This isn’t the first time we’ve heard United management talk about the death of the ultra low cost carrier (ULCC), but it’s one of the more interesting discussions that has been rattling around in my brain for awhile now. In short, United still firmly believes that ULCCs are in serious trouble, and the numbers have been backing that up as of late. But will the numbers change over time? United would never say never, but it certainly thinks that the best days are behind the ULCCs. So, let’s talk about why.
We have to start with a little context. This year has really been confusing when you look at airline results. The ULCCs have struggled mightily and Q3 is not going to improve. In an update a month ago, Spirit said it would see deep losses in Q3 with an operating margin between -14.5 and -15.5 percent. Frontier will come in between -4 and -7 percent. These numbers are startling in their own right, but they are downright bizarre compared to the stellar already-reported numbers from Delta (12.8 percent) and United (12 percent).
If we extrapolate this out into the future, we get this chart which I completely made up. I’m pretty sure United would approve of this as being entirely correct, however.
Delta doesn’t really talk about these things since it’s not really Tom Brady’s forte, but United has been surging as of late and its management team is always happy to talk about its evolving view of the industry, including why the profit numbers seem to be inverted from what you might expect when comparing legacy airlines and ULCCs.
Right off the bat, I could come up with several reasons why the results would be different. For example, the ULCCs are hit much harder by the Pratt & Whitney engine problems. Also, there’s no question that some of the disparity is due to the make-up of international vs domestic flying. It’s the international markets that are absolutely booming this year. While Delta and United both have huge international footprints, the ULCCs do not.
So yes, you would expect to see a real impact from that difference, but it’s more than that. After all, United proudly proclaimed that its domestic network was profitable this past quarter, a very different outcome than what the ULCCs should be reporting shortly.
On the airline’s Q3 earnings call, it was Chief Commercial Officer Andrew Nocella who broke it all down in response to an analyst question. Though to be fair, it sounded like he was reading his response right off a prepared statement. So this was not off the cuff by any stretch.
Andrew says that the number one reason ULCCs are struggling is that costs between the ULCCs and the legacy carriers are converging. If you were to have taken a shot of whisky every time United talked about cost convergence on the recent earnings call, you might not remember even being on the call.
There’s more than one reason for this cost convergence, and the ones Andrew rattled off were:
- ULCCs relied on really high utilization to get a leg up in the past, but the post-pandemic world doesn’t allow that to happen.
I’m not sure exactly what he means when he says this, but I assume it’s largely due to longer ground times needed, work rule improvements in favor of crews, pilot shortages, and possibly fewer opportunities to make money flying on the back of the clock. This wouldn’t impact Allegiant — a ULCC that has low ownership costs and has never cared about utilization — but it woud certainly impact Frontier and Spirit. For what it’s worth, Spirit’s utilization in Q2 2023 was 11.3 hours per day per aircraft while it was 12.8 in Q2 2019.
- The days of paying crews peanuts are over, because if a ULCC does that, it won’t have pilots. Labor cost differences are narrowing between airlines.
This is true, at least for now. But I’m always just assuming we’re only one big downturn away from another round of bankruptcies and wage cuts. The other piece of this, however, is that the key to keeping labor costs low is growing fast. It’s what Delta CEO Ed Bastian calls “juniority.” Having a more green workforce is cheaper, but if you stop growing as fast, the labor groups age and wages rise with more seniority. Growth is something we’ll get to a bit later.
- ULCCs already fly really big airplanes, but now the legacies (United touts its own work, of course) are catching up, reducing unit costs.
The ULCCs have done some upgauging of their own but that’s largely already done. Spirit’s weapon of choice was primarily the A320, but now it’s increasingly the A321 (when the Pratts allow the airplanes to actually fly). Frontier used to fly A319s like crazy and even some A318s way back. Now those are gone and A321s are growing in importance. There isn’t anywhere further up they can go since widebodies are not on the table.
But United spent the 2000s downgauging, using smaller regional jets where it could. Now it’s going the other direction, upgauging nearly everything. That will absolutely lower United’s unit costs, bringing them closer to ULCC levels. It will never actually get to ULCC levels, but that’s not the point. United has much greater revenue-generating capability which it says is well worth the added cost to be able to create those opportunities.
And speaking of revenue, Andrew had plenty of to say on that front as well.
The ULCCs have minted money growing in the big leisure markets of Florida and Vegas (along with some Caribbean, Phoenix in the winter, etc). United’s belief is that there’s just not enough demand to support all the capacity that has flooded those markets. That may be true for now, but of course it will change over time as capacity gets absorbed. For now, however, it has made the ULCCs think about other markets.
The problem with smaller markets, however, is that they just can’t generate the same amount of demand. Because the ULCCs need to have the biggest airplanes to drive down costs (all those dense A321s), it might work in a couple markets from a mid-size city, but the marginal revenue will just not be as good, dragging down earnings. This of course does not consider Breeze which is trying to make it work with smaller airplanes, but so far Breeze has not shown that it can make money… that’s a conversation for another time.
This is certainly an issue, however. We have seen ULCCs move into smaller markets. For Frontier, it’s been more about that sub-daily model to try and fill those airplanes. But the further down you go, the harder it is to fill those big birds. The ULCCs will tell you they have hundreds of opportunities, but what we don’t know is just how profitable those opportunities will be. If revenue performance is ok but not great and costs are rising, the number of feasible opportunities will shrink over time barring a massive change in demand.
New markets inherently perform worse than more mature markets, and Andrew said that is part of the ULCC problem. He proudly noted that United has only 1 percent of capacity in new markets in Q4 2023 vs Q4 2019. I’m not sure I’d crow about that since it means United isn’t finding new markets to fuel expansion in the future, but it would certainly keep revenue performance higher now.
To sum it all up, Andrew says, “when capacity growth is designed as a strategy to maintain low cost without revenue accretive markets to add, the entire business model can break. And that is what we think is happening right now.”
United meanwhile is pouring it on, going with a model that creates “diversity of revenue streams” which helps United shift around strategies to cater to what’s booming at any given time. This can range from Basic Economy — which is actually growing at the airline and reached 12 percent of passengers in the last quarter — all the way up to Polaris long-haul business class. And there are many options in between.
With these options and bigger airplanes, United says it is spilling less traffic to other airlines. It can now accommodate the price sensitive traveler and the premium traveler well in a single tube, especially since it is using bigger airplanes with more seats to sell. That means ULCCs need to get their passengers elsewhere.
All of this comes together, Andrew says, to mean that United is coming out of the pandemic stronger and growing. In the past, legacies would shrink and shed airplanes, making it hard for ULCCs to NOT take advantage of the situation. That’s not what is happening this time around.
It’s a compelling argument and there is undoubtedly truth behind it. Is it overstated? Almost certainly. United is a very confident airline, and it is not shy about it. But ULCCs, well, they feel differently:
I can understand perfectly how the report of my illness got about, I have even heard on good authority that I was dead. Frontier, a cousin of mine, was seriously ill two or three weeks ago in London, but is well now. The report of my illness grew out of his illness. The report of my death was an exaggeration.’
Alright fine, that’s a Mark Twain quote, but you can see how it would be a applicable here. If any ULCC is dead, it’s Spirit… but only if JetBlue takes over the airline. (The trial is getting started, so stay tuned!) But for the others, there’s no question that the environment is bad right now. That, however, doesn’t guarantee there’s no way out in the future.
33 comments on “Why United Thinks ULCCs Keep Struggling As Its Own Fortunes Rise”
The LCC/ULCC carriers will eventually be gobbled up by the US3 (or maybe the US4, if you include WN, unless WN itself is absorbed). The ULCC’s offer nothing compelling, other than perhaps the flexibility to fly from tertiary airports and linking them with a few larger ones, on routes the network carriers will not fly. The ULCC and LCC assets are their planes and crews. Little else.
The ULCC’s offer significantly lower fares. That is compelling to a lot of people.
When you sell a 5 hour roundtrip for $70, hard to make up the difference between that and actual cost in ancillary revenues.
I wonder witch consulting firm United used to come to their conclusion? If this is true about the ULCC’s, then the JetBlue arguement maybe more compelling than we first thought. But of course the trial will flesh that out.
SEAN – I don’t think any consulting firm is involved. This is how Scott Kirby feels about the situation, and he has thought this through himself in great detail.
OK, but the way many corporate decisions are often made one may need to assume consultants were involved. See “Last Week Tonight” from yesterday & “How Money Works,” on YouTube for details.
The ULCC’s have pilots and planes. Is it safe to assume that none of the US4 would be interested in buying any carrier with amassed debt but rather wait and feed on the bankruptcy carcass?
David C – There is no world right now where the big four would be allowed to acquire anybody. Maybe in a future administration it could be possible, but even then it’s not likely considering how much concentration there is among the four of them.
One thing I really agree with is how American/United/Delta have been able to offer wider variety of options in the past 5-10 years. These offerings (from basic economy to paying for checked bags to buy-ups for seats in different parts of the plane to economy +) have helped passengers differentiate themselves more effectively on price, while also enabling the airlines to use their pared-down offerings to compete against the ULCCs for the more price-sensitive pax.
In that regard, I can’t help but think of Southwest.
Southwest has a relative dearth of onboard product options to entice people to pay more or seek status (for free upgrades or to burn points) compared to the other legacy airlines (I count WN as a legacy, given its size and the age of the company) and even to some of the ULCCs (see: Spirit’s Big Front Seat, and the a la carte pricing model of the ULCCs).
At what point will Southwest differentiate its onboard product better and/or add significant additional restrictions to the cheapest fares? I think at some point Southwest will do that, and may almost be forced to do that… I know it’s a bit of a sacred cow, and I know it won’t be popular internally or externally, but eventually (and it may not be for 5-10 years, or until the next major merger, management change, or industry downturn) it will happen.
I think Southwest will be fine on intra-California or intra-Texas where no one really cares about buy-ups and they’re just looking for frequent, reliable service from secondary airports with good value for money, but their model starts to break down when longer trips across the US with connections are involved – their only real advantage is bags. Why would someone fly Southwest to Hawai’i or on a transcon if they have status or a credit card with a legacy which gets them a free checked bag anyway (and they can get options to buy up to food other than snack mix and/or better seating)?
IMO, WN’s going to need to give passengers an opportunity to buy up to something better than priority boarding or cede those markets to the legacies and retreat to its core short haul markets.
Fully agree with both of you.
Southwest operates like an intercity bus – simple fare structure, unassigned seats, no hard product differentiation, free bags, no frills, etc. The undifferentiated product offerings basically appeal to one type of customer. This is fine on short/shuttle flights with lower cost structures but I do see their model breaking down soon.
I am happy flying Southwest intra-CA because the flights are short and they have a great route network to linking secondary airports with direct flights. Super convenient. TX is a harder sell – they don’t fly into IAH and DFW for the CA-type convenience, and even the small city service they provide for connections (e.g., CRP, HRL, MAF, LBB) their frequencies lag UA/AA; the only advantage is really non-stops to AUS.
And the “simple” process has its limitations. On a multi-hour flight I’m not going to risk an unassigned seat, and the hassles to secure a good seat on SWA far outweigh the cost of time. Need to check-in at 24h on the dot, arrive at the airport early to board with your A/B group, etc. Even if southwest was a few bucks cheaper (and they often are not), I’d rather pay a few dollars and not worry about that mess. And that’s just to avoid a middle. You can be a Southwest elite and get A1 or whatever to get an exit row (note: still need to board with A1), but I’d rather be an elite at a legacy, get E+ at booking, and board *at my convenience* for my seat.
Been a long time since I’ve been on a Southwest flight that wasn’t full or nearly so. I’m not sure they “need” to do anything they aren’t already doing.
Southwest does have two checked bags free and I think that’s a really big deal.
The ULCCs in the US do seem to be in a tough spot. This isn’t Europe where average length of haul is so short that no one can justify paying for a full service carrier unless they’re connecting to one of their long haul flights (and the likes of BA/LH are so terrified of ULCCs that they’ve cut their product to match ULCC standards. This also isn’t Asia where there’s successful differentiation between LCCs and full service carriers and airlines like AirAsia allow passengers to buy up to a solid experience if they want.
I think all of the growth and startups during the pandemic resulted in excess ULCC capacity and the next 10 years will be the opposite of what we saw in the 2000s- full service carriers will grow at the expense of ULCCs. Consolidation or a couple of them going bust is likely. I also start to wonder about Southwest which is somewhat of an in-betweener.
“I think all of the growth and startups during the pandemic resulted in excess ULCC capacity and the next 10 years will be the opposite of what we saw in the 2000s- full service carriers will grow at the expense of ULCCs. Consolidation or a couple of them going bust is likely. I also start to wonder about Southwest which is somewhat of an in-betweener.”
@ SEASFO, I think you are on to something. Let’s not forget a few years ago the hot vacation trend was to an outdoor location or to Florida as there weren’t social distancing restrictions imposed in those areas. In fact Florida was encouraging people to come as they were a “freedom state&” every airline was flying as much as they could to satisfy the demand. A “bottomless pit” as Brett puts it.
The point about WN as an “in-betweener” is a good one.. It doesn’t have a cost advantage. It doesn’t have as many options as ULCCs or the other legacy airlines. There’s an argument to be made that WN is starting to get stuck in the middle of the market, and that is dangerous place to be in many industries.
To put it another way… Imagine if Southwest didn’t exist and the other airlines had routes to cover most of the demand that Southwest absorbs at present. If a new airline started up with Southwest’s policies & on-board service options, I suspect that many of us would pan the policies as being consumer friendly but less than ideal from a business/revenue side. Then again, Southwest has bucked conventional wisdom more than once before, so we’ll see.
Cranky,
Earlier this year legislation was introduced to make it harder to see the cost breakdown of an airplane ticket. Reference: https://www.nbcnews.com/politics/congress/congress-may-make-harder-see-cost-airline-tickets-rcna94145
How would that play to your article above?
Angry Bob – I don’t think it would make one bit of difference. This would just go back to taking out government taxes and fees from the advertised price, so it would impact everyone about the same.
United continues to show their arrogance and is following the AA strategy of neglecting corporate business. AA is performing below both UA and DL with their strategy but for some reason UA wants to do the same. It would seem to me that UA would want to let AA continue down their path of destruction but instead they seem to be following this same strategy and will suffer with AA as corporate business shifts away.
What’s left out here is how the legacies have cut their service down to compete with the ULCCs.
Reacting to how the ULCCs cram people into planes, the big guys all put more seats into their planes. Just as example, AA used to have 150 seats on their 738s. And that was not with the more room throughout coach thing they tried – they had 150 on those when that ended. Now they mash 172 people onto those flights.
Plus, with the lack of pilots, they operate at near 90% capacity.
Other things like DL taking away Medallion benefits to American’s war on travels agents? Also in response to ULCCs.
Basically, the legacies have blurred the lines between them and the cheapo guys for coach seats…while they still get big revenue off selling first and business class tickets, especially overseas.
One small example. I am flying from Santiago Chile to DFW in February. That flight is on a 787-8. 20 seats in first, $3500 one way…sold out. Premium economy…$1250…sold out. Coach: $600.
On that flight they will get $70,000 in revenue from first/business, and $35,000 from J. If they sell every seat in coach, that is $111,000.
They get almost the same fare revenue from first/business and premium economy as they do from the entire coach section. That’s just one flight, and the legacies have tons of overseas flights like that. Those flights cover a whole lot of domestic flights where they keep fares lower to compete with the ULCCs.
But…that is a revenue stream that would drop rapidly if there is an economic downturn.
Delta has never been into making comparisons of itself to other airlines while Scott Kirby has loved to do so including saying shortly after he took over at United that his company would match DL’s financial performance; UA came closer than ever to doing that in the 3rd quarter. Kirby threw shade not just at low cost carriers (as well as ULCCs) but also American in saying that the vast majority of revenue and profit growth would come from DL and UA. He is right.
Interestingly, most of the strategies that UA is using to financially succeed are strategies that Delta led the industry in implementing since 9/11 including less dependence on regional jets and mainline growth and a focus on premium revenue and a high-quality passenger experience. UA has long been more international focused which could be a liability as more and more of the world is at war while DL handedly outperforms UA in the domestic market. DL’s distinctive is its non-transportation revenue including its Amex relationship and SkyMiles, DL’s refinery and Tech Ops which all add profits to DL that UA cannot match. DL has matched UA’s growth this year and the two performed similarly by global region but DL did it by spending much less on airplanes; even with an expected widebody order, DL will be spending much less on new aircraft than UA while DL’s non-transportation revenue grows faster than passenger revenue.
The international market is strong thanks to a much stronger competitive position for U.S. carriers while there is more capacity in the domestic market than before covid. High interest rates and inflation dampen discount-seeking passengers more than premium and business travel which DL and UA attract. AA’s distribution decisions and the NEA are keeping it on the profit sidelines while labor costs are taking a much bigger bite of AA’s finances and that will be true if WN ever agrees to settle with its pilots and flight attendants. Given that DL is the only one of the big 4 that has raised the pay of all employees, DL’s labor cost outlook is stable while AA and UA will take a cost hit to settle with their FAs.
The financial underperformance of WN is more interesting than AA’s return to underperformance. AA and UA have long been in an up and down relationship – when one is up, the other is down and then the relationship flips. UA appears to be getting the upper hand but doing it on a much riskier basis. WN’s business model has not aged well and requires a top to bottom overhaul; they have the benefit of a very strong balance sheet to take their time getting the next steps right but change has to come.
The rest of the industry including the ULCCs and B6 are skating on very thin ice; UA’s aggressive addition of Basic Economy capacity might help seal their fate.
Love ya, Tim. But calling Scott Kirby a copycat?
He’s a lot of things. but copycat is not one of them.
Scott was screaming the praises of upgauging at US Airways to A321 from other narrowbodies, long before DL was even thinking about anything beyond regional scope. You’d be hardpressed to say Delta was even thinking about Scott’s mainline upgauging plans at US back then. US Airways was actively talking about it on investor calls. DL was barely talking about 50-seaters to large RJs at that time. And US already had great regional scope at the time.
Delta’s upgauging has long revolved around buying the 717 to allow more large RJs. United never did that despite the same regional scope clause.
United Next involved massive capacity growth (from a legacy) and was about largely replacing regional flying with mainline flying, over time — True mainline flying like large narrowbodies, not the 717 stuff DL did. Even the CRJ-550 was different than what DL did, for better or worse. UA did not buy the small mainline plane to increase 76 seat RJs. They chose the 550 route then chose to upgauge to a massive mainline fleet over time.
Per PTVs, maybe you could argue he was a fan of DL here? But, as he’s said publicly, he was the one advocating for PTVs on AA jets before he was cast out. He just simply took his view to UA and implemented it there. Scott Kirby is many things, but he knows the airline he’s running. He knew it at US Airways, he knows it at UA. He knows when to win on cost and when to win on revenue premium. Frankly, it’s tough to argue with results though I agree with you he has a gamble over the next few years…. (one that he can dampen by retiring old narrowbodies)
for better or worse, I may not always agree with Scott Kirby, since he’s a bit of a diva, but he’s one of the smartest people in the industry right now. Love or hate Ed Bastian, nobody critiques Ed for his original ideas like people do Scott. Ed doesn’t have any. He’s the consummate corporate CEO that doesn’t have any original thoughts. Ed lives on the thoughts of others and buys his fine wines off them.
Scott Kirby Does, for better or worse.
Delta had and still has the world’s largest fleet of 757s; they were onboard with large narrowbodies long before Scott Kirby was at US.
Delta eliminated hundreds of regional jets before UA gave it a thought.
DL and UA DO NOT have the same scope restrictions; DL got the freedom to use more 76 seaters precisely because of the 717/A220ss which UA did not do.
DL won on costs and customer service when competing w/ US and against AA when Kirby was in charge there.
Kirby touted banking hubs when he arrived at UA; do you or him realize that DL has operated hubs for 70 years since DL moved its HDQ to ATL. DL knows precisely when to bank and when to roll hubs.
I stand by statement that most of the strategies that UA is using now are strategies that DL pioneered. I wasn’t privy to how things happened or how stopped what at AA or US but nothing you have cited are things that Kirby or UA did first.
The only Kirby distinctive is that he has placed tens of billions of aircraft orders at both AA and UA over what any other airline ordered. The verdict is still out on UA’s future finances but I don’t think UA will come out near as good as alot of people think when every other airline including AA is spending far less on fleet.
and I also think that AA will rebound from their 3rd quarter issues.
they have the absolutely the same regional scope (read up if you want to chat; this isn’t a debate). Delta chose to get the extra 76 seaters by buying 717s. United did not. If you know anything about pilot regional scope, you’d know this. not a real surprise, you seem surprised by this information. this isn’t a debate. Go look at contracts if you have this little knowledge on the topic, Tim. The UA & DL regional scope language is nearly identical but DL bought 717s to execute more large regionals, UA did not.
Per 757s… My entire point is that DL never ever led the way up gauging to large narrowbodies post merger (US Did first)…. ever. United did and it’s their entire strategy right now for regional to mainline. Delta never bought a large narrow body to replace a narrowbody post merger before US, AA, or UA. United Next is literally built around that entire idea. not to say a 739 is about to replace a CR2 but it’s far more of an up gauging strategy of DL CR2 to a 717 where it gives them more 76 seat regional capacity.
“I stand by statement that most of the strategies that UA is using now are strategies that DL pioneered. I wasn’t privy to how things happened or how stopped what at AA or US but nothing you have cited are things that Kirby or UA did first.”
You’re right. You’re weren’t privy to anything except that DL was second place to Premium Economy, upgauging to mainline, and many other things. Maybe stop being dogmatic when you don’t need to be. Delta has done a lot of things for the industry but not everything. And that’s ok :)
Max,
the 757 was designed as a twin engine, high capacity, high performance replacement for the 727 and Delta was the launch customer for the Pratt powered version of it. Delta was flying the 757 long before Kirby moved to Virginia and had an office at US.
Looking at all large narrowbodies, 737-900/MAX9, 757, and A321 (both versions), DL has over 440 large narrowbodies in service compared to about 285 for both AA and UA; although AA configures its 738s and MAX8s closer to how other airlines configure their 739s/MAX9s, the 738/MAX8, like the A320CEO/NEO is the standard or base size narrowbody. Even excluding the 757, DL has more large narrowbodies than AA or UA.
Add in the 70 or more 717s in service and more coming back and the 717 (even excluding the A220), it is factually irrefutable that Delta has done more to upgauge than any other airline.
We are talking past each other on scope. UA has the same scope LANGUAGE as DL but DL is allowed more large RJs because of the 717s and A220s. As a workaround, UA created the CRJ550 which meets the scope requirements but is the least cost-efficient aircraft per seat in the US airline fleet and the CRJ550s do not have lots of life left in them. They are actually a downgauge from 76 passenger RJs.
I said nothing about Premium Select but it is notable that United does not publish revenue by cabin as Delta does and DL’s numbers show that it gets 50% of its passenger revenue from premium classes including extra legroom economy – which UA should lead in given their planes have more of those seats than AA or DL.
As hard as it is for you to accept, I stand by my statement that most of the strategies that Scott Kirby has used at UA over the past 3 years to push UA back to high profitability and close to DL has come from strategies other airlines including DL implemented first – but you are free to debate the details just as you did with “large narrowbodies”
Kirby does lead the industry in the size of aircraft orders and the size of UA’s international network even if UA does not get the most profits from it.
I can’t be the only one on here who thinks the issue of “who did it first” is completely pointless, right?
Bill,
the point is what is working for which airlines and that UA is succeeding in part because their strategies align as much as they do with DL.
It is precisely because LCCs and ULCCs don’t have those strategies that they are struggling
Max,
Ed is a finance guy – not near as sexy as network but Ed, like DL as a whole, is more focused on playing as a team and recognizing that others have areas of expertise. I am sure Scott has learned alot as CEO but CEOs have to be generalists that are over everything in a company and not the specialist as Kirby was for most of his career.
LA Flier,
The issue, as has been discussed many times before, is that B6 is eliminating a lower fare and lower cost carrier which has competitive and consumer implications. There would be no issue if AS and B6 were merging or if NK or F9 were merging which was the original proposal.
From a financial perspective, B6 is now vastly overpaying for NK but, because of the way the deal was structured, B6 has already invested so much that the long-term financial health of B6 is far from a given. They too are expected to lose money in the 3rd quarter; they report in a week. NK (SAVE) reports Thursday and is also expected to lose money. The flip in the industry paradigm couldn’t be more striking.
As much as Kirby might be the target of a whole lot of other discussions, no one can argue that he isn’t dead right regarding the financial chasm that exists in the industry right now.
It just amuses me that this post has NOTHING to do with Delta and the first thing out of your keyboard is “Delta has…”
“United says it is spilling less traffic to other airlines. It can now accommodate the price sensitive traveler and the premium traveler well in a single tube”
Its almost as if someone remembers what AA and Crandall did in the 1980s…
I’m not expert on this topic, but I am sold on that graph. Best ever!! Careful CF, or United might lift it for their next filing!
My apologies for always being late to join the CF blog thread, but I enjoying absorbing the comments from “the regulars” before I sense if I have something of merit to add.
Seems like a key element of the UA Thesis is that the “narrow-body only” ULCC model is hurt on “mix” right now, especially no “long-distance, TATL/TPAC International segments on wide-bodies”. I understand the “growth” and “labor shortage” arguments too.
Interesting to see how this impacts key “narrow-body only” carriers such as WN, AS, and specifically the arguments pro:con around B6+NK.
I sense this is shaping up to be all about defining “Markets” across Total (TAM), Serviceable (SAM), and Relevant (Agencies, DoJ/FTC/DOT, B6+NK) and this includes City Pairs (inter-US, intra-US) and Fare Types (Business, Premium Economy, Economy, Basic Economy).
CF and others (TimD) often comment about the pros:cons of Coastal Hubs (East, West) vs Inland Hubs (Central) too. It would appear that B6+NK have a “Hub Expansion Market-&-Competitive Value” argument to make to The Courts as I sense the Agencies (DoJ/FTC/DOT) are too interested in resetting the “lines” in Merger Guidelines to actually apply their own Guidelines with any Creativity-&-Brilliance around TAM, SAM, and relevant market.
The Agencies realize that The Big3 is The Dominant3 when it comes to wide-body and TATL/TPAC international and would thus like to see a Big4 emerge in this area. The B6 intent to reposition NK to a LCC rather than an ULCC may hold some water in the “Compete with Big4” across ENTIRE TAM and not just the SAM that ULCCs serve (consumer, leisure, FL/Vegas/PHX/Caribbean).
Makes me wonder about the pros:cons of potential of F9 M&A options (AS+F9?, WN+F9?) or M&A outside US (Condor?, Norse?, etc) to gain access to TATL/TPAC wide-body SAM.
Lastly, what is the next Upguage opportunity from A321 or Max10? B787-9?
I find The UA (Kirby/team) Thesis especially interesting in light of The Agency and The Courts work on B6+NK across TAM, SAM, and relevant market.
It would be beyond great if The Agencies looked at HHI for each fare class across each City-Pair for B6+NK. Clearly this will reduce Basic Economy (NK) seats but should increase all other fare class seats.
I will end with the implication of The UA Thesis on Boeing and Airbus if ULCC’s are not ordering gobs of narrow bodies.
It’s nice to see that instead of flying around singing Songs and introducing us to dorks named Ted, the major airlines FINALLY realized they could accommodate every type of passenger in the same tube, from basic economy / ULCC, to regular coach, to more legroom coach to paid business class. Each px can specifically pay for what they want and not pay for what they don’t want.
Before being too impressed, however, remember that this development only took about 3 decades and billions of dollars worth of wasted money. But I think they finally got it right.
Frontier earnings call transcript below. Unless that airline can get people to pay higher airfares, I think they’re doomed. Right now, it looks like America has spoken and said “I’m not really all that interested in flying on Frontier. I want better.”
https://seekingalpha.com/article/4644139-frontier-group-holdings-inc-ulcc-q3-2023-earnings-call-transcript