There was an interesting interview out the other day with United Airlines President Scott Kirby where he doubled down and defended the companies fee structure and some controversial policies.
In essence it is Mr. Kirby’s position that airlines just follow the same example of other industries and the customer has to pay for a particular service in order to get a better experience – and he is right!
Skift (access here) secured the interview and sat down with Scott Kirby who came to United two years ago as new President and right away he encountered the airline was in more turmoil than anticipated.
The infamous Dr. Dao incident left a huge (blood) stain on United’s reputation and then there was the disastrous introduction of Basic Economy, a slimmed down budget Economy Class that didn’t even allow a carry on bag and created chaos at the airport. United eventually backpaddled from some of these policies. But Mr. Kirby takes a firm stance, saying these policies and fee structures are a vital part of the companies vitality and well run airlines are now less exposed to economic hardships such as rising fuel prices.
Kirby, 51 was hired in August 2016 from American Airlines to bring swagger back to United. As Hunter Keay of Wolfe Research put in a note, “Arguably, United has no choice but to either shrink drastically or to pursue this path, and Scott Kirby wasn’t hired to shrink anything.” …
Skift spoke with Kirby on August 21 at the Boyd Group’s International Aviation Forecast Summit in Denver. Among other things, we asked Kirby, who had been president of US Airways and American Airlines earlier in his career, whether he was surprised Wall Street changed its perception of United. He said was not. “I’ve been through several goat to brilliant cycles in my career,” he said. …
Kirby: Well, I’m not going to say what Doug [Parker] said, but I think the industry is much healthier. We start from higher levels of profitability. We start with better balance sheets. We have management teams that are more responsive to changes in the macroeconomic environment. All of that means it’s different, and that’s also good for our customers and the communities we serve, as opposed to the boom bust cycles of the past. You just look at this year with fuel up as much as it has been. Our fuel bill’s up, I don’t know, over $2 billion this year. …
In the past, in my career, anytime that’s happened, it’s been a crisis and airlines were talking about concessions for employees, the stocks were cratering, we were pulling money out of product, we were not making investments in the product because we simply couldn’t afford to. This year, despite the run up in fuel, none of that’s happening. We’re growing. We’re continuing to invest in new product. …
Of course it’s well known by know that the airline industry particularly in the U.S. has grown financially healthy again by charging Billion of $ in fees to passengers for items such as baggage, seating and other ancillary services. It’s what I call ‘nickel and diming’ the passenger but Mr. Kirby is obviously correct: This strategy has helped airlines to move into a financially secure position again, less volatile against outside changes such as fluctuating fuel prices which is one of a carriers major cost centers.
Then they came to the more controversial part:
Skift: You’re sometimes considered the basic economy guy. You’ve argued airlines need the no-frills product to keep passengers from defecting to discounters. But by next month, your basic economy won’t be competitive with American’s and Delta’s. American will drop its restrictions on carry-on bags, so you’ll be the only carrier prohibiting your most frugal customers from using overhead bins. Will you change your policy?
Kirby: Well, I don’t know that I’m basic economy guy, but I do believe in segmentation. To the extent we’re going to make any changes … That’s a pricing issue. So perspectively talking about changes that we may or may not make, the lawyers won’t let me do.
Skift: You’ll soon start charging extra fees for what you consider more desirable coach seats. They won’t have extra legroom or any other amenities. Why?
Kirby: Well, we’ve got Economy Plus today, which has more leg room. There’s also rows that don’t have more leg room but they’re at the front of the airplane. Other airlines do this too. And so, we’re now going to let people select those seats as well for a fee.
Skift: That makes business sense. But is it fair? These policies make it tough for families to sit next to each other without paying extra fees.
Kirby: Look, when you go to a concert, do you think you should pay the same price to sit in the nosebleed seats or to sit up front?
Skift: Perhaps not.
Kirby: I don’t know why airlines are unique. Every other business that has something like that charges more for a better product. It’s a better product. You know it’s a better seat. I don’t know why airlines would be unique by offering lower prices for a lesser product. That’s what we do.
Skift: Hotels segment differently, with a brand for each price point. U.S. airlines have experimented with that – United’s ‘Ted’ brand operated between 2004 and 2009 — but while that model still exists elsewhere, it is gone from the United States. Why?
Kirby: It is a bad idea. It’s one of the great advantages hotels have. They can actually have multiple brands that are separate and distinct. Our brands — our segmentation — is all on the same airplane, which makes it much more challenging.
While the nickel and diming method might be considered an affront to many it’s actually fair in a sense that boils down to the simple “You get what you pay for” argument. The difference is that all these things such as checked bags and seat reservations have been included in the pre-9/11 era after which nothing was ever the same again for airlines.
I agree with his point here as well. Just because you’re traveling as a family or with children doesn’t entitle you to a waiver or better treatment than individual travelers. If you want to sit together then better secure your seats ahead of time even if it will cost you. For a good laugh just check out social media pages of the major carriers an you find customer complaints about having to pay for seating etc.
I sometimes wondered why almost two decades after this recession hit the airline industry that period is being taken again and again to justify high fees and cuts. After all people still have to fly but I think one of the reasons is that airlines simply haven’t been run very well in the past. They rarely made money and when American AAdvantage started as the worlds first frequent flyer program it took carriers further down the spiral.
Frequent Flyer Programs are the make it or break it factor in today’s travel world. Most of these restrictions people have on their Economy Class tickets do not apply to passengers with elite status on an airline and you don’t even have to be a high caliber flyer to earn these privileges. Even an entry level Silver Status will usually get you exempt from fees, provides fast track and upgrade options.
Airlines won’t likely go back to the days where everything was free and passengers didn’t have to worry. Well, it wasn’t free – it was factored into the price and everybody had to pay for it. Maybe attitudes will change again someday but right now I don’t see it happening. It usually takes some earth shattering event to bring about a major change in thinking. All of the major U.S. legacy airlines went through bankruptcies and mergers at one point of the other, forcing them to have a good look at their bottom line and Executives such as Doug Parker and Scott Kirby are the guys of this management generation.