9 comments on “Cranky on the Web: United Leads in Europe

  1. Enjoyed the Travel Weekly article. Not mentioned is that United also has a substantial amount of x-atlantic service at IAD, a very strong O&D market that also provides numerous connecting opportunities. I currently see 18 nonstop destinations in Europe, 16 on United metal and Star partners, 2 only on Star airlines (VIE, CPH).

    Just flew nonstop to Rome on the 777 in Premium Economy and back from Florence over Brussels in Polaris on a 787. Both ends of the trip were seamless, the new customs facility at IAD made reentry effortless and the Premium Economy and Polaris products were on a par with any domestic or European airlines.

    Comparable in all respects to my last trip abroad on Air France. Except for departing from the dreaded “interim” concourse, now in its fifth decade. (Sadly that’s not a joke, the hastily constructed “interim” concourse somehow persists despite being surrounded by billions of dollars of other recently completed or planned construction projects at IAD.)

  2. Another great analysis by CF.
    It should be noted that being the largest does not mean generating the highest profits. For years, DL has generated higher profits across the Pacific according to DOT data – which is based on filings from each airline. In fact, UA hasn’t been profitable flying the Pacific since 2016, including as late as 2019 which was about as good as it will get for US airlines for years.
    There are lots of reasons to agree with CF’s assessment that UA may not remain the largest airline to Europe. UA held onto widebody aircraft but they also will have the least fuel efficient international fleet among large global carriers in large part because of UA’s large 777 fleet; all 3 models are much less fuel efficient than comparable aircraft both in UA’s own fleet as well as at competitors. Fuel efficiency and cost matters a whole lot more esp. from the NE where jet fuel is and will likely remain above $4/gallon for much of the summer and beyond. DL has taken or will take delivery of dozens of new A330-900 and used A350s post pandemic and all will be much more fuel efficient than any 777. Further, there is alot of demand this summer that might cover fuel costs but that will not be the case for all that capacity beyond September. Transatlantic yields will fall as they always do unless capacity comes out. Even the 777As will not generate RASMs near as high as other aircraft even while flying domestic routes. Add in that airline employees including crew members have to be maintained on widebody aircraft well beyond the peak period and keeping alot of widebody capacity will not produce the same margins as it once did.
    Finally, demand to parts of Asia including China will never recover; the Chinese government subsidized its airlines pre-covid and is restricting capacity in part because more capacity is not needed and they aren’t going to allow foreign airlines to gain share.
    United has made the decision to focus on ordering huge numbers of domestic narrowbodies to the exclusion of replacing older less fuel efficient widebodies even though international flights recover higher fuel costs much faster. UA’s abililty to maintain the size of its international network will be heavily tied to fuel costs – or else they will be accepting lower margins – and possibly losses – on routes which other airlines – US and foreign – operate on more fuel efficient aircraft.

  3. This is all quite interesting, but how much real-world difference does any of it make? Then again, how much real-world difference does market share make? Back when airlines were concerned with market share as opposed to profitability, bankruptcies were rampant. Southwest, Allegiant, Spirit, Frontier, etc. have zero exposure to Europe. yet I’m pretty sure they’re more consistently profitable on a percentage basis than the legacies.

    1. Ghost,
      you are correct that market share strategies have rarely resulted in the best profits. From a consumer standpoint, attempts at market share strategies usually reduce fares at least temporarily but are not sustainable.
      United is adding capacity because there is very strong demand to Europe this summer and capacity is tight – but that doesn’t mean that there will be above average demand going into the fall or winter.
      Add in that a big part of UA’s capacity growth is coming from 777s, which are the least fuel efficient widebody longhaul aircraft and fuel in the Northeast is well above the national average, and the hurdle for profitability is high and the ability to sustain profits will be much hard, if not impossible based on the amount of capacity that UAL is putting back into its system beyond summer.

      As for part 2 of your statement, it has been repeatedly said that domestic only airlines would have an advantage during the pandemic and would recover faster. That not only didn’t happen during the pandemic – legacy airline margins weren’t worse as a group than low cost or ultra low cost carriers – but the low cost and ultra low cost carriers as a group are expected to report lower margins in the 2nd quarter.
      The top 3 airlines in terms of guided margins for the 2nd quarter are ALK, DAL and LUV – not necessarily in that order.
      SAVE is not guiding to profitability for the 2nd quarter – like JBLU – while AAL will have better margins (even if mid single digits) than ULCC (Frontier).

      International travel is a big part of the extra revenue that will drive legacy margins while everyone competed for the same domestic/near international passengers during the pandemic.

      The big difference in margins will come from airlines that have active strategies to reduce fuel prices – ALK and LUV via hedges, DAL via its refinery – all of which will produce a cost per gallon for jet fuel 10% or more below their major competitors. Balance sheets are stronger but the cost of operations will force alot of routes to not work with high fuel costs.
      UAL is guiding to the highest fuel cost per gallon, not surprising given that it is the largest airline in the NE w/o a fuel reduction strategy, similar to JBLU. DAL’s systemwide fuel cost guidance is 37 cents/gallon less than United’s which means an even bigger difference in the NE. Fuel price differences will matter more than ever and the ultra low cost carriers and several LCCs do not have any strategies to lower their fuel costs.

  4. All 3 immunized alliances have JVs. Practically, for the medium term, the “JV” seats, frequencies and destinations are of significant relevance. Not just those of one of the JV players.

    Pundits, media, and even some airlines themselves don’t seem to connect with this reality..even though the customer does (the % of FFP earners that earn the same currency as the physical carrier is a very interesting statistic)

    If one carrier has the most metal across the Atlantic- but the Alliance is a distant 3rd – that dilutes the impact of that single airline’s capacity

    The marketing departments of the airlines have never truly understood immunized alliance JVs ..since NW-KL

    1. It is also often misstated or incorrectly assumed that JVs mean that revenues are divided along the proportions of the JV partners; they are not but instead are based on the revenue contribution.
      In this case, UA will get a higher percentage of the revenue it puts into the JV compared to what it did pre-expansion vs. AC and the LH group.

      As has been discussed, different alliances have different understandings of how capacity can be added but generally UA’s JVs give it broad ability to add capacity because that is what UA likes to do. They aren’t adding this capacity to share the revenue with its JV partners on the same basis as before it added the capacity.
      And some of UA’s capacity adds will benefit its partners including by flowing more connecting revenue over their networks while other markets are clearly only US point of sale and do not connect to any other partner’s network and those UA flights are not carrying any codeshare passengers.

  5. A lot of UA’s newly launched routes aren’t likely to stick. Bergen, Tenerife, and Palma in particular, are places Americans simply don’t go to in droves and those who do (i.e. Bergen, are the experienced traveller). This is the summer of France, Italy, UK, and Spain for the most part, as those who want to go are going to the places they’ve missed the chance to these last 2 years.

    Newark is an atrocious airport, heavily prone to long delays, triggered by weather and ATC issues. If UA can run a clean operation amid all of the challenges of travel during the pandemic’s current phase (staff shortages, etc..), then it will set itself up for longer term success.

    The future of AA’s expansion to Europe once the 787 deliveries resume and the 321XLRs are on property, are to build upon what it has already and a bit more.

    1. EWR does suck, that why I hope they continue to expand at IAD. I agree that some of what they did is likely the “spaghetti against the wall to see what sticks” approach but I applaud that in this market. I believe that’s how Dubrovnik came to be a now regular seasonal route for several airlines.

      There is a great deal of growth potential for more long, thin routes like this. Still shocks me how little service there is to established places like Prague and Budapest much less cities that have become destinations more recently that I haven’t even considered. Go United!

      1. PRG and BUD will return when the riverboat cruise market revives meaningfully. Until then, no service.

Leave a Reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Cranky Flier