United’s new hub plan may spur lower airfares
Scott Kirby has a very specific view about how the three US hub-and-spoke airlines work best, having managed two of them. In his current job as president of United Continental, Kirby’s role is to oversee a major overhaul of how the carrier operates, beginning with a broad restructuring of its three domestic-focused hubs in Chicago, Denver and Houston. By United’s math, this trio has profit margins that are 10% below the inland domestic hubs operated by American Airlines and Delta. That gap is one big reason for United’s third-place finish among the three in recent years. The troubles, Kirby explained, began shortly after United swallowed up Continental back in 2010. United’s post-merger decision to shrink, forced by investor demands that the carrier curb capacity to bolster fares and profits, was a weak choice, he said. United cut seat growth domestically by 8% over the next six years, while Delta and American grew 8 and 3%, respectively, according to United. That growth by its rivals put United on the defensive as they made inroads into its Middle America hubs. Almost halfway through his second year as president of United, Kirby, 50, wants to reverse this trend. “Our growth—and strengthening our hubs—is absolutely the critical, essential element to driving higher ... margins at United,” Kirby recently said in response to a dubious analyst. “I’m absolutely certain about it.” Analysts and investors largely agree with his diagnosis of United’s ills, if not his prescription—sustained growth. Annual capacity expansion of as high as 6% until 2021, or “nearly the equivalent of another Spirit-sized airline,” JPMorgan analyst Jamie Baker said in a client note, has sparked deep discomfort in some quarters. Such an aggressive move by a mature U.S. airline is a throwback to the 1990s, when major carriers were more than happy to throw elbows in a bid for supremacy. “United is, to some degree, ripping up the airline economics playbook from the past decade,” said Seth Kaplan, managing partner of trade journal Airline Weekly. Story has more details.<br/>
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United’s new hub plan may spur lower airfares
Scott Kirby has a very specific view about how the three US hub-and-spoke airlines work best, having managed two of them. In his current job as president of United Continental, Kirby’s role is to oversee a major overhaul of how the carrier operates, beginning with a broad restructuring of its three domestic-focused hubs in Chicago, Denver and Houston. By United’s math, this trio has profit margins that are 10% below the inland domestic hubs operated by American Airlines and Delta. That gap is one big reason for United’s third-place finish among the three in recent years. The troubles, Kirby explained, began shortly after United swallowed up Continental back in 2010. United’s post-merger decision to shrink, forced by investor demands that the carrier curb capacity to bolster fares and profits, was a weak choice, he said. United cut seat growth domestically by 8% over the next six years, while Delta and American grew 8 and 3%, respectively, according to United. That growth by its rivals put United on the defensive as they made inroads into its Middle America hubs. Almost halfway through his second year as president of United, Kirby, 50, wants to reverse this trend. “Our growth—and strengthening our hubs—is absolutely the critical, essential element to driving higher ... margins at United,” Kirby recently said in response to a dubious analyst. “I’m absolutely certain about it.” Analysts and investors largely agree with his diagnosis of United’s ills, if not his prescription—sustained growth. Annual capacity expansion of as high as 6% until 2021, or “nearly the equivalent of another Spirit-sized airline,” JPMorgan analyst Jamie Baker said in a client note, has sparked deep discomfort in some quarters. Such an aggressive move by a mature U.S. airline is a throwback to the 1990s, when major carriers were more than happy to throw elbows in a bid for supremacy. “United is, to some degree, ripping up the airline economics playbook from the past decade,” said Seth Kaplan, managing partner of trade journal Airline Weekly. Story has more details.<br/>
