United thinking

posted on 23rd March 2021
United thinking

United Airlines boss Scott Kirby is questioning Covid-19 aviation dogma, from mass airline consolidation in the US to the return of business travel.

The ongoing Covid-19 pandemic is unlikely to lead to a rash of consolidations among American airlines, the boss of United Airlines believes.

Speaking at the online CAPA Live event in March, the carrier’s CEO Scott Kirby says when the crisis first struck, he thought certain airlines could be open for acquisition as they fell on financial hard times.

However, the reaction to the crisis with airlines accessing finance means he now believes they are far safer commercially than could have been expected, so reducing the need for consolidation.

Kirby says: “We’ve been able to raise so much liquidity, not just through the government but through the private capital markets, that no one has a liquidity issue. Everyone is going to survive.
“The reason I thought it would happen earlier is because the choice would be something even worse and no one is faced with that choice today, and so I don’t think there’ll be any major consolidation here in the US, but I guess we’ll see.

Having raised more than $26 billion in liquidity and cutting cash burn, Kirby is also bullish about the future. In particular, he argues that United is prepared to defend its market share against LCCs, which in the past have sought to take advantage of any problems that cause mainline carriers to pull back from the market, particularly if they lead to an increase in oil prices.

He says: “One of the analysts wrote last week … that when times are tough, the network carriers push back from the table and leave the table scraps for the low cost carriers, and everyone is happy. I can promise you, United Airlines is not doing that.”

Kirby says instead the airline is preparing to take delivery of 94 narrow body aircraft in 2022 and 2023 that can start working on its domestic programme.

“Compare that 94 aircraft to the fleet size of some of those other airlines and that’ll give you a scale of what we’re planning to do,” he adds.”The growth plan was working great at United before.”

Like many others in aviation Kirby also believes the domestic and leisure markets will be the first to recover and the airline will be able to take advantage of this thanks to its decision to get rid of change fees on economy and premium cabin tickets for flights, initially in the US or to Mexico or the Caribbean. Further down the line the policy will be spread out to all international travel originating in the US.

However, Kirby does not subscribe to the theory that long-haul travel will take considerably longer to bounce back.

He says: “It is true that the leisure and domestic market is going to be the first to recover. But I will bet you dollars to donuts that in 2023 long-haul international is going to be outperforming domestic by a very wide margin. It’s just a timing issue.”

Kirby is also questioning the accepted wisdom that the Covid-19 pandemic will be particularly deadly for the business travel market, largely thanks to the belief that the use of videoconferencing tools like Zoom during the lockdown will continue to be popular even when the skies reopen.

He says: “Business travel is not transactional. It’s about relationships. This is a question about human nature instead of technology and human nature has not changed.

“I’ve been fond of saying the first time someone loses a sale to a competitor who showed up in person is the last time we’ll do a sales call on Zoom, and that’s going to be true.”