United Execs Rip Into Low-Cost Rivals Amid Domestic Surplus

18.07.2024 - 21:06 / skift.com / Spirit Airlines / Ed Bastian / Delta Air Lines / Delta Ceo / U.S.Airlines / United Mileageplus / United Airlines / Bob Jordan / Andrew Nocella / Meghna Maharishi / Frontier Airlines

During United’s second-quarter earnings call on Thursday, chief commercial officer Andrew Nocella declared that low-margin rivals have “largely run their course.” 

“The thing that’s very interesting is the growth line by these carriers is extremely unprofitable — just the business plans, in some cases, they largely run their course,” Nocella said on the call. “And there’s just no new opportunities available today.”

His comments come as a glut in domestic capacity dragged down United’s and Delta’s third-quarter outlook, two airlines that have stood out in recent years due to their international networks, premium seating and lucrative loyalty programs. 

Much of that domestic overcapacity has been spurred by ultra-low-cost carriers, which has caused airlines to aggressively discount fares in domestic markets. Coupled with rising costs, the airline industry has been falling short of expectations when it comes to profits.

But United executives are bullish that the sector will course correct on the overcapacity in August, with many repeatedly describing it as “unprofitable flying” for their low-cost rivals. 

“The unprofitable capacity is just not sustainable,” Nocella said.

While Delta and United continue to make up the majority of profits in the U.S. airline industry, others like Southwest, JetBlue, Spirit and Frontier have been looking for other ways to restore their profitability. 

Southwest CEO Bob Jordan previously said the carrier is weighing adding in a premium product. The potential change comes as it faces pressure from activist investor Elliott Investment Management to turn around its business model. 

Alaska Airlines executives have previously said the carrier is adding more premium seats. JetBlue is considering doing the same. Frontier also rolled out a form of business class seating that blocks off the middle seat. 

But executives at Delta and United are not worried. 

“United is a premium business airline not because it’s the latest fad but because it’s core to the hub system we operate from,” Nocella said. “Our hubs are in premium markets.”

Nocella said “it’s no surprise” that other carriers are trying to emulate United’s and Delta’s business model.

“I think attempting to copy our segmentation plan when it’s something that we’ve been implementing in earnest for more than seven years will be a challenge for anyone that does not operate from business center hubs,” he continued. 

Delta CEO Ed Bastian’s recent comments echoed Nocella’s, saying being a premium airline is more than just adding spacious seats. 

“It’s the overall experience, right?” Bastian said during Delta’s earnings call last week. “I think all of those experiments that we hear about with some of the lower-fare airlines or the