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.
No pressure, but any ETA on the Andrew Watterson interview?
Kilroy – It’s actually done and ready, so it’ll go up next week. I’m just not sure which day yet.
Great, I look forward to it.
I’d like to see the data that shows that passengers will book a legacy carrier over a ULCC all things being equal. Of course, the reason it is not equal is because legacy carriers have more frequency in just about any legacy carrier market that a ULCC tries to enter. UAL’s philosophy is clearly scorched earth in its hubs with ULCCs in hopes the ULCCs will go elsewhere. Clearly, the rapid growth of ULCCs says they do have market potential, regardless of whether Kirby believes it or not. Finally, legacy carrier basic economy products are not the same as ULCC fares; the former is a stripped down version of legacy carrier service which the public sees as such while the latter is an ala carte pricing model which many consumers do embrace. Let’s also not forget that UAL just said its rollout of BE hasn’t gone as well as it expected because other carriers don’t offer the same product; iow UAL stripped its BE product of more features than DAL’s while AAL hasn’t rolled their BE product out as aggressively with the result that UAL was uncompetitive with ULCCs and legacy peers
Tim – This is how it’s always gone in the US. New entrant starts up.
Legacy carrier doesn’t match. New entrant thrives. Legacy carrier does match. New entrant tanks. Look at an airline like Independence Air which, by all accounts, did a nice job onboard (or as nice as it can be on a CRJ). People liked flying them. But I was at United at the time, and as soon as fares were matched and big frequent flier promos were launched, people dropped Independence quickly. And that’s an airline people liked to fly.
Notice that my statement was about wanting to see data for the statement that legacy carriers are the preference in a choice between ULCCs and legacies and you replied with a statement about new entrants and legacies. None of the 3 US ULCCs can properly be considered new entrants. Where ULCCs compete in legacy carrier hubs, of course legacy carriers can offer more seats at least initially because legacy carriers have high frequency in most routes from their hubs – but we have no way of knowing how many seats the legacy carriers sell at ULCC fares which is why I asked the question. Kirby’s statement doesn’t prove that ULCCs can’t compete but rather that the legacy mindset is that they can throw enough seats at smaller carriers – not necessarily new entrants – and protect their hubs. History actually shows that LCCs and ULCCs have all grown in legacy carrier markets regardless of what legacy carriers have done which is why I question whether it is possible to match competitive low fares in hopes of stopping the growth of LCCs and ULCCs.
I didn’t know you worked at UA.
Tim – That’s a fair point. In some cases, they are new entrants depending upon the market. But in many that’s not the case. I think the basic construct holds up to some extent, however. All else being equal, the mileage program is a big deal, especially if in a hub market. But what about a place like Pittsburgh? In most markets, it’s not a case of “all else being equal” because the legacies don’t fly nonstop. So it should be tougher to kill the existing ULCCs, I agree.
As for United, yep, I worked there for just under a year from 2004 to 2005 in the Marketing Planning group.
How are legacy airlines going to do “big frequent flyer promos” now that they’re revenue-based. 250 United miles for booking a $50 ticket with United instead of Spirit doesn’t really do it for me.
How about something like
Spend $500 –>10k
Spend $1,000 –> 15k
Spend $2,500 –> 25k
That was my United promo last year. Others got different (often better) offers, but I was pretty happy as I had a bunch of unexpected last-minute work trips on United that were getting me the necessary spend pretty easily. Not saying that it was related to ULCCs but they can easily make such a promo targeted at flyers in ULCC markets.
I still hate independence air for causing B6 to scuttle its IAD hub plans, choosing BOS instead.
RE *Strong Words Against the ULCCs* When a pax flies an LCC or an ULCC, everyone’s in the same boat — literally, in the same seat, for the most part. Aside from anomalies like the Big Fat Front Seat, the overall experience is pretty uniform: everyone is sitting a crappy seat for a few hours, with the middle seat being slightly crappier. However, the pax buying Basic Economy has to walk through First, Business, Premium Economy and regular economy on the way to their crappy seat. By the time they get there they’re ready to buy a pitchfork and a torch and Occupy. Love to see a study on that.
And that’s why you eat a lot of bean burritos before walking through first business and premium economy.
The Basic Economy seats are part of the Economy cabin. Perhaps more often than not middle seats, but it’s not like they give the seats assigned to BE passengers a different color.
I’m happy to read that Premium Economy is working for AA. I always thought it was a good compromise when J is just too expensive and Y is a miserable experience. I flew NZ about 9 years ago on a 747 and I’ll be flying QF and a 380 in the near future.
I have bought Premium Economy on various international carriers in recent years. It is in many cases a reasonable compromise for me when I cannot get a highly discounted business class ticket or an award.
If fares are the same, you pick a legacy carrier if frequencies are much higher because you should have a better chance of re-booking if things go sideways. I don’t know however if people who fly once a year know that or care.
Not just frequencies, but ability to make an alternate route if your direct route is not available. If Hurricane Irma is approaching and you’re in Miami and you need to leave a day early you don’t really care if American sends you through Dallas or Chicago to get home.
Theres also name recognition.. People often need a reasonable financial nudge to get away from something they know.. An the majors at least have some name recognition over Allegiant et al.
Allegiant… where we deplane you over the wings.
Thats a cool feature!
I knew a guy once who had used the emergency inflatable slides to evacuate planes on at least three separate occasions (no crashes or fires, all precautionary emergency evacuations). He wasn’t an airline employee, or even that frequent of a flyer, either, and I was pretty jealous of him for having a chance to use the slides. “Bad Luck Fred” (as we called him) said the slides were fun to use as long as you managed to avoid rug burns.
Disturbing thing about that photo is the amount of people who obviously stopped to get their cabin luggage… It’ll always happen but it’ll cost lives one day.
I tend to be a pretty cost sensitive leisure traveler, but maintenance issues, dispatch reliability / cancellations, and (the lack of) frequency are what make me rather hesitant to book Allegiant or Spirit, and I will usually pay a premium to avoid them.
When they only run 3x weekly flights on some routes and are known for cancelling more flights than the legacies, it wouldn’t take much for a cancelled flight to cause me to lose half my vacation. I’d rather pay a little more for a legacy with 4x daily service on routes, and would even do a connection with a legacy over Allegiant / Spirit.
That said, I am flying a trans-Atlantic ULCC in a few weeks (Meridiana from JFK to Naples, Italy nonstop). I trust the reliability of the long-haul ULCCs a little more (don’t know if I should or not), and feel better avoiding a connection in Europe. I also booked the flight to arrive into Italy two days before my tour starts, and enlisted the help of Cranky Concierge, because this is a big enough trip to justify it. Not worth it for me to do that on domestic flights in the US.
The Premium Economy experiment is certainly interesting. I always assumed that business class worked because most of the passengers were spending somebody else’s money (while a pleasant product, I personally never thought it would be worth paying my own money for). Honestly, I’d have about zero interest in paying for premium economy. Oh sure, I’d give ’em 100 bucks each way for it, but that’s obviously not the premium they’re looking for. It’s just not worth much to me to be “slightly less uncomfortable” for 7 hours. As a leisure traveler, there are better things to spend your money on: like 50 bucks can get you a MUCH nicer hotel. But, obviously, not everyone spends money the way I do. Like I have absolutely zero interest in buying a $1000 watch when a $50 watch (or my phone) tells time equally well. Different strokes.
the Feds didn’t kill the QF/AA JV … their own hubris did. Together they control 2/3rd or more of the US-Australia market and they wanted a JV without even offering some meaningful upfront concessions ?