United says paying more attention to hubs, smaller markets will boost turnaround plan
United Airlines executives plan to stop making “stupid” decisions as part of a renewed effort to turn around the carrier’s fortunes.
The airline shrank a cumulative 8% during the last five years at its hubs, surrendering market share to rivals such as American Airlines and Delta Air Lines and to low-cost carriers, President Scott Kirby told analysts this week.
In part, that was because of passenger-projection software that consistently under-predicted how many people would show up on a given flight.
But the airline also moved regional jets from high-yield markets such as Rochester, Minn., and matched them up against bigger “mainline” jets flown by rivals on routes such as Newark-Atlanta and Chicago-Houston.
The result was a three-fold failure, Kirby said. United lost high-yield passengers. Customers on the competitive routes were unhappy with the planes. And crews thought the decisions were wrong.
“We lost customers who used to fly us, and now we’ve pushed them to our competitors because they didn’t like the product,” Kirby said. “We had employees who were screaming at us: ‘This is stupid, why are you doing this?’ They were right. We shouldn’t have been doing that.”
But Kirby, CEO Oscar Munoz and other top executives outlined plans during a meeting with investors to strengthen the company’s hubs — and the entire airline — by improving the flow of passengers from connecting flights.
Steps include changing the passenger-projection software, clustering flights at hubs more efficiently and offering passengers from smaller markets more choices for connections that make sense geographically.
United already flipped the switch on its decades-old program for a new system. The old system tended to underestimate demand, so the airline would sell more tickets at cheaper prices than it should have, according to Andrew Nocella, chief commercial officer.
During tests in the final three months of last year, merely substituting more optimistic projections improved United’s yields 2.2% and passenger revenue 1.2%.
“We no longer have this guessing game of how many passengers are really going to show up for a flight,” Nocella said. “The forecast is dramatically more accurate today than it’s ever been.”
United also plans to offer more seating choices. The airline just announced United Premium Plus, a category of seating on international flights between coach and business class. United has lagged rivals American and Delta, which already offer such international-style premium economy cabins.
“This will allow customers who want to buy up to a better experience with more food, more legroom and more comfort to do so,” Nocella said. “We think this will be a great home run.” The choice begins this year but will take three years to be fully deployed.
To better match passengers with flights, United has rescheduled hubs in Houston and Chicago to cluster fewer peaks when customers are making the most connections. The number of peaks in Houston dropped from 10 to eight. With the adjustment, passengers from Las Vegas — for example — now have realistic options for 10 additional connecting flights via Houston that wouldn’t have existed under the previous schedule.
Because of these structural changes, Kirby said by the end of 2018 Houston will have 21% higher connectivity, and Chicago and Denver will be 15% better.
“This is the magic of making a hub work,” Kirby said. “We’ve accessed a whole new pool of demand without changing anything about the number of flights we have.”
While United enjoys geographic advantages in the middle of the country, with hubs in Chicago, Denver and Houston, Kirby said it might lose share in other locations.
United executives projected capacity growth of 4% to 6% this year as they revive smaller markets and bolster hubs, with similar growth in 2019 and 2020. That would be faster than 3.5% capacity growth last year, which analysts said could lead to a fare war.