United responds to new Virgin America routes by slashing fares, adding flights

Does United Airlines‘ response to Virgin America’s entry into Newark Airport this week pass the sniff test?

Virgin America this week introduced three daily nonstop flights from both Los Angeles and San Francisco to Newark.

United’s response was to cut its fares by about a third in order to match Virgin America’s fares, and then United also increased its total number of Newark-Los Angeles and Newark-San Francisco roundtrips by around 60%. By this summer, United would have 14 frequencies EWR-LAX and 16 in EWR-SFO.

Appearing on CNBC on Wednesday, John Rainey, United’s CFO, chalked it all up to normal business behavior. When asked about an accusation from Virgin Group founder Richard Branson that United is engaging in a price war at Newark to destroy Virgin America, Rainey said:

“He’s inaccurate in that comment. You know, anytime a competitor comes into your market and they lower fares to stimulate demand, we are going to match those fares. And to the extent that demand is increased, we are going to increase supply. It’s what any corporation or any small business owner does anywhere in the country.”

Travel industry analyst Henry Harteveldt questions United’s honesty about its increase of flights merely being a response to heightened demand from lowering its fares especially as legacy carriers around the country have touted their “capacity discipline” and inventory management.

“This is just excessive,” Harteveldt said, referring to United’s boosting the number of its Newark-Los Angeles and Newark-San Francisco flights to such a degree. “There is no way around it.”

Harteveldt recalls that United’s response was much more “measured” when Virgin America first started flying to JFK from Los Angeles and San Francisco, adding that he respects the fact that United is seeking to protect its foothold in three key business travel markets, Newark, Los Angeles and San Francisco.

Virgin America “won’t push United off the ledge” in Newark, where United is the dominant carrier, Harteveldt said. “It is being much more aggressive than is called for.”

Rahsaan Johnson, a United spokesperson, explains the airline’s moves like this:

“United added five trips in each city-pair year over year. We have always operated high-frequency service with a mix of fares for business and leisure travelers on these routes, and we added these flights to meet increased demand.

 

“We continuously evaluate the level of service on all of the routes in our network, to ensure that United service meets customer demand on each route and to ensure efficient, competitive service throughout the network as a whole. There is vibrant competition among several carriers between New York and both San Francisco and Los Angeles, and travelers have a wealth of choices. We welcome that competition.”

Virgin America, on the other hand, states it has seen this playbook before, including when it entered Dallas in 2010 and Chicago’s O’Hare in 2011.

“Consolidation can be good for the industry overall in that it improves the balance sheet of the companies involved, but consolidation only works for consumers if there is some room left for a bit of honest competition, especially at our nation’s busiest airports,” a Virgin America spokesperson says.

 

“We have battled these types of competitor responses as a new airline in many places including at Chicago O’Hare and Dallas, both legacy strongholds. Once guests try us, they tend to stick with us and each of those routes is now profitable on a per-route basis. Our EWR flights are booking up full and our NY routes are already among our most popular, so we’re confident about the route regardless.”

Virgin America has stated it may file an an antitrust complaint over United’s tactics at Newark, but so far this is just talk. The airline hasn’t filed a complaint.

Welcome to the current competitive marketplace in the U.S. aviation industry and the way big airlines try to crush smaller ones.

Would United have responded in the same way if another legacy carrier entered one of its markets for the first time? Perhaps it would.

Below is a video of the CNBC interview of United’s Rainey: