United Goes on the Offensive Under New Management TeamBy
New president vows to go ‘on offense’ as new flights added
Executive draws on leadership experience at rival airlines
United Continental Holdings Inc.’s addition of 47 domestic round-trips marks a stepped-up effort to regain ground lost to rivals, as a new management team tries to shed the airline’s reputation as an industry doormat.
United aims to “compete and win across the board,” President Scott Kirby said in a letter to employees Monday about the new service. The carrier is also seeking additional gates in Los Angeles and flying bigger jets on key routes such as Newark to Atlanta, he said.
“While United has spent several years shrinking and being a docile competitor, starting this summer, we’re going back on offense!” he said. “United has been shrinking, while our competitors have been growing at our expense.”
The moves show Kirby’s rising influence six months after he joined United in a leadership revamp by Chief Executive Officer Oscar Munoz, who pledged last year to match the profit margins of industry leader Delta Air Lines Inc. In fortifying hubs and competing more aggressively, Kirby is taking a page from his playbook at American Airlines Group Inc. and two predecessor airlines, where he was president.
“He did this at America West as well. He’s done it his whole career,” Hunter Keay, an analyst at Wolfe Research, said in an interview. “He’s made a lot of money for shareholders, so why should he change now?”
Through Monday, United’s shares had advanced 60 percent from Aug. 29, when the Chicago-based company said it had hired Kirby. That was the biggest gain on a Bloomberg index of U.S. airlines, which climbed 43 percent during the same period. The carrier fell 1.4 percent to $74.25 at 10:33 a.m. in New York on Tuesday.
Kirby, 49, who didn’t have an employment contract or a noncompete clause at American, isn’t hiding his plans. In November, he told analysts he wanted to remake United’s hub in Newark, New Jersey, in the mold of American’s operation in Philadelphia. The latter has a higher number of connecting flights than Newark and is among American’s most profitable bases, he said.
He started the talk by quipping, “Oops, it looks like I have one of my old slides from my old employer up here.” He then said, “No, we intended to put this one up.”
Kirby hit the job market last summer after American named Chief Operating Officer Robert Isom as president under CEO Doug Parker. At United, Munoz also brought in a new chief financial officer, Andrew Levy.
“We welcome competition and as has always been the case, we plan to compete vigorously for every customer,” said Josh Freed, a spokesman for American. “We are building on our comprehensive global network and a product offering for a wide variety of customer needs. And ultimately, all of this is being delivered by the best front-line team in the business.”
United declined to comment.
United hired two other former Kirby colleagues more recently. Earlier this month, American’s head of network planning and sales, Andrew Nocella, left to join United in a revenue management and pricing position. Patrick Quayle, American’s managing director for international planning, earlier made the jump to Chicago.
The two give Kirby added strength to implement changes at United, said Robert Mann, president of aviation consultancy R.W. Mann & Co.
“Scott with Nocella and one of his key guys is a very different story,” Mann said in an interview. “There may be enough horsepower at the top and going down into the organization to make some big changes with the network: Maybe to contest certain things given up as lost -- LAX for example-- or to contest things that have always been a battle, like the standoff at Chicago.”
New routes to cities such as Columbia, Missouri; Spokane, Washington; and Charlottesville, Virginia; dominated the list announced Monday. United’s hometown hub at Chicago’s O’Hare International Airport will see the biggest expansion, with links to six new destinations.
Adding more service from hubs to smaller cities is a key initiative because airlines often have greater pricing power on those than on flights between big cities, where there is more competition. Fares in small markets “look a lot like they did in inflation-adjusted terms in 1980” before decades of tougher price competition, Kirby said in November.
Another strategy culled from American: “rebanking” United flight schedules so that a batch of flights arrive together in a tight window with a corresponding group of departing flights close behind. Currently, many of United’s flights are scattered throughout the day.
The more synchronized approach allows for shorter layovers for passengers, said Craig Jenks, an aviation consultant in New York. The downside is that clumping flights together in tight windows leads to peaks in activity for employees followed by periods of relative idleness, he said.
Kirby tightened up the connections while at American, and at United “all he’s doing is nudging it back in that direction,” Jenks said.
One lingering question for investors is Kirby’s history of battling discount airlines with cheap fares, an approach United has taken against Spirit Airlines Inc. on a few routes out of Newark. It was under Kirby that American cut prices to defend its hub in Dallas, sparking a fare war that dragged down airline stocks in 2015 and the first half of last year.
While there are no signs of a broader battle at the moment, Kirby served notice that he would fight for domestic passengers.
“While we maintained our industry-leading international network, we’ve been shrinking domestically,” he told employees. “This must change. Now, we’re going to continue on our journey to become the world’s best airline by realizing the full potential of our network.”
— With assistance by Mary Schlangenstein