Issue No. 895
United Confronts New Realities
CEO Scott Kirby Charts Its Post-Pandemic Course
Pushing Back: Inside the Issue
Polite. Complimentary. Respectful. Nobody would use these adjectives to describe Scott Kirby’s attitude toward low-cost airlines. The United Airlines chief showed up for the company’s fourth quarter earnings call with a baseball bat, swinging at rivals for sins ranging from underinvestment in technology to ignoring new post-Covid cost and supply conditions. Kirby’s thesis: The current state of U.S. aviation infrastructure and labor markets means that airlines can’t produce capacity at nearly the same cost as they could prior to Covid. Ultra-LCCs, specifically, are foolish to think they can maintain their pre-crisis business models of achieving cost efficiencies by growing at a double-digit clip. Pilot availability won’t allow it. FAA capacity won’t allow it. Aircraft production rates won’t allow it. Or so Kirby asserts.
One thing he won’t assert so openly — but which he’s clearly inferring — is that airfares will inevitably rise. Or put another way, flying will become increasingly expensive. That's only natural as demand, according to United, continues to grow significantly in the years ahead. But airlines will be unable to accommodate all of it; this was on vivid display in 2022, when United and the rest of the industry wanted to fly more but simply could not. Not enough pilots. Not enough planes. Not enough air traffic controllers. All of this makes clear why United is so bullish on large-gauge narrowbodies, providing more seats without the need for additional pilots, additional departures, or additional utilization. Kirby, for the record, has been bullish on large-gauge narrowbodies since his A321-loving days at US Airways. He’s now bullish on international routes as well, viewing United as well-positioned to prosper intercontinentally thanks to a more benign competitive landscape post-Covid. And hence Kirby's bullish bet on more 787s.
Ryanair, like United, is upgauging with larger Boeing 737 Max jets. Also like United, Ryanair has a chief executive that’s not best described as polite, complimentary, and respectful. In Michael O’Leary’s case, perhaps the words obnoxious and profane are more fitting. But there’s no disputing his brilliance, presiding over what’s arguably the world’s most successful airline ever, Southwest perhaps dissenting. Ryanair is once again expecting strong results this spring and summer, pointing to exceptionally strong bookings. (This is more than ten years old but eternally entertaining).
Ryanair separately announced some new summer routes from the UK. So did EasyJet, Wizz Air, and Lufthansa’s Eurowings. Speaking of Lufthansa, it still covets Alitalia’s successor ITA, submitting an offer to acquire a stake — at first a minority stake but with options to take full control in the future. For Air France-KLM, Alitalia was long an airline it couldn’t live with but couldn’t live without; the Italian carrier provided rich traffic feed from northern Italian business centers but also a perpetual stream of red ink, 25 percent of which once flowed to Air France-KLM. The Lufthansa Group, surely with some uneasiness, is betting that ITA will provide more upside than bad. Lufthansa said, by the way, that after the U.S., Italy is its largest foreign market.
The earnings intensity amplifies this week, with a slew of carriers set to report. Southwest is the headliner, making its first appearance before investors since its monumental operational nightmare — an unprecedented nightmare that could cost it a billion dollars. Imagine what would stream from Michael O’Leary's mouth if Ryanair lost that kind of money.
Airline Weekly Lounge Podcast
Was that a hint of an Irish accent when United Airlines CEO Scott Kirby took down the U.S. industry for being unprepared for the post-Covid operating reality? Plus, the U.S-China air service recovery is in the hands of government officials. Listen to this week’s episode to find out. A full archive of the Lounge is here.