Ever since Pan Am announced plans to sell its Pacific routes to United in 1985, United has been the one to beat in the Pacific. Over the years, the strategy has evolved, and now United is evolving once again. It sees big opportunity in creating more time choice for travelers by opening up a second bank of flying to complement the original.
Though United does fly to the Pacific from all of its hubs, San Francisco has long been the airline’s gateway of choice. It’s in San Francisco where United has grown to serve the most routes with the most frequency not just to Asia but also to Oceania. San Francisco is by far the best Pacific hub for any US airline despite regular efforts by both Delta and American to find their own niches.
If we go back a mere 10 years, United’s San Francisco network was a mere shell of what it is today. United flew to 5 cities in Asia once a day, Tokyo/Narita twice a day, and then there was a single daily flight down to Sydney. There were additional flights connecting via Tokyo/Narita to Bangkok, Singapore, and Seoul/Incheon as a legacy that came out of the spoils of war.
Fast forward to the end of this year and it’s remarkably different. Notably, the Narita hub is gone completely, at least on United aircraft. The airline has continued to tighten its relationship with ANA at both Narita and Haneda to help build connectivity further.
As for United itself in Asia alone, the airline hopes to fly to six destinations from San Francisco daily with another 1 less than daily and a whopping four twice daily.
That growth in Asia is overshadowed by something further south. The biggest growth for United has been in Oceania where the airline has grown from a single daily flight to Sydney to now cover six destinations. Sydney is now twice a day.
I say this is what United plans to fly, because it’s unlikely to stick. Those dashed lines are to China, and due to the dispute between the US and China, the likelihood of United being able to fly more than the existing 4x weekly flights it has to Shanghai is slim to none anytime in the near future. So, take those out if you like, but it’s still massive growth.
While the route map looks more expansive than it did before, there’s something equally important here. The traditional pattern for San Francisco – Asia flying was to leave in the late morning from San Francisco and arrive during the afternoon. Then United would return in the afternoon, arriving back at San Francisco in the morning.
Now with this expansion over the last few years, United has been able to create a significant second bank that operates at night. Sydney always operated on this schedule — as nearly all Australia/New Zealand flights do — with a night departure from San Francisco, but nothing else did back in 2013. Now, it’s very different.
United San Francisco Departures to the Pacific by Time of Day
As I mentioned, all of that new Australia/New Zealand leaves SFO at night, so it helps give the hub heft. With that additional heft, United can then look at adding more domestic feed. And with all that domestic feed, United can then add additional flights in the overnight hours into Asia to create a better offering for customers that’s hard to beat.
The airline’s new second daily flight to Taipei that was just announced will operate at night. The new Manila flight will do the same. Hong Kong and Singapore have their second flights at night as well.
United has all those big widebodies coming into the airline on order, so it needs to find opportunities that will support year-round utilization of those expensive assets. United now really becomes the only US airline to have two notable banks over the Pacific, and that should help drive more customers toward United.
Even better for United, much of this comes on the strength of demand in that San Francisco hub. It will be impossible for American to duplicate this — it can’t even figure out how to operate a single bank to Asia from anywhere. And for Delta, it’s also going to be a real challenge up in Seattle. It will likely instead continue to lean further on its partner Korean Air in Seoul/Incheon for the bulk of its connectivity.
For United, it’s a big win, assuming it works. The airline can continue to grow, better utilize the SFO hub, and create a competitive advantage over the Pacific.
82 comments on “United Sees Multiple Banks as a Key To Its Pacific Strategy”
Thanks for the analysis, very interesting to see the night bank in SFO explained. This type of “story behind the airline headline” type of analysis is why so many of us have been reading this blog loyally for many, many, many years.
On a different note, as a person who travels beyond the US/Canada/Caribbean roughly once a decade, I’m always a little surprised at how little international flying US-based airlines do, especially trans-Pac and trans-Atlantic flying (i.e., flying outside of the Western Hemisphere). I know there are a lot of good explanations as to why (lack of strong point of sale relationships in foreign countries, low fares due to VFR traffic from emigrants, codeshare & interline agreements, US-based airlines chasing the $$$$$ business travel demand, etc etc). However (as an example) I was surprised to hear that UA’s flight to MNL won’t have any competition among other US carriers, given the military bases in the MNL area and the Pinoy population in the US.
Maybe I’m just stuck in the “PanAm flies everywhere you’d ever want to go” mindset of 3 or 4 generations ago.
All good points, Kilroy, especially how much Cranky’s analysis is appreciated.
My thought on another reason there is a relative lack of international flying by US carriers is that, frankly, their product is not competitive with flag carriers of other countries. If you are not participating in a loyalty program, why fly UA/AA/DL when you can utilize a superior product on another carrier and not deal with extremely tight Y seating and indifferent (at best)customer service?
UA is the largest airline across the Pacific.
Is it actually true that US airlines do less trans-oceanic long-haul flying than other peers? I’m not sure that it is.
Geography matters, of course. You can fly a very long way and still remain in the US; even just looking at US/Mexico/Canada and you’ve got a huge portion of the globe. And the US3 are by just about any measure (Fleet size, ASMs, etc) the largest airlines in the world.
I’d need to see some numbers to show that the proportion of transoceanic flights is actually lower for the US3, rather than just an artifact of geography. There are lots of flights within Europe, for example, that will be ‘international’ where the comparable flights in the US are going to be domestic. LHR-TLV is a shorter route than JFK-LAX.
The numbers may tell a different story, in terms of comparison to other carriers from different countries.
However, on the surface… If a person knew little about the international air market, I don’t think it would be unreasonable to expect at least one or two flights a week on a US carrier from the US mainland to the Philippines, given that the country (a) has US military bases, (b) is a long-time US ally, (c) has a population over 100 million, and (d) has > 4 million Filipinos living in the US.
Similarly, while one might not expect a US-based carrier to have a flight to, say, Luxembourg, it might surprise some non-avgeek people if there were not at least one or two flights weekly on a US-based carrier from JFK to places like Warsaw, Prague, Budapest, and (pre-war) to Kiev.
Well, I guess that’s the thing: you could make a case for any particular dot on a map. For Manila, I’m not particularly surprised there aren’t many flights of any kind – that’s a really long flight. It’s the kind of flight that only really became feasible in recent years (well after the demise of Pan Am).
But your original question was about the overall volume of flying. I’m sure others have access to more numbers, but just looking at overall seats between the US and Europe, for example, the number 1, 2, and 3 airlines are United, Delta, and American: https://www.businessinsider.com/top-10-airlines-flying-europe-us-scheduled-capacity-summer-2023-5#4-british-airways-58-million-7
Anyway, just a comment; asking why no US airlines fly directly to WAW or PRG is very different than guessing that they don’t fly much across the Atlantic.
Regarding one or two flights a week to WAW or PRG or BUD… that would catch some tourists or family/friend visits, but not any significant business travel. So low fares galore. And it’s probably too far for a 757, so they’d have to use a 767 or 787. BTW, UA tried Prague in 2019, with a daily seasonal 767 service from EWR.
And isn’t that what hubs are for? UA also doesn’t fly from CLE or PIT to Europe because they can route people through EWR or IAD. And on the other side of the pond they can route them through FRA or MUC or ZRH.
I’m pretty sure that Prague and Budapest have TATL on DL or UA
Regarding MNL, nearly all foreign long-haul service left several years ago when the Philippines restructured their tax regime to favor domestic carriers over foreign carriers. Foreign carriers are subject to a tax (I believe it’s 3%) on all revenue generated on non-stop international flights, while Filipino airlines are exempt. All the European and US carriers either pulled out or turned their long-hauls into tags with a nearby station (short haul=less tax). United and Northwest/Delta tagged MNL with Japan for a time, while KLM tagged MNL with KL. (UA has the GUM and KOR flights but those don’t continue to US.) Has UA struck some kind of deal regarding tax to allow the new flight? I don’t know.
Also the US closed all their bases in the Philippines about 30 years ago.
“Also the US closed all their bases in the Philippines about 30 years ago.”
You have not been keeping tabs on events there lately then. The Chinese saber rattling recently has changed the Filipino point of view. This year alone, the U.S. has secured access to several bases around the Philippines. It won’t be the size of the Naval bases of years past, but then again, it no longer needs to be.
Posts like this are why I read this blog. An interesting subject, good analysis, very well worth reading. Nice work Brett.
Ditto!
How does LAX or SEA compare with SFO. Obviously SEA doesn’t have the breath of service that the others have.
There was a time where numerous Pacific flights were routed via ANC for refueling or other reasons, but that has gone away. The last of witch was KE 086 – BOS, JFK, ANC, ICN.
I think the issue is that SEA is just a way smaller market than SFO (9.6 million in the Bay Area region vs 4.9 million in greater Seattle), has fewer large businesses, and has a much lower percentage of foreign-born people living there (Seattle proper is 17%, while San Jose is 38% and San Francisco 34%), with most of those immigrants in the Bay Area being from Asia.
Los Angeles has almost the opposite problem. It’s huge and has tons of immigrants (though a lower percentage from Asia than the Bay Area), but the issue with LAX is there’s too much competition to make it a profitable Asia hub. The US Big 3 all have hubs there, as does Southwest, depressing fares on connecting domestic flights. And there’s more competition from Asian carriers at LAX than SFO. I would also guess that SFO has more premium business traffic than LAX, with the tech industry having tons of ties to Asia.
Technically speaking, many, MANY commercial flights over the Pacific are still routed via ANC. :-)
To your point, though, many (if not most) of the planes that visit ANC these days carry far more “cookie sheets”* than people, as only the most expensive and highest priority air cargo is worth paying extra to avoid a stop and a few hours or a day in transit.
* “Cookie sheets” is a colloquial term in the industry for the huge aluminum air cargo pallets.
The difference is in the range of the plane. All those cargo flights could go nonstop… Or at least most of them… But by doing so they give up some load capacity. They trade off more flying time and a stop on the ground for being able to carry heavier loads.
That doesn’t apply to passenger flights. Plus overall travel time matters more to pax than cookie sheets.
Exactly, agreed.
So long as it isn’t too hazardous (some items are “cargo aircraft only”), most urgent air cargo goes on the next flight out in the bellies of big (mostly widebody) pax planes, so that it can use those longer pax routes to fly as directly and quickly as possible to the cargo’s final destination.
“Belly cargo” in passenger planes has often accounted for >50% of trans-oceanic cargo capacity in recent years, more so than dedicated cargo planes. That was the case when COVID hit and was the reason why rates for international air freight went to INSANE levels once the COVID-related travel restrictions (and the corresponding changes to international pax flights0 went into effect a few years ago.
Thanks for the analysis. Of note in this part of the world is also United’s Pacific “local” operation, with flights connecting Guam, Saipan, Hawaii, Japan, South Korea, Manilla and a whole string of small Pacific Islands on the Pacific Island Hopper. These are all flown on B737, and the occasional B777 (from Hawaii). I believe this is a hold over from Continental Micronesia.
The best map I could find was here: https://www.researchgate.net/figure/Regional-map-showing-Guams-air-routes-to-key-countries_fig2_291321064
SFO simply has too much going for it not to be successful. SFO O&D demand to Asia is significant combined with local technology-related corporate traffic, lack of a legacy peer to compete with (DL/AA), geographically ideal location, and a partner with robust connectivity that also happens to be located in the largest TPAC O&D (ANA in TYO); you have the perfect storm. UA’s outsized WB fleet makes this decision even easier.
DL’s SEA hub fills a nice niche in their network, but it won’t ever become the complex that UA has in SFO. Corporate travelers want to maximize their time in the J cabin, not connect and have a 3-4 hour domestic flight. SEA O&D simply isn’t large enough to overcome that hurdle. AA has to be feeling blessed with JL as a partner; otherwise, what’s their TPAC strategy? They don’t have the US network either geographically nor in large enough TPAC O&D markets.
Given the stage of TPAC flying and associated costs, DL/AA are better served rotating their widebodies in EU for Summer IATA (where they make a ton of money) and then either Hawaii/Latin or maximize MRO time in the winter. You don’t have to be everything to everyone, which is where their partners KE/JL come in to play.
what is TPAC? Thanks.
Trans-Pacific
I have noted AA’s lack of ambition or capability for TPAC. What I do not understand is how they never made a serious play to do at LAX what UAL is doing in SFO. The LA region should also have plenty of O&D options, and they have JAL where UAL has ANA. I guess it is all about priorities.
Oh wait, we forgot the threat to all of this that is Northern Pacific :-)
AA made a serious play at LAX to do what UA is doing at SFO.
They failed and have pulled back.
Yup. And Covid finally forced them to shut most of it down after years of unprofitable flying.
They failed at LAX for reasons that are noted above. As stated, “You don’t have to be everything to everyone” is very true for AA. Let JAL handle Asia.
In reality, AA has Asia nicely covered with JAL.
American has never invested in strong sales networks in Asia and this has hobbled it in the region since it began flying there in 1986. AA relies on its partners to do the flying for the most part. While JL is a strong partner to AA and vice-versa, the reality is connections through Tokyo aren’t really favorable, considering so many nonstop options. It works better for UA and NH because they are more integrated on both the US and TYO end and UA has more flights onto Tokyo on its own metal than AA does.
LAX isn’t a viable option for a TPAC hub for AA. The yields were poor before the pandemic, owing to the huge amount of volume and competition and that’s unlikely to have improved since.
American also has a problem with availability of planes. Look at the comparative fleets:
767: DL 66, UA 64, AA 0
777-200: DL 0, UA 74, AA 47
777-300: DL 0, UA 22, AA 20
787: DL 0, UA 71, AA 59
A330: DL 64, UA/AA 0
A350: DL 28, UA/AA 0
Total widebody DL 158, UA 231, AA 126
DL also has 127 757s, and UA has 61 of them, and some of these can be used for intercontinental routes too. AA has none.
AA retired their 767s and A330s during the pandemic, and then they were screwed when Boeing’s 787 program bogged down. So they are pretty limited in what they can add internationally. They do have about 30 787-9s and almost 60 321 XLRs coming starting next year, but they are pretty constrained at the moment.
I expect them to put some of the 321s on thinner European or maybe some thinner South American routes, and then eventually move some of the bigger jets to try and build more into their Asian routes.
Fleet size isn’t everything but it does matter on the Pacific.
Again, AA just reported better margins and profits than UA during the most recent quarter. Considering how much money AA has lost, where AA is right now financially is an incredible accomplishment. The reason why they are there is because they quit trying to do what they don’t and can’t do well. Their southern US hubs are knocking it out of the park financially.
And AA does have the 787s on order it could aggressively grow its international network if it wants to but it knows that isn’t in its best interest. There is nothing commendable for a for-profit company to attempt to do something that is less than what returns the best results for its owners.
And AA, like DL, is operating its international route network w/ a much more fuel efficient fleet. Giving up a year of growth is nothing in light of the life of aircraft. Delta has already replaced all of the aircraft it retired during the pandemic and then some and has 16 new widebodies due for delivery next year – twice what UA will receive. Given that DL execs still are saying another widebody order is coming and it will include the A350-1000, Delta will have the largest and most efficient and lowest cost per seat widebody aircraft in its fleet. American seems to be learning that Delta’s strength has long been to move at the speed that is good for “me” and not what others think. It is certain that some of those new aircraft will end up over the Pacific.
And let’s also be clear that UA is expanding in the Pacific on the same basis that it didn’t get rid of airplanes during the pandemic – because it thought that it would have a first mover advantage and gain share. US carriers fared very well compared to many global airlines and UA believes it can gain share in the Pacific as it has tried to do domestically and also across the Atlantic. Data from the 2nd quarter shows that United is still well a distant #3 in domestic market revenue behind AA and DL which are about the same size. DL also added more capacity in every region – domestic, transatlantic, transpacific and Latin America – than United (or American) and also had the best revenue growth and RASM growth statistics in each of those regions. AA also added significant amounts of capacity so UA really didn’t gain any advantage where its competitors chose to expand.
As for the west coast, DL’s international operation at LAX will likely surpass its SEA international operation next year. UA is clearly trying to keep DL from running away w/ the LAX international market by US carriers but UA simply does not have the space to grow that DL has and AA will regain – if AA wants to. The LAX local market is much larger and more stable than in N. California.
Life is a marathon and not just a sprint esp. when the rest of AA, DL and UA’s networks are set up against each other in other regions.
When talking about widebody efficiency you seem to forget UA has over 100 787s on order. Some of them will be used to replace their older 763s. AA doesn’t have anything close on order to match what UA is doing in the wideobdy arena and DL for the time being only has around 35 or so A330-900NEOs/A350-900s on order.
I agree with you United’s moves at LAX are probably meant to thwart DL but thus far DL has not announced any new widebody orders including the much rumored 350-1000 order and that rumor goes back to 2022 if not 2021 and here we are in the second half of 2023 DL has announced an order for 100 Boeing 737-10 back in 2022 and they have announced I believe several incremental orders for A220-300s both in 2022 and then again in 2023 and yet DL still hasn’t announce any new widebody orders. Meanwhile UA continue to pull away in both the TPAC and TATL markets. I personally would love to see DL give UA a run for its money in the TPAC arena out of LAX but they don’t have the aircraft at this time to challenge UA.
Delta execs specifically announced the expected widebody order on their earnings call and said they had no updates but also said to employees in discussing their earnings – which led the industry – that it is expected to be coming later this year and will include A350-1000s. Again, Delta moves at its pace. They know when their current order book ends but they also are looking at used aircraft, widebody availability, and delivery timelines. They are also undoubtedly waiting for resolution of the KE/OZ merger, which could potentially assume DL taking over the OZ A350 fleet and/or future orders.
Remember also that Delta grew capacity in every region more than United and also generated better revenue metrics. If Delta sees an opportunity to grow, they will and they will find the resources to do it.
DL has twice the number of new widebodies due for delivery next year than UA.
If United wants to use the majority of its 787s for growth, AA and DL will be delighted to compete w/ much more fuel efficient aircraft. But for now, actual data shows that UA is not running away w/ anything at least from AA or DL.
SFO has the perfect balance of being large enough to have a ton of O&D but small enough so that one airline can have the dominant position: if not quite fortress hub level dominance, dominance enough to prevent the domestic competition to treat SFO as more than a very large spoke (besides Alaska, which has a small hub-like destination list but is only marginally above AA and DL in passenger numbers and of course has no long haul flights). LAX has the O&D but it has too much competition (both domestic and foreign airlines) for any one airline to establish a dominant position (not unlike JFK).
When Delta decided to make SeaTac their Asian gateway, I think they took the best option remaining. LAX seems to be very, very competitive between the US and Asian carriers and SFO is United’s gateway. Seattle is growing a lot and is well located for Asian flights. I think they’ll add more flights to Asia from there in the not so distant future.
That said, it will never be close to what United has at SFO. Buying those routes from Pan Am might have been their single best move in their history.
Excellent analysis – this type of content is “The Best of Cranky,” IMO.
I generally think US aviation to Asia + Oceania is hugely underreported or assessed, and I would welcome more posts in this category.
Regarding United, how does the build-up of the SFO hub for Pacific destinations impact the potential for non-stop flights from their other hubs? Is the assumption that the Russia overflight restrictions make SFO even more viable vs. building the network from other hubs?
I believe SFO was the slowest of all of their hubs to recover (based on their current schedule compared to pre-pandemic), so I am trying to understand how they balance the efficiency of a perfectly positioned hub like SFO with the slow O&D demand recovery. Thoughts y’all?
And I haven’t seen much analysis of the Guam hub. With the US Military building up a presence there and in the region, has this induced demand, even if Japan tourist traffic is way down (same with Hawaii)? How much more potential does UA have from Guam and nearby cities to expand in the region?
Ben – Great questions there! I don’t think the SFO build-up really hurts other hubs. Russian overflight absolutely does. United had a media call before announcing the latest group of new flights. For Hong Kong, it says it wants Newark back but it can’t do it without Russian overflight. That being said, it made it clear that the LAX flight wasn’t just about being a “next best.” United says it wants LAX and Newark.
As for Guam, that’s one that I honestly don’t know. Japan traffic is starting to build back up, and Guam is a nice little niche, but I doubt it’ll ever have a significant growth plan.
Thanks for the quick reply, Cranky!
In allocating a new flight (planes, crews, etc.) don’t they have to weigh, adding the 2nd SFO-Taipei with the potential to launch ORD-Taipei instead with that frame (assume Russia overlight isn’t a constraint)? Curious about the tradeoff analysis there and which principles the network teams use to determine if they “thicken” a particular hub vs. broaden the network by flying to the region from other hubs.
Also, do you have any sense of the current state of the passenger carrier air cargo market? And specifically, the USA-Pacific demand?
Wondering how much cargo UA planes can even take on if carrying high passenger loads?
I do wonder what potential Guam has in doing some more long haul or increasing frequency. Not even sure how much competition there is in those markets (not milk-run but to the big capital cities)?
Ben – I don’t have answer to any of those. I just imagine that there is more value in providing more options to the West Coast where demand is highest versus trying to start something from Chicago.
> Also, do you have any sense of the current state of the passenger carrier air cargo market? And specifically, the USA-Pacific demand? Wondering how much cargo UA planes can even take on if carrying high passenger loads?
Speaking as someone who is deals with the air cargo market daily as a shipper… On most lanes the air cargo market has been pretty weak in 2023, even if rates on many lanes aren’t yet back to “pre-COVID” levels. With few COVID travel restrictions remaining, belly cargo on international pax flights has added significant capacity, while concerns about consumer spending, the economy, inflation, and inventories that are (still) somewhat high at many retailers have largely kept demand in check.
This article provides a good summary of where the air freight market is at present:
https://www.freightwaves.com/news/price-war-keeps-air-cargo-rates-below-natural-level
A few points….
1) You have to wonder whether we have another potential Singapore frenemy situation brewing with United and EVA. EVA, prior to the pandemic, was running 3x daily SFO-TPE with 1 dayside and 2x nightime. EVA’s success couldn’t have been lost on United. I flied EVA a bunch of times around then because it did offer night service, which is preferable to daytime service if you are connecting elsewhere, and never considered flying United because it just had daytime service. In any case, I can’t imagine EVA is too pleased with this development even though they do, and will continue to, offer the better hard and soft product.
2) United has a GUM problem it doesn’t know how to resolve. It’s going point to point from the west coast to cities in Asia bypassing its Central Pacific hub. The reason for this is obvious…it doesn’t want to cannibalize its HNL-GUM leg which has value (and probably some military service between Pearl and GUM). While I assume HNL-GUM does well enough for United, adding a direct flight from SFO might make that leg unprofitable by removing US mainland business and leisure traffic from the mix. And they would jump at the chance to bypass HNL because the current routes it forces us into taking the SFO-HNL-GUM- slog which is prone to misconnects and then endure a potential double red-eye on the return to SFO.
The launching of direct SFO-MNL service does make me wonder if United is looking to further reduce the importance of GUM. It already terminated a bunch of GUM-Japan routes. But it can’t kill GUM as a hub because of the milk run and service to Japanese cities not covered by United direct flights from the mainland.
The United/EVA relationship is interesting. I was looking at SEA-TPE and TPE-SAN, and in both cases booking on EVA’s website, there were no codeshares for SEA-SFO and SFO-SAN legs. Instead, they were offering interline tickets, with both United and Alaska flights, and the Alaska options were generally cheaper. Not what I would have expected between two Star Alliance members.
I believe United addressed the question about the Guam market a few years ago. Basically, the US market IS HNL-GUM. There isn’t a market from the US mainland to GUM. Hence, no need for SFO/LAX-GUM. GUM is not really utilized as a transfer hub. It’s a standalone market geared primarily towards the Japanese tourist market. If United can’t get you to where you’re going in Asia nonstop, most likely a transfer to NH in NRT will do the trick.
Guam isn’t really a problem in terms of what to do with it, it’s just balancing supply and demand from its most important O/D markets. Connections are really only important for the small pacific islands with no other flights anywhere.
Waiting for the usual Delta fanboy to apply the theory that UA looses money on all TPAC flying, but DL rules it when it comes to criss-crossing the Pacific…
I was expecting the angle to be more along the lines of “If this was worth doing, Delta would already be doing it at SEA and LAX, and here’s some worthless data about United’s load factor between Guam and Chuuk to deflect your attention.” But you could be right …
All of that and much much more is located just above including the whopper that “actual data shows that UA is not running away w/ (TPAC) at least from AA or DL.” Mind you, none of that “actual data” was shared with this audience.
Excluding mainland China, United’s transpacific network will be 50% larger than all other U.S. airlines COMBINED.
United is in fact running away with actual TPAC flying on their metal. But people are entitled to cite some obscure metrics and other red herrings in order to claim otherwise.
If you read Tim’s posts, they are about 20% useful information, 50% non-useful information, 15% misdirection, 10% defensiveness and 5% outright dishonesty. I’ve told Tim directly in the past that if he would focus on relevant and factual posts and leave the fanboy defensiveness behind, he could actually be an interesting commenter. But I don’t have any interest in reading his thousand-word comment barf and trying to filter out what information is good vs. what is pointless/wrong, so I end up skipping over his comments 90% of the time. It’s a sad example of not understanding how to use your knowledge to be influential. And I sympathize with people like Cranky who (I assume) don’t appreciate Tim’s attempt to run their blog for them from the comment section but want their sites to be a place for open exchange of ideas for anyone. So I should probably learn from most of the other commenters and just totally ignore Tim.
Great read, Cranky! It’s been interesting to watch UA’s Pacific strategy/network evolve over the last 10 years.
While it’s absolutely true that UA rules the Pacific market for US carriers. I’ve wondered what are the factors that have kept DL from trying to get something going from SLC or AA trying something from PHX. I would imagine PHX may get some traction with the semiconductor industry. I know historically that DL had a SLC-NRT route. But it was cut short (in favor of SEA or PDX I believe). Beyond that, I don’t think either have tried anything else though I could be wrong.
Pilotaaron1 – There ist just no local market from Phoenix or Salt Lake. I can see Salt Lake – Seoul and Phoenix – Tokyo in order to feed those hubs on the other side, but otherwise, these hubs are just not hefty enough to support that kind of Asian flying.
Would love to know if UA actually makes money on those trans pacific routes, especially outside of peak flying season such as Q4 and Q1. Those routes burn a lot of fuel, use expensive wide bodies, and pilot pay has greatly increased. If load factors/yield weaken, UA can lose a lot of money. AA probabaly doesnt see that great a return for the cost involved. More lucrative to fly to LHR, transcons, and Caribbean/Mexico.
The more fuel efficient planes help, as does the lack of capacity dumping and yield suppressing by Chinese carriers offering $450 round trip tickets from the US to points around Asia via connections in China.
Fares and yields are very strong to Asia, with international yields stronger than those domestically.
The market has changed so much over the past 4-8 years that it’s almost impossible to compare year to year numbers and the numbers continue to change quarter by quarter. With COVID, China’s rapid growth but then recently flight restrictions, and opening HND to international traffic, plus overhauling the fleet and fuel and staff costs changing, I think it’s been hard for anyone to predict medium to long term patterns right now and United (and other carriers) are just trying to make their best guesses.
1. Asian airlines have long operated redeye westbound transpacific flights because it feeds their first flights of the day from their hubs. DL’s ATL-ICN flight is a westbound redeye and they also have operated a 2nd SEA-ICN as a redeye.
2. Before the round of megamergers that created AA, DL and UA of today, Northwest was the largest airline across the Pacific and was for 25 years after United’s acquisition of the Pacific. CO had a fairly impressive Pacific network of its own and the combination of the two is what helped put UA into first place.
3. NW did not make money on the Pacific on a consistent basis which is why DL has spent 15 years since the merger trying to rework its presence – and is not done – but DL has been the most consistently profitable US airline across the Pacific, even in the #2 position.
4. UA is trying to pump traffic through SFO where the local market – both to/from Asia – and domestically has fallen significantly.
5. US carriers have done poorly on a financial basis to East Asia because US airlines have much higher labor costs and offer worse service. US carriers gain valuable corporate contracts but that traffic is what is the least recovered, esp. to Asia.
6. Transpacific flights are the most costly from an asset base because of the long flight lengths. As CF notes, the 2nd bank helps reduce the number of aircraft needed since few transpacific routes can operate with a single aircraft on a daily basis. UAL’s use of asset/capital ratios are not much different than AAL’s and considerably lower than DAL’s; given that AAL has a much newer fleet, it speaks to how much of United’s revenue comes from long routes where .
7. Based on 2nd quarter 2023 results (which are now complete for AA, DL and UA), UA flew the most ASMs but reported the lowest net profit on a GAAP basis and burned the most fuel at the highest cost per gallon.
8. Fleet is heavily entrenched w/ Pacific strategy. Because of the length of tpac flights, advanced technology aircraft deliver the best returns over the Pacific. Because United’s international fleet is the least fuel efficient not just of the big 3 but among the largest global carriers, UA is simply transferring its least efficient aircraft to the Atlantic and Latin America by showing preference for use of its 787s on the Pacific.
9. The 787-9 for UA is one of the smallest transpacific aircraft among all carriers; higher labor rates as part of the UA/ALPA agreement in principle will impact smaller aircraft the most. The 787-10 is a great aircraft and offsets some of that CASM related pressure but has limited value over the Pacific – but its greatest use would be from SFO.
That’s a lot to respond to, especially when one of your points is to advise that NW was the largest airline across the Pacific pre-2008. I guess I can only say…ok?
You said DL will receive twice as many international planes as UA next year. Yes, 16 is double 8 but it is still only 8 more planes and will hardly make a dent in the fleet advantage UA has, especially when you consider those 8 787s next year for UA are the start of 100 787 deliveries, bringing their Dreamliner fleet size to almost *200*. The extra 100 options would bring their 787 fleet size to almost *300*.
Kirby ran the numbers, especially with all the real-world experience of operating the 787s for almost 10 years, and realized he would continue with the winning formula and with the fleet that has contributed to UA’s success.
CASM isn’t everything. A bigger plane means more seats to fill, especially at potentially lower yields. That’s why the A380s are going away and it’s why DL doesn’t run the A350s everywhere. CASM is only half the equation.
Yes, this industry is a marathon. In a few years, more of the 777-200s will be retired, leaving UA with the 777-300s and potentially close to 300 787s. Even a fleet size of almost 200 787s is impressive. The older widebodies will be retired while still allowing for significant growth.
Along those lines, terminal 9 at LAX is also part of this marathon and will certainly increase UA’s size at LAX. Not that I think it matters since nobody is very profitable at LAX due to all the competition, but I know you bring it up all the time and it’s likely the best DL will be able to do on the west coast.
Por favor, Mark. Aviation is a marathon and not a cherry farm. There is no need to cherry pick facts. Tim’s comment hits the nail right on the forehead, and we expect nothing more or less from Super Weenie Hut Junior’s number one weenie. The Salty Spitoon that is CrankyFlier’s analysis is great, but not good.
2. Tim’s use of GAAP basis instead of adjusted for margin is an absolute banger well done. Tim’s comment on Gary’s post explains it well,
“UA tried to “adjust” out the $800 million retro payment it owes its pilots as part of its new pilot agreement while AA simply showed their pilot retro as a special item – but didn’t try to “adjust out” the impact of that agreement. DL followed the same methodology as AA when it took its hit in the first quarter from pilot retro.”
Ocho. When dealing with percentages such as margin, lower is always better. Hence the phrase, Top 1%. Looking at the previous three quarters, DL always had a lower operating margin on a GAAP basis than UA and/or AA.
1Q2023 DL -2.2% UA -0.4% AA 3.6%
4Q2022 DL 10.9% UA 11.1% AA 10.5%
3Q2022 DL 10.4% UA 11.3% AA 6.9%
mmxxiii. If we used adjusted margin, then DL would consistantaneously sweep the competition with low (remember the lower the better) margins every single time. For example, DL has an extremely profitable refinery with great margins. DL adjusts out the entirety of the operation while preserving fuel savings because WWJD.
Secondly. DL’s refinery benefit of $40M on a nearly 1 billion dollar operation as reported this quarter is exactly why DL turned down several offers to sell the refinery pre-COVID. $40M is around the total net income on DL’s Latin America system since Q2 2022 through Q1 2023 where DL first turned a profit in the region since COVID.
Four. If UA or AA are as great as everyone says, why is it that DL offered the most valuable pilot contract while the other two are only matching? If UA or AA could afford it and had lower margins, perhaps they would have offered a better contract like DL to which the middle of the pack could activate snap up provisions.
b) The goal of airlines is to make money not make routes. If size means profitability, then why did UAs transpacific network and AAs Latin American network which is the largest among US airlines lose money in 2020 and 2021? I’ll tell you why. Because the donkeys at UAs and AAs network planning are playing checkers instead of joining the bingo table with the genius of Tim Dunn. Perhaps it’s the lack of a fuel refinery, cobrand revenue, airline ownership stakes, MRO contracts, revenue premium and non transportation revenue that is causing UA and AA to have such uncompetitively high operating or even adjusted margins than precovid.
Also, Mark I heard you ate at chipotle while Doug Parker was at AmericanWest.
$40M is around the total net income on DL’s Latin America system since Q1 2021* through Q1 2023 where DL first turned a profit in the region since COVID.
Mark,
A few “in the weeds” details.
The A350-900 even in comparable configurations is larger, more capable and has equal or better per-seat economics than the 787-9. The A350 was designed after the B787 and Airbus used the same strategy to “beat” the B787 as it used in other Airbus vs Boeing models.
Delta and United both retired their 747s which were their largest aircraft; AA and UA both bought end of production line 777-300ERs which is now their largest aircraft while the 359 is DL’s largest. Either version of the A350 has better economics than the 77W; an eventual Delta order for 35Ks will “beat” the economics of whatever AA and UA operate.
AA and DL both got rid of older, less efficient aircraft during the pandemic and lost some growth momentum and margin production in late 2022 and early 2023 but now have lower cost, more efficient aircraft on average than UA. UA will spend much more to update and expand its fleet than AA and DL. At comparable levels of profitable, which all 3 are roughly reporting, AA and DL will have more cash “to play with” than UA.
Some aircraft like the 767-300ERs will reach the end of their design life in the next few years; holding onto other specific aircraft and fleets might be technically possible but it comes at higher operating costs. The massive UA 777-200/ER fleet plus the 767-300ER is larger than UA’s 787 order book. Narrowbody production slots are sold out at A and B for the decade but all US airlines have enough orders for major growth while widebody production slots are still available.
Even though we have heard for years that UA’s massive narrowbody and widebody orders would allow it to grow much faster than anyone else, DL beat UA’s growth rate in domestic and all 3 global regions in the 2nd quarter. UA Next is based on UA’s notion that it will regain its “natural domestic share.” AA, DL and WN will fight to hold onto what they have just as much as UA will fight to hold onto whatever first mover advantage it gained w/ re-adding international capacity faster. UA’s post covid advantage has ended.
The bottom line is that AA, DL, UA, and WN are all capable of supporting aggressive growth and have the resources to do so; UA’s growth will come at higher acquisition costs.
In the 2nd quarter, DL grew capacity in all 3 global regions plus domestic faster than any other airline that has reported so far, generated the best revenue-related metrics and also had the highest passenger revenues even before its non-transportation revenue – loyalty program, credit card, Tech Ops etc.
Delta also paid less per gallon for jet fuel than any other carrier. The refinery is a hedge which is not contributing much right now but it has been a huge benefit and has minimal downside risk, unlike hedging.
As for the west coast, UA could build T9 and grow at LAX but that is years away at best. well behind AA and DL. Growth in other UA hubs will be costly and take time.
Yes, LAX terminal 9 is years away, but I was pointing it out since you say the industry is a marathon.
Yes, current 777-200 and 767 fleet is smaller than the 100 firm 787 orders, but you’re forgetting UA already has 70+ 787s, along with options for an additional 100 787s. Many are expecting those options to be converted to firm orders. How many A350s will DL need to order just to replace their aging widebodies?
Also, you mention percent growth a lot without talking about who is larger and likely to stay that way.
Airline A has 100 flights and adds 20.
Airline B has 10 flights and adds 10.
Airline B has the higher percentage of growth but Airline A is much larger and is increasing its lead, even if the percentage is smaller, because math.
Great analysis Mark. Simple math does it every time! Lol
Local demand from San Francisco has collapsed. You can’t write an article about this without addressing that major issue. The VFR traffic is still there but the tourism and business traffic is gone and not coming back anytime soon.
Scott Kirby has acknowledged that the dynamics of demand are fundamentally changed, but these record profits are coming since the airlines are adapting to the new demand. Yes, business traffic down, but the leisure, in particular premium leisure, traffic is more than making up for it.
Collapsed is way too strong of a word. It has decreased, but there’s still more than enough local demand. It’s not like EVERYONE has left the Bay Area. No, the metro population has dipped something like 2% and much of that ended up in the nearby Central Valley where housing is cheaper. These wouldn’t tend to be your market for Asia travel anyhow. The people with money have stayed.
And tourism to/from Asia is more about family ties than seeing Fisherman’s Wharf. Not to mention that SFO is a gateway to other markets across the USA. So, they’ll do fine.
Obviously, UA is doing a lot right at their SFO hub. And, they have a decades-long dominance in that local Bay Area market that serves as a foundation. Not to mention all of that service to Oceana (which they augment with service from LAX). Combine this with a renewed fleet, a large and affluent market in the SFO region which includes a lot of people with connections to Asia, a pretty decent strategic location for connections as well as flights to Asia, and a renewed focus on product at UA and things are looking good for United.
As for the other airlines:
DL – Delta would like to have the best of both worlds, meaning a hub with big O&D traffic (LAX) and a hub located at the very best spot for connections to Asia (SEA). In theory, it should work great. But, if I may be so blunt, Delta inherited a fantastic position in Asia from Northwest. And they pissed it away, under the delusion that KAL could handle everything through Incheon. Sadly, not even close to the case. Yeah, I’m waiting for Tim Dunn to use 8 paragraphs to try to argue that I’m wrong, but the results are what they are so he might as well save it for another day. UA is eating DL’s lunch.
AA – Meanwhile, AA has no lunch for UA to eat. As Cranky pointed out, they’ve never been able to get any decent Asia service off the ground (so to speak). Much like DL (but far worse) they’re depending on JAL and other OneWorld partners to cover this gap. Which is fine, I guess, but it’s not really getting you into the market now is it? AA is more of a CLT-PIT airline than an LAX-HKG one.
United sees a niche and they’re taking advantage of it. Good strategy.
I always assumed that Delta would have more than three Asian routes out of Seattle. I thought it would do better than that since it’s good connection point and has a large Asian population. The lack of success has to disappoint Delta.
I don’t think running a connecting hub in Toyko from the NWA days would work. The 787 allowed more non-stop flights from the USA to Asia and Delta has none (they even killed the NWA order). The 330 neo and 350 don’t seem to fill the same niche as well.
Even though the Pacific histories and strategies of the big 3 have repeatedly been discussed, there should be no need to repeat anything but ….
SFO might be the best transpacific gateway and UA has done a great job of developing it but the perception of the industry many have simply is not congruent w/ actual history.
Pan Am and NW were the two primary carriers over the Pacific post WWII. Before the megamergers, AA and DL both tried to build their own transpacific systems without success. DL started the megamerger cycle w/ the NW merger and gained the only other fully developed transpacific system, almost entirely centered at NRT.
When the US and Japan started talking about Open Skies and reopening Haneda to longhaul flights from the US, DL attempted to develop a joint venture with JAL but was denied because DL was ALREADY the largest airline from the US to Japan, regardless of flag. In reopening HND to US flights, the Japanese government said their long-term plan was to move all legacy carrier longhaul flights to HND and we are still in that transition. DL, without a JV partner, was given greater preference for new HND flights, first at night and then during the day.
It quickly became clear that HND routes commanded higher fares than to Narita. Without a Japanese partner, DL either had to choose to stay at NRT w/ beyond flights and accept lower fares or move all of its US flights to HND. The Japanese government refused to allow any US carrier beyond Japan flights from HND, ending the largest US carrier hub on foreign soil which JL and NH always disliked. DL is clearly still trying to get the right HND flights. When Japan eventually opens HND to more US flights, DL will have the same chance to build out its HND network that AA, HA and UA will also have.
Korean is a founding member of Skyteam but undercut fares through Delta’s NRT hub for years so the two never worked well together. After DL’s inability to move any beyond Tokyo routes to HND and w/o a Japanese partner, DL worked w/ KE to include DL’s Japan operation in the JV and to start several new ICN routes. DL operates the largest Asian operation at ICN outside of Japan by any US carrier. DL is waiting for resolution of the Korean-Asiana merger and will grow ICN much further, including placement of large portions of the eventual A350-1000 fleet.
Four paragraphs of facts.
There is nothing inferior or superior about the A350-900 vs. B787-9 or vice versa. They are direct competitors and the 20 more seats on the 359 in comparable configurations won’t make or break any route. If DL wants a smaller plane, it can use the 339 which has very similar total costs to the 789 and is still capable of 14 hour flights. Like the A320 family compared to the B737, the A350 was designed with much more top end growth potential which is why the A350-1000 has even better economics at ranges that exceed the B787 family.
I’m not going to reargue the numerous usual mistakes you put here or how you don’t seem to understand how aircraft CASM can lower just by packing seats on any plane, but I will say this…
“When the US and Japan started talking about Open Skies and reopening Haneda to longhaul flights from the US, DL attempted to develop a joint venture with JAL but was denied because DL was ALREADY the largest airline from the US to Japan, regardless of flag”
What? lol. That might be the most ridiculous telling of history you’ve ever done. DL never got to even a JV application with JL because JL rejected Delta’s offer and stuck with AA and OneWorld. What world are you living in? It had absolutely nothing to do with DL’s current size in TYO at the time. The writing was on the wall at this time already and DL already knew their place in TYO was completely done for without JL. It was a desperation move to pay to attract JAL to Delta and it failed.
As usual, Delta had to pay to attract friends but JL chose to stick with AA and their offer.
You always do have an amazing ability to attempt to rewrite history and facts, but this one is quite the whopper.. lol
I would strongly suggest that you google “Competing for partners – Japan Airlines, Delta, and AA” to find an article from the Harvard Business Review which notes that
– Even before the Japanese government forced JAL into bankruptcy and restructuring in 2009, Delta and its SkyTeam allies were trying to pry away the Japanese flag carrier from Oneworld with a package of $1 billion in equity, revenue sharing, and other future benefits.
– SkyTeam on its own already had a strong hand in Japan, accounting for a third of U.S. air travel into Tokyo’s Narita airport (the largest among US airlines).
– Fearing the loss of this partnership, American first matched Delta’s offer with a little over $1 billion in investments and added business. When it began to look like Delta might carry the day, American found financial allies to help raise its offer to $1.4 billion. In addition, Oneworld promised to strengthen JAL’s position in the group by giving it a more exclusive role in Asia than it had played so far.
– During all this, U.S. and Japanese authorities agreed to an open-skies agreement that depended, interestingly, on a grant of anti-trust immunity to JAL and its partner.
– American argued that a Delta-JAL joint venture was unlikely to gain immunity from the anti-trust authorities.
– JAL won more from AAL and oneworld than Delta offered and JAL stayed with AA. AA’s presence in Tokyo is now the smallest of the big
The first U.S. – Haneda flight by a US airline after NRT opened was by Hawaiian in November 2010. The last round of HND route awards went into effect in March 2020.
My recounting of US – Japan aviation events is deadly accurate.
The A359, A339, and 789 for AA, DL and UA in comparable configurations are within a couple percent in CASM. Delta’s A359s in its current configuration for factory delivered interiors have 306 seats in a premium density comparable to AA’s 789s which seat 285. UA’s 789s seat from 252 to 257. The rumored more premium reconfiguration of DL’s A359s would still yield about 285 seats, 20 more than United’s similar configuration on the 787-9. The A350-900 is simply a larger, longer range aircraft than the 787-9 with trip costs about 5% higher but nearly identical CASM in comparable configuration. AA’s 77Ws are the highest CASM US carrier widebodies. The A350-1000 should seat about 340 passengers and have a CASM about 25% lower than UA’s 77Ws.
Oh, and pre-covid Hawaiian was larger in Tokyo than American. HA just said in its earnings release today that Japan travel is coming back nicely which boosts HA’s outlook and the likelihood of DL’s success w/ its HND flights even though UA just cut its NRT-HNL flight. HA stock is up in after hours trading.
You live in your own reality, as usual. Everything I wrote earlier is accurate. Get a grip.
AA’s JV is significantly bigger than DL. The only reason delta is bigger than AA in TYO is because delta argued they were the small guy in the latest dot filings.
The things you write to try to make delta look amazing boggle the imagination and reality.
Delta just lost in Tokyo and with JAL to AA. It’s ok to just admit that tim. They made a great attempt to take JL away but failed. They never got close to a DOT JV application with JL. Of course aa would argue something to JL but that doesn’t mean delta and JL were ever rejected for a JV because of their size. Delta was on the decline in TYO and desperately tried to stop it.
They failed
Work on your reality and facts.
I’ve largely stopped responding to you in most places due to your ignorance and complete lack of integrity when it comes to “facts” but this one was just ridiculous.
Lol it’s hard not to respond sometimes!
Can always count on TD to take a crap on United whenever Cranky posts something REMOTELY positive about them. Did they fire him or something? It seems personal.
All airlines are doing comparatively well. Who the heck cares if Delta has a margin of 0.35% higher than United? All three of the majors are currently doing and have plans to continue to do what they as publicly traded companies have the fiduciary responsibility to do. No need for the soliloquy on why Delta is and will always be better/more profitable/has a better strategy.
Nobody is bashing United but rather providing facts, context and perspective that others simply do not provide.
CF wrote an objective article that was narrowly focused on a specific subject and, if there were no reader comments, would be settled. Before I even jumped in, a number of people started making comments not just about UAL but other airlines that lacked context and were actually contrary to facts.
Much of the reason for the heated rhetoric in airline social media discussions can directly be tied to company exec statements.
United execs, as they often do, punctuated their latest entire call w/ superlatives and comparisons to other airlines, some of which are not in context or are dated or simply inaccurate.
UAL execs touted their industry leading margins, but achieved that by excluding the $800 million plus retro payment that they will have to pay their pilots as part of the new contract. American made the same accounting charge but didn’t try to adjust out the payment and Delta simply reduced its margins when it took the charge in the first quarter. AAL actually reported a higher absolute profit and margins on a GAAP (standard accounting) basis than UAL even though AAL generated less passenger revenue than UAL.
UAL execs have talked about all of the growth that is coming. I accurately noted that Delta, not United, grew capacity at the fastest rate and had the highest RASM growth in every region.
Specific to Mark’s accurate comment above, higher percentage growth doesn’t necessarily translate into changes in absolute size or size ranking by region. No other airline is saying they intend to overtake United as the largest airline across the Pacific or build an Asian hub as large as SFO which is clearly the premier TPAC gateway. But that doesn’t make other hubs immaterial or minimize carriers such as AA that are relying more on their JV partners to serve a region even if AA on its own metal, post megamerger cycle, has never been as large as DL to Japan. AA is now the most profitable it has been in decades by focusing on what it does well. DAL is consistently the most profitable US airline and generated the most passenger revenue in 2Q2023.
United says it will “regain its natural domestic share” which means that other carriers are going to lose share – which is no more realistic than to believe than that DAL is going to overtake UAL to Asia. The industry is likely to shake back out to AAL and DAL neck in neck as largest in domestic revenue, AAL largest to Latin America with DAL overtaking UAL as the 2nd largest carrier there and DAL retaking its position as largest carrier to Europe with UAL largest across the Pacific. UA will not have a monopoly on growth if economics make sense for other airlines.
Accurate portrayal of facts and comparisons ensure that everyone learns and enjoys being part of aviation discussions. Thanks to CF for hosting and facilitating these discussions.
Tim Dunn says,
“UAL execs touted their industry leading margins, but achieved that by excluding the $800 million plus retro payment that they will have to pay their pilots as part of the new contract. American made the same accounting charge but didn’t try to adjust out the payment and Delta simply reduced its margins when it took the charge in the first quarter.”
Survey says,
DL 2023 Q1
Pre-tax margin (4.0)%
ADJUSTED for items such as…
ONE-TIME PILOT AGREEMENT EXPENSES 864M
Pre-tax margin, ADJUSTED 1.8%
UA 2023 Q2
Pre-tax margin 9.8%
ADJUSTED for items such as…
LABOR CONTRACT RATIFICATION BONUSES 813M
Pre-tax margin, ADJUSTED 15.3%
Previously, Tim failed to understand that DL took a similar adjustment to UA. So he changes his previous statement from DL doing what AA did to now DL reducing its adjusted margins with the labor agreement charge in Q1. Now, Tim fails to understand that an adjustment that changes margin from negative to positive is the opposite of reducing margin. Either that or he doesn’t understand the simple concept that parentheses are used for negative figures.
Just when you think the bar doesn’t get any lower, Tim will always find a way. Continue making the good folks at Delta proud.
I’m so glad you commented.
Nobody and esp. me said anything was wrong about UAL’s financial statements.
The problem was that they touted their ADJUSTED earnings which in NOT GAAP.
Here are Gerry Laderman’s words from their earnings call:
“I am pleased to report that for the second quarter, we delivered the highest quarterly pretax earnings in the United’s history of $2.2 billion. Our earnings per share of $5.03 was also an all-time record. And in addition, we produced a record second quarter pretax margin of 15.3%, 3 points higher than second quarter of 2019 and ahead of our expectations. This exceptional performance was driven by stronger-than-expected revenue and lower-than-expected fuel prices.”
ALL of the airlines reported their earnings both by GAAP and adjusted basis – because they KNOW they have to.
My point is that they touted their ADJUSTED earnings as if it were their REAL earnings, which it was not. And they did so throughout their call.
I specifically said that AAL and UAL took their charges as did DAL in the 1st quarter.
The reading bar is what we are concerned about here, not accounting which I never said was a problem
My comment was regarding framing adjusted earnings as what are the actual earnings, not whether UAL or anyone else fudged their report.
None of which changes that on an apples to apples basis, UAL underperformed AAL and DAL this quarter or that DAL added more capacity and still generated higher revenue related (absolute and RASM) metrics.
I do love a dialogue focused on companies instead of people. Despite the fact that so many people think I represent Delta – which I do not – a whole lot of people take my comments much more personally when I say anything negative about companies.
Tim, you are or have been a Delta investor. You are absolutely not unbiased and for you to pretend otherwise would be a potential termination event at some companies.
@Tim
You’re quibbling with your words and manipulating your argument. You made these two claims.
“UA tried to “ADJUST” out the $800 million retro payment it owes its pilots as part of its new pilot agreement while AA simply showed their pilot retro as a special item – but DIDN’T try to “ADJUST out” the impact of that agreement. DL followed the SAME METHODOLOGY as AA when it took its hit in the first quarter from pilot retro.”
“Delta simply REDUCED its margins when it took the charge in the first quarter.”
Both are factually incorrect.
Then try to pivot once more with,
“I specifically said that AAL and UAL took their charges as did DAL in the 1st quarter.”
Which is why you rarely use concrete numbers to support your argument in comments, because you don’t have a concrete argument.
Even someone like you would realize DL how much of liability it’d be having a loose cannon shoot blatantly incorrect statements.
It is deeply ironic to have someone that posts under an anonymous user name tell someone that uses their real name to provide financial disclosures which, I in fact do where on the web it is appropriate and where EVERYONE that contributes is also required to post under their real name. May I suggest you do the same here.
Neither one of us simply do not have enough space in article comments here to cut and paste enough excerpts to fully defend our case. I stand by my statements and I respect that you will do the same
Let me simply ask a few questions to which I trust you will reply.
1. Please rank the big 3 US airlines – AA, DL and UA – on a GAAP – standardized accounting – basis for 2Q2023 by highest passenger revenue, highest total revenue, highest absolute profit and highest margin.
2. Since all of the 3 airlines have taken the charge for both the lump sum retro payments in the first half of 2023 whether the pilot contracts are ratified or not, please rank the same revenue metrics – plus adjusted – for the first 2 quarters of 2023.
3. Please list and rank the capacity change and revenue related metrics (absolute revenue, RASM change) by each of the 4 global regions as they were reported by the carriers themselves.
If you did all of those things then, if United wishes to make any superlative statements, the following would be accurate, would it not?
“United has employed strategies which yielded very strong performance and bests for the company but those strategies did not necessarily yield the best absolute or largest positive year over year change metrics in comparison to its U.S. peers. United flies the most ASMs, burns the most fuel but did not generate the highest passenger revenue, let alone total revenue, or margins.”
What United did last summer and with its covid management strategy doesn’t matter anymore and, in fact, is not translating into an advantage now, is it?
Then, answer the question if the United States has just one flag carrier or can multiple airlines serving as flag carriers? This statement which United repeatedly makes “United continues to establish its position as the United States flag carrier” cannot be true, can it?
Finally, is it or is it not as equally unrealistic to think that other airlines are willing will allow United to gain domestic revenue and market share via United NEXT as it is to think that United will allow any of those airlines to gain share in the transpacific region, which is where United has consistently been the largest?
If not, is this statement not accurate” we have plans to…grow and engage faster than other carrier?”
Industry comparison superlatives aren’t terribly productive whether in online forums or from executives but if they are used, they should be accurate and not sliced and diced so small to be cherrypicking. Posturing regarding future positions just invites a competitive response, am I right?
Deflecting is the refuge of someone who can’t defend their argument. Which is exactly the case when you made factually incorrect claims as previously mentioned and subsequently fail to defend.
Learn to argue when you can analyze financials correctly and then we’ll talk. Otherwise, you can enjoy your own carpal tunnel inducing monologue.
You’re dismissed.
The issue is not and has never been about accounting but about PR.
The reality for anyone is that, for a company that loves to make comparisons, United:
– Is the largest airline across the Pacific, has been for quite some time, and no other airline has ever claimed otherwise or say they intend to challenge United’s position.
– SFO is the largest US carrier gateway to Asia-Pacific, UA had a decades-long headstart in building it, and, again, no one else has tried to challenge it.
– UA flies the most global ASMs right now but also burns the most fuel on the oldest fleet among US airlines but doesn’t generate the highest passenger revenue for all of that effort and didn’t even grow its network or any global region as much as other competitors.
– Even factoring in the pilot contract/AIP retro charges – which all 3 carriers took in the first six months of 2023 – is that UA’s financial performance was far from industry-leading and in the 2nd quarter, its GAAP profit was actually third.
– American gets the award for most financially improved US airline post covid – which came after Parker, Kirby et al departed (for a supposed DL insider, I have spent a lot of time giving AA credit for its well-earned transformation)
– It is no more realistic for UA to think it will gain its “natural share” in the domestic marketplace than it is for AA, DL, UA or others will succeed at overtaking UA across the Pacific. Other airlines are putting aircraft in service as fast as or faster than United and are just as capable of pursuing profitable opportunities not just in the Asia-Pacific region but elsewhere in the world.
– Once everyone including UA implements their post covid strategies, UA is likely to still remain the largest airline only across the Pacific but not to other regions or domestically, esp. when revenue is considered.
– Other airlines have other gateways including to Asia which have equally high strategic value as SFO and some of those gateways do operate redeye westbound flights
Comparisons are fun but have to be sliced pretty thin in order to be accurate or meaningful (ie the point of airlines is not to fly the most ASMs but to generate the most profit and revenue).
Again, thanks to CF for hosting an engaging conversation that has invoked responses days after his article was posted.
Real names still remain the first and highest form of establishing credibility regardless of the subject. A wise reader of this blog (who uses at least their real first name) taught me that lesson years ago.
Tim, apologies to Cranky for beating a dead horse. But I’m going to try one more time to help you understand that you kill your credibility when you speak beyond your expertise, make statements that are wrong, and then don’t correct the record. Yes, kudos to you for posting consistently under a name. But that is only one part of credibility.
Last year, you wrote that as a SWA and Delta investor, you don’t care if they have any debt. That is an incredibly obtuse statement for an equity investor to make. Debt comes at a lower cost than equity typically, so a company that has a reasonable debt load and manages it properly will have a higher ROE than one that doesn’t. ROE is essential to you as an equity investor. This is Finance 101-level basic. When doing research professionally, I ignore Seeking Alpha (except using their transcript product on occasion in place of the S&P products that we use) because the standards for their writers are so low; this type of nonsense is the reason why.
In the same comment, you wrote that no company the size of SWA can be debt free. Absolutely wrong. Capitalize a company with 100% equity and it can be debt-free. That doesn’t mean it’s a good idea (especially for an airline, given that they are fixed-asset intensive businesses and that aircraft make good collateral). But take a look at Meta for an example of a massive company that is essentially debt free. I called you on this at the time and you failed to correct yourself.
Or there was the time when you asserted that market value and book value are the same thing. Again, that is Finance 101-level basic. All you need to do is look at the market cap of a company and compare it to the balance sheet to see that they are VERY DEFINITELY NOT THE SAME THING. Someone who doesn’t understand this absolutely should not be writing equity research. Same old story — I corrected you, you got defensive and pretended that it was an irrelevant point.
And a few weeks ago, you put on a lawyer hat and informed us that AA could not appeal NEA without JetBlue. That contradicted Cranky’s post and contradicted what was clearly happening. I asked you to justify your position and you didn’t. Why you think you should be making legal commentary is beyond me.
You seem to have above average knowledge of airline operations and fleets. I say “seem to” because your history of saying things that are absolutely incorrect, your history of talking your own book with patchy disclosure, and your willingness to deflect all mean that I literally don’t trust a word you say. If you want to have credibility, focus on areas where you can add value and perspective to the conversation and correct the record when you’re wrong.
1. I am pretty sure that CF sees reader engagement with his posts as well as comments of other readers as part of his role in providing high-quality airline content.
2. Is this Jim that runs an accounting class, Jim that engages in the same distractions of which I have been accused, or Jim that wants to discredit what I write since it is fact? Either way, thanks for using a name.
The heart of the issue beyond the obvious reality that UA is increasing the size and efficiency of its SFO transpacific hub via redeye westbound flights is that United loves to make comparisons, not just to its previous performance (which nearly all companies do) but also repeatedly to its competitors (which most other US airlines do not do).
United has a considerable structural advantage in SFO and across the Pacific because of its bold 1985 acquisition of Pan Am’s Pacific network while American and Delta for years flailed trying to be remotely competitive. United overtook Delta over the Atlantic last year because of UA’s decision not to retire aircraft but that advantage translated into a system profit advantage for precisely one quarter and DL still outperformed UA’s profit for all of 2022 and that continues in 2023. UA loves to tout its size advantage and yet its revenue advantage over the Atlantic was far smaller in the most recent quarter than its ASM advantage. Given that DL has more new widebody aircraft coming next year than UA, DL could re-overtake UA and do so with a much lower cost basis.
And when profits are considered, which should be the first and last focus of for-profit companies, UA ended up not just behind DL, which is the gold standard for financial metrics among global carriers but also AA, which is hitting on all cylinders. When pilot retro pay is considered for all, UA did not outperform any of the big 3 in profits.
UA is still the smallest of the big 4 domestically and DL will likely overtake UA to Latin America because of the Latam partnership. UA’s size in NYC continues to shrink as it deals w/ the operational realities of EWR and UA’s high dependence on that space-constrained airport.
Feel free to post what I actually said about debt but WN technically has no net debt because of its high cash and short term investments but it does carry almost $10 billion in debt.
As for the NEA, CF’s article today highlights the challenges we all have in interpreting the significance of its dissolution as well as the differing outcomes we all expect and/or expected.
Comparisons are dangerous and superlatives even more so.
Other airlines can easily tout their strategies which have been as successful or moreso than UA’s strategies. The US airline industry remains very competitive which brings out the best in and for all involved. As CF notes today, cherrypicking data and facts not only creates confusing messaging but often just hides the disadvantages that companies actually have.
Tim, refer to your comment to Jenny here where you said “I am sorry but no company the size of Southwest can be debt free”: https://crankyflier.com/2022/05/12/southwest-spends-2-billion-to-play-catch-up-on-product/#comments. Today you are saying they are debt free (on a net basis). Amazing stuff!
No need for me to address the rest of your post. You delving into 1980s history kind of makes the point for me.
As I suspected, you took my comment out of context and then don’t understand the financial principles here.
WN has debt which makes sense for any company to have because it allows them to do things that they otherwise would have to raise cash for; it is no different than you or I taking a home mortgage or car loan.
But WN also has no net debt which simply means they have more liquid assets – cash and short term investments – than their debt. THAT is no different than if someone has positive net worth meaning you have more assets (even if not liquid) than the debt they carry.
Jenny also said in that article that she expected that WN would start a bunch of intercontinental flights – which not only has yet to happen but undoubtedly won’t.
And WN has been the worst performing of the big 4 airline stocks this year, in large part because their earnings are being far eclipsed by the big 3 even though WN still has the 2nd highest market cap behind DL which says that investors still view WN as a better long-term bet than AA or UA.
Since we have both stated our positions and we are now just “correcting” each other only to have the other highlight errors, can we just put this subject to bed? At least until the 3rd quarter or the end of the year – or better yet until there is a material change in some sort of rankings esp. over the Pacific?
Tim, you accused me of taking your words out of context. Literally the first paragraph of your comment was: “I am sorry but no company the size of Southwest can be debt free and they have never said they would be. Southwest has said they will pay down the debt they acquired during covid.” That is a direct copy and paste. I didn’t change your meaning. I don’t know how you can possibly see what I wrote as taking something out of context. You said that a company the size of Southwest can’t be debt free. That’s false. They can, although it isn’t common. And then you did a Tim Maneuver by trying to deflect by throwing in something about SWA’s stock performance and intercontinental flights.
And then while attempting to be cheeky (ironically telling me that I don’t understand the financial principles), you said that no net debt is “no different” than positive net worth. False. 100% false. A financial analyst would generally calculate net debt as funded debt less cash and ST investments. Other liabilities like payables, accruals, etc., would not factor into that calculation. Net worth is total assets minus total liabilities (with total liabiliites including trade payables, accrued liabilities, etc.). These are two totally different figures — somewhat similar, yes, but different. If you think they are the same thing, you SHOULD NOT BE WRITING FINANCIAL ANALYSIS. But it’s a reminder that you get what you pay for at Seeking Alpha.
Context is not just accurately quoting a sentence from what someone else writes but doing so to reflect all of the conversation in which that statement was made.
While it is possible that a large company such as WN could have no debt, that is not realistic because debt is one tool which, when properly used, helps a company achieve its financial goals. WN has over $9 billion in debt but has more cash and short term investments which is why it has no net debt, a unique position of strength in the airline industry.
However, WN and B6, which just reported its earnings today, both provided data that domestic revenue is weaker than the big 3 – AA, DL and UA and B6 today said that they believe that international demand is pulling some demand off of domestic routes.
Returning to the subject of UA, the Pacific and SFO, Scott Kirby noted early in the pandemic that international travel would be stronger post covid than before and UA would be a beneficiary. However, even before UA revealed that it would not retire aircraft or lay off staff so that it could restart international operations faster than competitors, I wrote elsewhere that many professional analysts were missing the big picture in the stronger relative position of the big 3 compared to their international competitors. Those same analysts argued that the domestic-focused LCCs would have an advantage during the pandemic without longhaul international networks but there were global/legacy carriers that outperformed some LCCs – including B6 – during the pandemic so those broad brush generalizations never played out. While UA was able to return international capacity faster than other carriers, the financial advantage of doing that lasted for precisely one quarter relative to AA and DL. By the 4th quarter of 2022, AA, DL and UA were posting comparable margins. So far this year, UA is not outperforming AA or DL financially or in re-adding capacity, the latter in part due to MAX delivery delays. AA and DL have both younger and more efficient fleets now and DL has replaced all of the international capacity and then some it had pre-covid while it is set to add more longhaul aircraft at least next year than UA.
UA is clearly seeing strength in the Pacific – but the results for AA and DL show the same thing in all 3 global regions. The Chinese carriers plus CX are still basically not competing in much of the Asian connecting market as they did pre-covid and even the Chinese connecting market is being artificially limited by Chinese government policy – which may change by next summer, in which case big 3 will have to divert some aircraft to restart routes to China.
SFO is the largest hub to Asia and it makes sense for UA to build on it. However, other carriers see strength and will add capacity to Asia and elsewhere and may be better equipped than UA. The next few years should be very good for the big 3.