United Airlines will join its rivals in introducing a
stripped-down economy fare later this year as part of a move toward larger
pricing segmentation, executives said during the carrier's fourth-quarter
earnings call.
This month, United introduced bundled fare offerings for
travelers buying Economy Plus seats, vice chairman and chief revenue officer
Jim Compton said. The packages include such amenities as an extra checked bag,
Premier Access privileges and lounge access.
In the second half of the year, United will follow up with
an "entry-level fare that will appeal to the purely price-sensitive
customer," Compton said. The move would echo Delta Air Lines' expansion of
its Basic Economy fare, a no-frills option that precludes changes and seat
selection, among other restrictions, in an effort to compete with the likes of
Spirit Airlines. American
Airlines also plans to introduce a similar fare this year.
Compton said such segmentation has become essential to
airline revenue management.
"This will allow us to compete with ultra-low-cost
carriers for passengers looking for that price point," he said. "It
will also help us remove some of the dilution we have in our pricing structure."
United projects its revenue also will get a boost as it
upgrades aircraft. The carrier will begin receiving 40 new Boeing 737-700
aircraft in mid-2017, helping phase out more than half of the 50-seat aircraft it
uses in regional markets by 2019. Beside extra seating capacity, those aircraft
allow United to pull in additional revenue with first-class and Economy Plus
seating, Compton said.
During the fourth quarter, total passenger revenue declined
4.4 percent year over year to $7.7 billion. Lower fuel costs have been a
double-edged sword for United, in particular. While its average fuel price dropped
41.1 percent, the carrier's Houston hub also remains exposed to reductions in energy
sector corporate travel. Such declines have been hitting its revenue for
several quarters now, and the effect is spreading beyond the energy
business, Compton said
As such, United now intends to keep Houston capacity flat
this year, rather than increasing it 2 percent as previously planned. The
carrier will shift that capacity to other markets, likely San Francisco and
Denver to "fill in holes we don't service, clearly focused on business
markets," Compton said.
United's consolidated load factor increased by a percentage point
to 82.7 percent, a combination of a 3.1 percent increase in traffic and a 1.8
percent increase in capacity. Passenger revenue per available seat mile
declined 6 percent, and yield declined 7.2 percent.
Propelled partially by lower fuel costs, United reported
fourth-quarter net income of $823 million, compared with $28 million in the
fourth quarter of 2014. For the full year, net income was $7.3 billion, which
included a $3.1 billion benefit related to reversal of its income tax valuation
allowance, compared with $1.1 billion the pervious year.
Acting CEO Brett Hart noted that both completion
and on-time performance rose in 2015. Fourth-quarter on-time and completion
rates were the best since United merged with Continental, he said.