United’s Electric Air Taxi And JFK Whining Distract From Real Issues

Aerospace & Defense United’s Electric Air Taxi And JFK Whining Distract From Real Issues Ben Baldanza Contributor Opinions expressed by Forbes Contributors are their own. I write about airlines and travel to explain this crazy industry. Following New! Follow this author to stay notified about their latest stories.

Got it! Sep 16, 2022, 07:40pm EDT | New! Click on the conversation bubble to join the conversation Got it! Share to Facebook Share to Twitter Share to Linkedin United Airlines is a strong company with a more focused communications strategy. This strategy . .

. [+] focuses on the future but does not address key challenges today. Getty Images In 2018, United Airlines appointed former President Barack Obama’s advisor Josh Earnest to lead its communications efforts.

Since that time, United’s communications have gotten significantly more professional, and CEO Scott Kirby seems to have benefitted greatly with improved public appearance performances. United has taken industry-leading positions on handling the pandemic, and has led the industry on announcements of innovative forward-looking investments like supersonic transport and electric aircraft . Living in the Washington, DC area and generally following politics, a lot of what United does looks like what happens in our government.

By saying this, I mean intentionally using distraction to focus a narrative on a specific target while avoiding more difficult issues. This shiny object tactic can help to get an organization focused and investors excited. Just recently, the airline threatened to pull service from New York’s JFK airport unless they gain more regulatory access.

United operates a large hub nearby at Newark airport, and JFK represents a tiny portion of the airline’s production. This effort to get more access to JFK after abandoning the airport in 2015 is the current shiny object. Airlines aren’t government, and underlying this approach are five serious issues that United should be thinking about but doesn’t talk a lot about.

Lack Of Hub Dominance Business travelers, even though traveling less often since the pandemic, value non-stop flights and frequency. When someone else is paying for the ticket, like a company, other service-related features become more important in the decision of which airline to choose. Delta Airlines effectively has no competition for business travelers from Atlanta, Minneapolis, Detroit, and increasingly at New York’s LaGuardia airport and in Seattle.

That’s because, at each of these locations, they offer service to more cities and more often than any other competitor. Importantly, no competitor is even close at any of these locations either, though Alaska Airlines is trying to hold its own in Seattle. This local hub dominance, a word that lawyers hate to use, gives Delta a decided advantage over their major competitors.

American has similar positions to Delta, though not reaching as many business customers as Delta, in Dallas, Washington’s National Airport, Charlotte, and Miami. United has this position only at Houston’s Intercontinental airport. Their other major hub positions — Newark, Chicago, San Francisco, and Denver — each have significantly more competition than the hubs at Delta or American.

Chicago is basically split between United and American, plus Southwest has a large operation at Midway airport. Denver is used as a hub by Frontier and Southwest, giving United competition on almost every destination served. Newark is the only major New York commercial airport without slot controls, making it a place where low-cost carriers , including even Allegiant, keep adding fights there.

The sum of this is that United has competitors for almost every one of its customers, something Delta and American don’t have to worry about as much. No shiny object will fix this. Labor Animosity United has a long history of acrimonious labor relations.

People who say that strong unions come from weak management often use historical United as a prime example of this. To his credit, CEO Scott Kirby has said the right things and seems to realize that partnering with his employees is a good road map. But inertia is a tough thing, and many employees at airlines are geographically scattered, making communications even more challenged.

MORE FOR YOU American Airlines Pilots Say Operations Managers Must Go After Summer Breakdowns The U. S. Air Force Is Gradually Rebuilding Its B-52 Bombers From The Rivets Out An American Bomber Visited Malaysia.

A Bizarre Mix Of Local Jets Rose To Meet It. This rough history complicates a current period when pilots are hard to find, and wage pressure is affecting many roles at an airline. Labor, which typically represents 30%-35% of total costs, is likely to push to over 40% of costs.

Airlines, including United, need to find ways to mitigate this while at the same time keeping the employment pool engaged and motivated. While every airline has these current labor issues, at United their history makes solving this even more challenging. Structural Loss Of Business Travel During the recent large U.

S. airline earnings calls, the companies put a good spin on the business travel environment. While reporting business travel volumes at about 75% of 2019, they pointed out that business revenues were back, or almost back, to 2019 levels given higher fares.

They also suggested that business travel is still recovering and implied that it will get back to pre-pandemic levels. But these optimistic outlooks don’t jive with how most are thinking. Reasons like video meeting options, personal risk avoidance, ESG concerns, cost containment, and more have many businesses re-thinking the role of regular travel.

The large consulting firm Bain has pledged to travel 35% less as part of their ESG initiatives. Others are saying that there are fewer places to visit with newer work-at-home protocols. These trends suggest that the recovery curve is likely flattening for corporate business and will level out at roughly 80% of 2019 volume.

Airlines like United are built to carry business travel, and it affects every part of their business. The network, fleet configuration, loyalty program, airport real estate, staff training, IT and more are all influenced by the volume of business travelers. If the 80% threshold is accurate, it will have significant implications for United and other airlines built like them.

Uncompetitive Cost Structure United, along with its peers Delta and American, have the highest unit costs among the U. S. airlines.

There are many reasons for this, but large among these is the incessant search for higher-fare paying corporate business customers. This affects every part of the business, in ways I didn’t even appreciate when I worked at this kind of airline. Here’s a simple example.

Say an airline generally charges for checked bags, but waives that charge for certain customers based on fare paid, frequent flier status, or credit card perk. This simple feature changes the way an airline must train its people, since an agent will need to recognize which customers get the fee waived. It also changes the airport IT, since the agent must be able to print a bag tag for some customers without payment but confirm payment for other customers before printing the tag.

This tiny example is easy to solve, but multiply this by every airline process and it’s amazing how much complexity, and costs, this adds. Follow this complication into the fleet, seating configuration, airport real estate needs, and more and soon you’re talking measurable increases in unit costs. The result is that airlines like United can sell low fares, but don’t make money on the low fares unless these are subsidized by others paying higher rates.

Now, Southwest at Midway airport in Chicago or JetBlue at JFK have real impact on United hubs in these cities, since discretionary customers will often choose an alternative airport to save some money. In a world where more of the passenger volume comes from price-sensitive customers, the current cost structure of United and similarly-structured airlines are not competitive. A Product That Isn’t Enjoyable To Fly Even if the other four things on this list were not a challenge, United is not a particularly friendly airline to fly.

Board a Southwest, Alaska, or JetBlue flight and you get the sense that they are happy to see you and want to make the trip enjoyable. Board a United flight, and while this may happen more likely you are treated with indifference at best and animosity at worst. Based on price or schedule, United may be the best option available.

but many customers will choose another option if they have one. This is hard to change, and the long history of labor friction makes it even more difficult. United long ago stopped calling themselves “the friendly skies.

” The pandemic encouraged larger airlines to offer early-out programs for some of their most senior employees, and this may create a unique opportunity to cause some serious change on the product delivery. United is a proud and strong U. S.

airline that plays an important role in the national aviation landscape. As they did during the pandemic, they can play a real leadership role on certain things. They have strong leadership including CEO Scott Kirby.

Yet, continual announcements about things that won’t happen for many years, or complaining about airspace limitations that United benefits from in other geographies, is fine if it doesn’t take the company’s eye off they key things that truly threaten its franchise. Based on their current communications, that is hard to tell. Follow me on LinkedIn .

Check out my website . Ben Baldanza Editorial Standards Print Reprints & Permissions.