Our Biggest Problem is Irrational Competitors, United Says
United's top executives had harsh words for some of their domestic competitors and their loss-making routes
Dear readers,
If you’re an insider who likes trash-talking (and really, who doesn't?) you’ll probably be amused at the incendiary remarks (by airline standards) members of United's executive team made during the airline’s second quarter earnings call Thursday.
"Our estimate is that margins for the worst quartile of flying for the five least-profitable domestic-centric airlines is -25 to -35 percent today," accounting for about 10 percent of overall industry capacity, chief commercial officer Andrew Nocella told analysts. "In the past, the magnitude of the worst flying, in my view, has never been this bad."
I suspect Nocella mentioned those numbers because he seemed to want to change the narrative about United’s second quarter results. United had a so-so quarter, telling analysts that it lacked pricing power as the industry added too much capacity, and its outlook for the rest of the summer is muted. But the airline’s leaders argued that many ULCC and LCC competitors are in far worse shape. They spent much of the call sharply criticizing other airlines for flying so much marginal capacity — arguing that much of it will disappear, and when it does, United’s profits should rise.
They didn’t predict when the reckoning will come, though they suggested we’ll see capacity dynamics change soon. We may get more information in the next three weeks as five lower-cost airlines report earnings — Southwest, JetBlue, Spirit, Allegiant, and Frontier. I’m sure those airlines will push back at United’s assertion. But I liked the cogent points United’s executives made on Thursday as they sounded the alarm that their competitors (some of whom appear to be in a state of shock about the post-Covid industry) are making bad (but predictable) moves as they try to save their businesses — moves that have affected United’s profitability.
Here’s what United expects will happen (and it’s not pretty)
Nocella is among the better prepared executives on earnings calls, and it was clear he had done his homework. When a reporter asked what United executives think about the self-help approaches other airlines have taken, such as offering more premium bundles or switching where they fly, Nocella explained in detail none of these strategies are likely to work because they have failed during other cycles.