if they did not improve their cost and pricing structures as fuel and labor costs were rising.
“The airlines with the lowest profit margins are the so-called low-cost carriers, and I think that’s where we’re going to see a change,” he said in a LinkedIn post announcing the airline’s third-quarter results.
Related article: Fate of JetBlue-Spirit merger hangs in the balance as antitrust trial begins in Boston
On Thursday, Kirby said in Houston that he believes low-cost, low-margin airlines, including JetBlue Airways and Spirit Airlines, will struggle regardless of whether their merger plans are allowed to proceed. I reconfirmed it.
“I think we can win no matter what,” Kirby said. “I think they’re both in a lot of trouble.”
“Delta and United Airlines have an 11% profit margin, while Spirit’s profit margin is -16%.” [percent]”These are going-out-of-business numbers in the history of the airline industry,” he added.
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