United Airlines CEO Sees 3 Roadblocks To Growth - Live and Let's Fly

United Airlines CEO Sees 3 Roadblocks To Growth – Live and Let’s Fly

United Airlines CEO Scott Kirby sees three concerns that he warns constitute roadblocks to growth, even as United enjoys a return to profitably and strong demand for air travel.

United Airlines CEO Explains A Trio Of Roadblocks To Growth

In a memo to employees and again during an investors’ call over United’s Q2 financial results, Kirby laid out three “headwinds” that may adversely impact growth:

  1. Industrywide constraints that have created significant operational disruptions, and impose constraints on the industry’s ability to grow
  2. Sharply elevated fuel prices
  3. Growing likelihood of an economic slowdown or recession

Concerning industrywide constraints, Kirby noted that they have forced United to be smaller, which leads to overstaffing:

“To address the challenges posed by commercial aviation ecosystem that is straining to handle the number of planes operating today, we’ve elected to keep the United Airlines smaller and overstaffed in order to give us more buffer against these external constraints that we just can’t control. We’ll also continue to prioritize reliability by overstaffing until the entire aviation infrastructure returns to normal. What it means, that there will be cost pressures until that catches up and we can return to traditional utilization and staffing.”

What are these external restraints? Kirby lists several including:

  • Pilot shortage, particularly with regional airlines that feed United mainline
  • Reduction in longhaul Asian flying
  • Aircraft delivery delays
  • “Infrastructure constraints” that are impacting all of aviation
    • Air Traffic Control issues would likely top that sub-list

Concerning fuel prices, Kirby sees high prices as less an existential threat, since costs are passed onto passengers, than a missed opportunity to increase margins:

“At current fuel prices, United fuel bill would be $9 billion higher than 2019. What it’s worth, we’re building our long-term plans, assuming that this is the new normal for fuel prices. The good news is that rising fuel costs are something that affects all airlines. And at least for United, we’ve seen this largely become a pass through expense today.”

Concerning demand, Kirby believes that an economic slowdown will likely be offset by a continuing surge in demand as the world emerges from pandemic and settles into a new normal:

“We continue to see strong demand. And one thing that is unique for United particularly and aviation in general, is that we’re still probably in the sixth or seventh inning of the COVID recovery. So there are two macro demand trends, recession versus continuing COVID recovery, working across purposes. And for now, at least, the COVID recovery trend is at least cancelling out and arguably exceeding the economic headwinds.”

The result will be growth of 8% in 2023, which is lower than United had forecasted earlier this year. This, Kirby explains, is necessary to prioritize operational reliability more than anything else.

Anything else, perhaps, except margins. Kirby was known as a bean counter at America West, US Airways, and American Airlines and that side came out in this comment in which Kirby assured investors United was on track for a 9% margin in 2023:

“And that perhaps is the most important point, at United, we will do whatever it takes to hit our margin target.”

“Whatever it takes” is strong language. If you ever wonder why United does not invest more in soft product, ponder on that statement.

CONCLUSION

While Kirby sees three headwinds to growth, two of the three he does not view as inherently problematic (higher fuel prices are passed on to customers and a recession will be offset by still-growing post-pandemic demand). That leaves the industry itself – the unknowns and the known problems of the pilot shortage, aging infrastructure, and aircraft delivery delays all of which may adversely impact United and the entire industry in the months ahead.

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