Sunday, April 23, 2017

United, after years of declining revenue, hits the thrusters

By on February 27, 2017

FILE - In this Sept. 8, 2015, file photo, a United Airlines passenger plane lands at Newark Liberty International Airport in Newark, N.J. United Airlines seeks to narrow gap on competitors like Delta by beefing up routes from hub airports. The airline also wants to upgrade facilities at key airports and reduce its use of smaller planes on important business-travel routes. (AP Photo/Mel Evans, File)

FILE – In this Sept. 8, 2015, file photo, a United Airlines passenger plane lands at Newark Liberty International Airport in Newark, N.J. United Airlines seeks to narrow gap on competitors like Delta by beefing up routes from hub airports. The airline also wants to upgrade facilities at key airports and reduce its use of smaller planes on important business-travel routes. (AP Photo/Mel Evans, File)

DALLAS — United Airlines, which lost the distinction of being the world’s biggest carrier after shrinking for several years, plans to regain lost ground by adding more flights from key airports this summer.

The airline wants to upgrade facilities at key airports and trim the use of smaller planes on important business routes.

If the expansion plans pan out, United could staunch slipping revenue numbers, which fell nearly 2 percent in the last five years, while revenue at industry leader Delta Air Lines Inc. rose 8 percent.

United has slipped in other ways, too. Only once in the last five years did United Continental Holdings Inc. top Delta’s operating income. And it consistently ranks worse in on-time flights and cancellations.

Delta and American Airlines Group Inc. have been adding flights, often on bigger planes, between major cities. Not United.

“We’ve been shrinking, and our competitors have been growing at our expense,” says Scott Kirby, who jumped from president of American Airlines to the same job at United in August. “We’re going back on offense.”

Many analysts are upbeat about United’s prospects, but say the path won’t be easy for the Chicago airline.

“Delta is not standing still either, so it’s not only getting back to where they used to be, but it’s leapfrogging Delta,” said Helane Becker, an analyst with Cowen and Co.

Reducing the number of delays and cancellations is crucial, Becker said.

After a 2010 merger with Continental Airlines, United alienated important customers with cost-cutting initiatives that backfired.

A decade ago, for instance, United flew eight daily flights on Boeing 737s between Atlanta and Newark, a big business route where it competes with Delta. By 2013, United flew six times a day on small regional jets or turboprops.

Business travelers detest the small planes because they are more likely to be delayed or canceled, and their lack of enough overhead bins can mean carry-on bags get gate-checked — adding a time-consuming trip to baggage claim.

“Our best customers started abandoning us and flying on the competition, who had a better product,” Kirby said. “We have to turn that around.”

Kirby thinks that new routes from hubs will win over, or win back, passengers. If traffic picks up, and as United takes delivery of new planes, it should eventually be able to phase out small planes on key business-travel routes, he said.

On Monday, United announced that this summer it will add four new destinations in smaller cities including Rochester, Minnesota, and Santa Rosa, California, add new connections to other medium-sized towns, and add daily flights on 15 other routes that connect with the big hubs. It will add seasonal flights between San Francisco and Munich.

United also wants to expand and upgrade facilities at key airports, including more gates at Chicago’s O’Hare. The airline just opened a new club at Los Angeles International Airport, and Kirby told union pilots that United wants part or all of a future terminal there, where Delta and American have been making improvements.

Becker, of Cowen and Co., said United underinvested at its airports after two downturns in the airline business and a trip to bankruptcy court. Now, however, it is solidly profitable, with $8 billion in pretax income for 2015-16. (Delta’s pretax earnings in those two years were $13.8 billion.)

United is starting to fly planes with fancy new seats in business-class on a few international routes. There have been fewer upgrades in the main cabin, however, and even a move that some travelers consider a step backward — the debut of “basic economy” tickets that are priced below regular economy but come with severe restrictions, including no use of the overhead bins.

Delta just announced it will bring back free meals on transcontinental flights. United has been mum on whether it will do the same. Asked if his airline was studying free meals, Kirby said, “I wouldn’t even say that.”

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