'I think we're going to win': United CEO says airline is ready for industry's challenges

United Airlines CEO Scott Kirby said on Thursday that he remains fully confident in his business plan for the airline despite some early concerns about the broader market.

Speaking with reporters after an event at United's hub at Houston's George Bush Intercontinental Airport (IAH), Kirby suggested that United's broader two-pronged network plan — growing domestically by using bigger planes in crowded markets and expanding globally to capture international leisure demand — will build a successful path for the airline into the 2030s.

"I think that demand is normalized," Kirby said. "This is the new normal."

United is increasing its global presence both by entrenching itself in tried-and-true international markets — such as London and Paris — and adding routes from various hubs, like San Francisco to Rome. The airline has also experimented by adding flights to smaller cities or destinations that might not have a direct flight from the U.S. already, especially on an American carrier.

Those newer markets are particularly aimed at leisure travelers, including VFR customers. VFR, shorthand in airline business lingo for "visiting friends and relatives," is a subset of leisure that is generally more price-conscious. Recent examples include Christchurch, New Zealand; Amman, Jordan; and Accra, Ghana.

As countries in Asia have reopened since the peak of the coronavirus pandemic, the airline also plans to resume and expand service across the Pacific. It recently announced or initiated routes to cities including Taipei, Taiwan, and Manila, Philippines, along with Tokyo and Hong Kong.

However, concerns have recently begun to surface regarding the transatlantic market's outlook for next year. In a research note to investors this week, airline analyst Helane Becker of TD Cowan expressed concern that airlines are adding too much capacity for 2024 after seeing record demand and strong pricing power in summer 2023.

"We believe traffic in the market will return to more normal, seasonal levels," Becker wrote, "resulting in possible overcapacity."

This could be good news for passengers, as "an overcapacity situation is developing in the North Atlantic that is likely to lead to lower air fares," the Cowen note reads. However, it would lead to lower yields for airlines like United and would force them to pull back.

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Kirby, however, disagreed with the TD Cowen assessment.

"I think that they're overstating the challenge for next summer, and mostly, there's higher capacity growth in the winter," he said. "We feel really good, still, about transatlantic demand."

Kirby added that despite his expectations for strong demand, United will not put significant additional capacity across the Atlantic next summer. Instead, it'll stick with roughly the same capacity as in 2023, even if some routes are moved around.

"At United, we're going to be flat in transatlantic year-over-year," Kirby said. "Our big growth push is in the Pacific as the Pacific is finally reopened."

In terms of the domestic market, however, Kirby expects a bumpier ride amid slowing demand, ongoing challenges linked to supply chain issues, air traffic control staffing shortages and more.

"I think domestic growth is going to moderate pretty significantly around the industry," Kirby said. "A few months ago, airline plans were for about 11% (growth). It's now down to less than five and getting lower."

Kirby said that United expects to "come close" to its original plans, with enough pilots for its mainline operation and enough aircraft for now; he pointed to challenges as being ongoing across the industry, including at air traffic control, which the Federal Aviation Administration runs.

"The FAA did an amazing job over the Thanksgiving holidays, particularly with the changes they made in New York," Kirby said. "But the reality is we're 3,000 controllers short in this country."

Related: United and American reduce New York flights this summer amid air traffic controller shortage

The plan to use newer, larger aircraft on domestic routes would likely help United amid at least some of the challenges. It would allow the airline to grow while operating fewer flights (by carrying more passengers per flight), and, ideally, avoid some maintenance issues that older aircraft are prone to.

Still, getting those new aircraft in time has proven difficult, even as the airline marked the inaugural flight of its new Airbus A321neo — its first brand-new delivery from Airbus since 2002.

"Boeing, Airbus, engine manufacturers are behind," Kirby said. "It's supply chain (issues) that (go) deeper — we're having to order parts in some cases a year earlier than we would have before."

Despite the challenges, Kirby said the domestic market was still a strong performer for United.

"Demand is still really strong. RASM has come down domestically, you know, with a lot of growth," Kirby said. "But domestic is still strong for us." (RASM stands for unit revenues, a measure of revenue efficiency and yield.)

Kirby has previously noted challenges in the domestic market that he says United is well prepared to address. Low-cost airlines, however, are more likely to have a difficult time.

"We also expected and now believe it'll happen even faster, that the domestic market is going to see a shakeout," Kirby said on the airline's third-quarter earnings call in October.

With rising fuel and labor costs, Kirby said that without better cost and pricing structures, the low-cost carriers are in for a challenge.

"The lowest margin airlines are the so-called low-cost carriers, and that's where I think the changes are going to occur," he wrote in a LinkedIn post announcing the airline's third-quarter results.

Related: Fate of JetBlue-Spirit merger hangs in balance as antitrust trial begins in Boston

On Thursday in Houston, Kirby reaffirmed his belief that low-cost and lower-margin airlines would struggle, including both JetBlue and Spirit Airlines, regardless of whether the two airlines' proposed merger is allowed to proceed.

"I think we're going to win no matter what," Kirby said. "I think they're both in huge trouble."

"Delta and United are making 11% profit margin, Spirit's making negative 16 (percent)," he added. "In the history in the aviation business, those are go-out-of-business numbers."

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