The airline industry is changing and acting like real businesses to return value for shareholders

“Our industry is changing and acting like real businesses to return value for shareholders.”

It’s a remarkable statement when you think about it. But this is how Jim Compton, vice chairman of United Airlines, led off at the World Routes conference this week in Chicago.

The US airline industry for years seemed to be operated more for market share than for profit. At least this is how many chief executive officers often characterized things until after 9/11, when US carriers wrenched through the aftermath of that horrible day. Even so, CEOs often complained there was too much capacity to allow for profitable operations. It wasn’t until after the global financial collapse of 2008 that US airlines began to consolidate, reduce flights and take capacity out of the system. Profits began to return.

Hence Compton’s declaration. But today’s United, the result of the merger between Continental and United airlines and managed by the Continental executives (even though Compton is a UAL holdover), has struggled through its merger.

“United faces challenges,” Compton said. “We’re not yet ‘there,’ and we’re not where we want to be. We’re committed to improving customer experience at every level.”

Compton said UAL is spending more than $1bn to improve the product, ground experience (such as kiosk check-in), adding ground charging stations for computers, iPads and cell phones, upgrading first class meal service, adding WiFi throughout the mainline fleet and adding lie-flat seats on its international airplanes. WiFi will be on all mainline aircraft by the end of next year, Compton said.

“Now more than ever technology plays a role for passenger experience,” he said.

Compton also said that while airlines can compete on clubs, flights, price and even airplanes, “loyalty has to be earned.”

Although airlines have removed capacity, Compton said United is adding capacity as it retires 50-passenger jets in favor of larger Embraer E-175 jets. Seasonal flying will be up 25% next July vs 2012 as United uses larger airplanes and optimizes its schedule.

United is simultaneously reducing the number of regional partners service its hubs, reducing complexity.

5 Comments on “The airline industry is changing and acting like real businesses to return value for shareholders

  1. A core premise of the 1978 Airline Deregulation was that the airlines needed to be set free, to openly compete and produce schedules (and fares) that filled consumer needs. There was a faith that airlines were essentially public utilities, and that market forces would guide them toward efficient service. Now, the airlines have fully evolved to become businesses serving shareholders first. And the profit potential is quite substantial, because nearly all U.S. city-pair routes are monopolized or shared by no more than 2-3 industry ‘partners’ who can easily fix prices to garner higher profits. Shall we call it ‘Air-Enron’?

    In a different time, there would be a huge anti-trust effort to change this. Perhaps it is time to recognize that the 1978 Airline Deregulation has become fully coopted by industry leaders (both airlines and FAA) and no longer serves the safety, transportation and economy interests of the general public. A sweeping change is needed at FAA, toward greater transparency and to refocus its efforts on real safety AND effective regulation of this out-of-control industry.

    • Is this different from any of the other neoliberal privatisation drives?
      Never did any of the oh so obvious advantages materialise.

      • Yes please – let’s go back to the good old days of required Saturday stays to get a decent fare and to the era when only the rich could afford to travel by air.

        The “glamour” may be gone, but it’s a whole lot less expensive on average to fly today than it was pre-deregulation.

        • Not likely that anybody is saying go back to what it was under CAA. BUT… today’s version of deregulation is a joke, and price of flying has very little connection to anything that happened in 1978. Indeed, the level of regulation demonstrated in recent years, such as the divesting of slots related to the American-USAir merger, blocking Norwegian and other foreign carrier competition, and micromanaging drones — these really tell us what a Grand Illusion this ‘dereg’ concept really is.

  2. How interesting that everything he mentions is about technology, but the real place where United is so bad is in the attitude of their employees. Without fixing that, any expenditure on technology is so much wasted money.

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