United CEO slams low-cost airlines as carrier grows basic economy
United Airlines CEO Scott Kirby offered a bleak outlook for ultra-low-cost carriers — which have been struggling with sluggish domestic travel demand — during a call with analysts Wednesday morning.
"We also expected and now believe it’ll happen even faster, that the domestic market is going to see a shakeout," he said during the call.
Kirby's comments on the Wednesday earnings call followed a LinkedIn post Tuesday, where he said ultra-low-cost carriers will be "forced to make adjustments."
"What’s different this time, however, is that the lowest margin airlines are the so-called low-cost carriers, and that’s where I think the changes are going to occur," Kirby wrote on LinkedIn. "As a result, United is going to emerge in a structurally stronger and sustainable position."
While travel has boomed since pandemic-related restrictions were lifted, demand has begun to soften, hitting ultra-low-cost carriers the hardest. Ultra-low-cost carriers offer a bare-bones short-haul service to primarily leisure destinations with no premium products. That's now costing them customers who are opting to splurge on more expensive long-haul flights and premium products.
As a result, airlines are expecting a rougher fourth quarter and start to 2024, with an outsize impact expected for the major ultra-low-cost carriers like Spirit Airlines, Frontier Airlines and Allegiant Airlines. Spirit and Frontier also told investors at a conference last month that they are forecasting significant losses for the third quarter.
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"There are only so many seats Florida, Cancun or Vegas can support in such a short period of time," Andrew Nocella, United's chief commercial officer, said on the call.
Ultra-low-cost carriers have also been squeezed by rising fuel and labor costs, putting further pressure on the ultra-low-cost carrier business model that doesn't generate revenue through premium cabins or lounges.
This isn't the first time Kirby has criticized the ultra-low-cost carrier business model. In 2019, Kirby said the business model is one the carriers "are not in control of" at the Skift Forum Asia.
Kirby's remarks come as United plans to grow its basic economy class, hoping to further sway travelers away from its ultra-low-cost competitors. United saw major gains in its basic economy offerings as third-quarter revenue for the seat class rose by 50% from the same period last year.
The Chicago-based carrier is betting that the travelers who fly with ultra-low-cost carriers will instead flock to United for its low fares and premium products.
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Nocella said on the earnings call that basic economy comprises 12% of United's domestic passengers and is expected to be even more competitive in the market following the arrival of larger aircraft, which will allow United to add more basic economy seating.
Kirby also took a swipe at Frontier, referencing the carrier's policy that cracked down on passengers trying to take a carry-on-size bag as a personal item in order to avoid paying the ancillary fees.
"I mean charging people $99 at the gate and paying your employees a commission to take their purses away crossed the line," Kirby said. "And so while they’ve gone in one direction, we’ve gone the other with an improved product."
The decision to expand basic economy is also part of United's strategy to offer a wide array of products to remain competitive in the industry.
"All the way from basic economy, which just allows us to compete profitably on price on the low end," Kirby said, "and all the way up to Polaris on long-haul international, United is able to give our customers the real choice they want."
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There’s a lot to love about the Amex Gold. It’s a fan favorite thanks to its fantastic bonus-earning rates at restaurants worldwide and at U.S. supermarkets. If you’re hitting the skies soon, you’ll also earn bonus Membership Rewards points on travel. Paired with up to $120 in Uber Cash annually (for U.S. Uber rides or Uber Eats orders, card must be added to Uber app and you can redeem with any Amex card), up to $120 in annual dining statement credits to be used with eligible partners, an up to $84 Dunkin’ credit each year at U.S. Dunkin Donuts and an up to $100 Resy credit annually, there’s no reason that foodies shouldn’t add the Amex Gold to their wallet. These benefits alone are worth more than $400, which offsets the $325 annual fee on the Amex Gold card. Enrollment is required for select benefits. (Partner offer)Pros
- 4 points per dollar spent on dining at restaurants worldwide and U.S. supermarkets (on the first $50,000 in purchases per calendar year; then 1 point per dollar spent thereafter and $25,000 in purchases per calendar year; then 1 point per dollar spent thereafter, respectively)
- 3 points per dollar spent on flights booked directly with the airline or with amextravel.com
- Packed with credits foodies will enjoy
- Solid welcome bonus
Cons
- Not as useful for those living outside the U.S.
- Some may have trouble using Uber and other dining credits
- You may be eligible for as high as 100,000 Membership Rewards® Points after you spend $6,000 in eligible purchases on your new Card in your first 6 months of Card Membership. Welcome offers vary and you may not be eligible for an offer. Apply to know if you’re approved and find out your exact welcome offer amount – all with no credit score impact. If you’re approved and choose to accept the Card, your score may be impacted.
- Earn 4X Membership Rewards® points per dollar spent on purchases at restaurants worldwide, on up to $50,000 in purchases per calendar year, then 1X points for the rest of the year.
- Earn 4X Membership Rewards® points per dollar spent at US supermarkets, on up to $25,000 in purchases per calendar year, then 1X points for the rest of the year.
- Earn 3X Membership Rewards® points per dollar spent on flights booked directly with airlines or on AmexTravel.com.
- Earn 2X Membership Rewards® points per dollar spent on prepaid hotels and other eligible purchases booked on AmexTravel.com.
- Earn 1X Membership Rewards® point per dollar spent on all other eligible purchases.
- $120 Uber Cash on Gold: Add your Gold Card to your Uber account and get $10 in Uber Cash each month to use on orders and rides in the U.S. when you select an American Express Card for your transaction. That’s up to $120 Uber Cash annually. Plus, after using your Uber Cash, use your Card to earn 4X Membership Rewards® points for Uber Eats purchases made with restaurants or U.S. supermarkets. Point caps and terms apply.
- $84 Dunkin' Credit: With the $84 Dunkin' Credit, you can earn up to $7 in monthly statement credits after you enroll and pay with the American Express® Gold Card at U.S. Dunkin' locations. Enrollment is required to receive this benefit.
- $100 Resy Credit: Get up to $100 in statement credits each calendar year after you pay with the American Express® Gold Card to dine at U.S. Resy restaurants or make other eligible Resy purchases. That's up to $50 in statement credits semi-annually. Enrollment required.
- $120 Dining Credit: Satisfy your cravings, sweet or savory, with the $120 Dining Credit. Earn up to $10 in statement credits monthly when you pay with the American Express® Gold Card at Grubhub, The Cheesecake Factory, Goldbelly, Wine.com, and Five Guys. Enrollment required.
- Explore over 1,000 upscale hotels worldwide with The Hotel Collection and receive a $100 credit towards eligible charges* with every booking of two nights or more through AmexTravel.com. *Eligible charges vary by property.
- No Foreign Transaction Fees.
- Annual Fee is $325.
- Terms Apply.