United Airlines plans aggressive domestic network growth
over the next few years, in part a correction of decisions made in recent
years, airline executives said in a presentation to investors.
The carrier plans to increase capacity by between 4 percent
and 6 percent year over year in 2018 and implement similar rate growth in 2019
and 2020, United president Scott Kirby said. Some of that growth will connect
regional markets to its hub like the Rochester, Minn.-Chicago O'Hare service that
began in June.
Over the years, United had shifted many of its regional
aircraft out of those markets to take on American Airlines and Delta on some of
their key routes. That was a mistake, Kirby said; United not only lost
passengers feeding from those regional markets but also was lost out on the
more major routes because its competitors were flying larger aircraft. United's
departure from markets also fed into low-cost carrier growth there, he said. "The
opportunity with United is not about shrinking," Kirby said. "It's
about growing back to where United should have been had it not went to negative-8
percent growth the last several years."
United also will build its connectivity by continuing to
rebank its hubs, altering schedules to make tighter connections in fewer time
clusters. It moved Houston from 10 banks to eight, which boosts connecting
demand without growing capacity, Kirby said. In a research note, Cowen said the
strategy could help United regain market share but could hurt yields in the
short term. "If United is successful in increasing connecting traffic at
its hubs, the LCCs should compete for a smaller piece of the overall pie,"
according to Cowen. "It seems as though United is trying to crowd out the
low-cost airlines, which should eventually work but is likely to be messy in
the short term."
At the same time, United is hoping to gain pricing leverage
with a new revenue management system, Gemini. The old system tended to
underforecast demand, which encouraged United to price to attract
lower-yielding passengers, chief commercial officer and EVP Andrew Nocella
said. The new system will be fully functional by the second quarter, he said.
United will continue to expand its Basic Economy fares this
year, including more international markets, Nocella said. However, the carrier
is adding a way to soften the fare's restrictions, allowing Basic Economy
passengers to select a seat for a fee.
United recently announced a new premium economy cabin for
international flights, Premium Plus, which will offer swankier food and amenity
options and more comfortable seating. It will take about three years to spread
that across its international fleet, Nocella said.
United's consolidated passenger revenue rose 4.1 percent
year over year during the fourth quarter to $8.1 billion. Traffic rose 3.1
percent as capacity increased 4 percent, pushing load factor down 0.7
percentage points to 81.7 percent. Yield rose 0.9 percent.
United
reported a fourth-quarter net income of $580 million, up from $397 million in
the fourth quarter of 2016. Full-year net income was $2.1 billion, down from
$2.3 billion in 2016.
RELATED: United Q3 earnings