United CEO Scott Kirby says Starlink is a short-term edge that will not last, since everyone will eventually get fast low-Earth-orbit internet.
Kirby argues that United's COVID-era order for about 200 wide-body jets was a bet that consensus forecasts of a permanent 50% travel drop were wrong.
Kirby argues that airline ego has driven unprofitable routes, and that airlines should cancel strategic routes that lose money, with six of ten US airlines expected to lose money this year.
United's CEO bets big on planes, Starlink and discipline
United under Scott Kirby bets that big, contrarian investments in aircraft, technology and customer experience beat cost-cutting. Consensus forecasts of a permanent demand collapse were wrong, and experts who extrapolate the present miss the tail events that matter. Airlines are not a commodity, so a better experience pays, provided routes stay disciplined.
Takeaways
Kirby bought aircraft while others shrank. After taking over in May 2020, Kirby ordered about 200 wide-bodies and several hundred narrow-bodies. He argued the consensus of a permanent 50% demand drop was wrong, since experts extrapolate the present. Downturn purchases also get better terms on thirty-year assets.
Starlink wins on speed, not free Wi-Fi. United has Starlink on 48% of flights, plans about 65% of its fleet, and wants Los Angeles as its first fully equipped hub. Kirby expects a few years of advantage and calls Delta's slower approach a mistake.
Air traffic control is the main growth limit. Kirby puts air traffic control at about 90% of the constraint on growth. Government funding cycles slow modernization, and airlines fund the FAA through fees while private jets pay almost nothing. AI simulations could cut 50 to 75% of Denver's summer weather delays.
Specific delay messages lift customer satisfaction. Kirby wants United to say what is actually happening instead of blaming weather. Weather-radar pictures sent to delayed passengers raised net promoter scores by 120 points over a standard weather text, and flights can show weather probabilities for alternatives.
United owns its technology stack. United began a several hundred million dollar move off mainframes during COVID with no clear payback, and it owns a reservation system only it and Copa use. It is also taking over seat-back software once run by Panasonic. Kirby sees AI mattering most in programming.
Thin airline profits still reward big bets. Six of ten US airlines are expected to lose money, United's oil costs rose $8bn, and its best year produced about $5bn in profit. Investors hate big investments, Kirby says, yet CEOs should make them and accept being fired if they fail.
Airport costs price out low-cost carriers. New York airports charge about $52 per passenger against a $58 average fare, and airport expenses are up about 70% since before COVID. Kirby says Spirit failed because it could not charge enough to cover costs, while Ryanair works by using secondary airports.
Kirby's route and hub rules
Fly only to hubs and profitable routes. Cancel routes called strategic that lose money, since airline ego has driven unprofitable flying.
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On this episode 3
Show 1
Test new routes and drop failures. United will serve 53 transatlantic destinations next summer, up from 23 a decade ago. Bergen failed and was dropped, while Nuuk, Greenland is working.
Use data on broken itineraries to add flights, as United did for pilgrimage-route cities in Spain and Portugal.
Hubs feed connecting traffic. American is expected to lose about $1.5bn in Chicago after losing gates to United.
United cannot start a new hub, because no nearby airport could support 600 daily flights.