Random and Interesting Tidbits From American and United at the Boyd Conference

I generally prefer to write posts around a single, cohesive topic, but the more I dug into my notes from the Boyd Conference (aka the International Aviation Forecast Summit), the more I realized I was never going to be able to publish everything before the posts became stale. There were just too many good interviews and discussions this year. (That’s a nice problem to have.) To speed things up, I’ve combined a bunch of notes from both United’s President Scott Kirby and American’s SVP of Revenue Management Don Casey into one handy-dandy post. They each sat down for a bit with the media after their on-stage presentations, so we could lob questions at them.

Scott Kirby, President, United Airlines

United is Happy to Have Reduced Overbooking
I was most interested in hearing about overbooking from Scott, so that’s where I focused my one question. United has become more conservative in the wake of the Dr Dao dragging, and I wanted to know if Scott thought the airline had taken it too far. Scott said no, that while they had reduced overbooking, the costs of bumping someone had gone up enough that it meant it was better to act this way.

I didn’t fully believe that, so I asked if this was really just because United’s revenue management system wasn’t able to accurately predict demand. That’s when Scott broke out some numbers. The current system has a forecast bias of -24 percent, meaning that it underestimates demand by WAY too much. At the same time, the mean error is 42 percent. With these kinds of numbers, United is flying blind. The good news for United is that it has begun testing its new system. While Scott insisted that we shouldn’t read too much into this because it’s only being run on a very small sample now, the initial results have seen a forecast bias of only -3 percent with a mean error of 18 percent. That’s a huge improvement and should allow United to increase overbooking with more confidence if the numbers hold.

Scott Kirby and the C-Series
There is no story here. Scott says he’s not looking at the C-Series and if someone at United is, he’s not aware of it. (Insert crying Canadian image here.)

Strong Words Against the ULCCs
Scott continued his march against the ULCC business as an ongoing concern. He thinks “they are out of growth opportunities.” In his typical blunt style, Scott made it clear that he sees no path forward for ULCCs now that the legacies have a method for matching fares with a similar(ish) offering in Basic Economy. In short, he believe customers don’t want to fly a ULCC if they can fly another carrier for the same price, because, in his words, the ULCCs have created a product people don’t want to buy. That seems like a stretch, and that’s being kind, since I don’t know anyone who would consider Basic Economy a product they want to buy. But this really is all about price, and the basic premise still rings true. In a head-to-head comparison, people still do pick the legacies with fares being equal.

That doesn’t mean that the ULCC model is dead. It just means competition is a whole lot tougher than it used to be.

Don Casey, SVP of Revenue Management, American Airlines

American’s Thoughts on Level
Level, you may recall is the new long-haul, low-cost operation that IAG has put together. IAG airlines British Airways and Iberia are part of a joint venture across the Atlantic with American, and I was surprised to hear that Level is actually a part of the joint venture as well. That means American has a vested interest in its performance, so how does American feel about it?

He said that they’re bullish, but something about his delivery felt a little more cautious. He noted how IAG believes the long-haul low-cost model is sustainable, and “so far they’ve done pretty well. They’ve been able to meet their revenue targets.” So let’s call it cautious support.

American’s Capacity Reduction in Australia/New Zealand
This isn’t a surprise to anyone, but the decision of the feds to kill the Qantas/American joint venture directly led to American’s decision to cut back on capacity down under. LA to Sydney was on a 310-seat 777-300ER but it is being downgauged to a 285-seat 787-9 with no First Class. The LA-Auckland flight has been cut back to operate only in the peak northern winter season.

Premium Economy Books Way in Advance on American
Premium Economy is a new cabin for American, and it has been slow to sell in its early days. According to Don, loads in that cabin “are starting to approach” loads in regular coach. Part of this is because Premium Economy has proven to be a big leisure product with more than 50 percent of bookings coming outside of 90 days before travel. This is good for American since it’s probably full mostly of people buying up from coach (at a healthy 1.6 to 2 times the coach fare) instead of buying down from Business.