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United President Warns New Low-Cost Carriers Can’t Control Their Business Model

Dennis Schaal
United President Warns New Low-Cost Carriers Can’t Control Their Business Model

United Airlines President Scott Kirby issued a warning to potential new-entrant low-cost-carriers, including JetBlue founder David Neeleman’s Moxie: United will match your fares.

Kirby, speaking on stage at Skift Forum Asia in Singapore Monday, said he’s heard of about 50 airlines over the years that were supposed to be created but Virgin America, founded in 2004, was the last startup airline in the United States that actually became a reality.

The low-cost airline model is predicated on the competition not matching prices, Kirby said, and unlike the situation over the last 30 years, United now has the capabilities with segmentation, including basic economy, to go tit-for-tat with the new entrants.

“It’s a business model they are not in control of,” Kirby said, referring to low-cost carriers.

Speaking about so-called segmentation, a slicing and dicing of an aircraft cabin seating for different prices, United can now compete in both levels, which it couldn’t do for decades until now, said Kirby. He argued that gives both price-conscious consumers and passengers who care about product more choice.

Negotiations With Chase and Expedia

Kirby said United’s negotiations with Chase over a new credit card agreement are the most important talks that are underway. He added that the relationship is complex and that reaching a deal will take time.

The United president said “the world has changed” and that the airlines these days don’t necessarily need online travel agencies, which can’t adequately explain premium economy and premium plus to their customers.

Kirby said United is not in a position where it needs a new Expedia agreement, which expires September 30, these days, but “possibly we still will” have a relationship with the online travel agency if the talks bear fruit.

In February, United said it has been unable to reach a new agreement with Expedia, and United said several weeks ago it will remove its flights from the online travel agency’s consumer sites after the United-Expedia contract expires September 30.

Boeing 737 Max

Acknowledging that the Federal Aviation Administration’s brand has been adversely impacted over its handling of the Boeing 737 Max, Kirby said the safety agency will use data and science to bring the plane back, and that the global regulatory framework will be strengthened by learnings from the incidents.

Kirby said United, which announced that it won’t bring the 737 Max schedule back until August at the earliest, pending FAA approval, has managed to maintain its annual financial guidance by using different aircraft.

“We will worry about the financial impact somewhere down the road,” Kirby said.

Kirby said he’s seen little impact by the United States-China trade war, and the airline has actually seen a short-term positive financial impact from the prospect of Brexit as lawyers and others fly to the UK to prepare for Brexit.

While Kirby said he hasn’t seen decreased demand in China, Argentina is a market that has shown weakness.

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