United Turns Its Focus From International to Domestic Growth

In the past three years, United Airlines has added many flights to far-flung destinations, including Chengdu, Xi’an and Hangzhou in China, and Tel Aviv, Singapore, and Auckland.

But as United has tried to fulfill its global aspirations, it has taken a more cautious approach in the United States, adding relatively few routes. In fact, its most notable network change in recent memory likely was a time it shrunk. In October 2015, it stopped flying to New York John F. Kennedy and moved transcontinental flights from Los Angeles and San Francisco to its Newark, New Jersey hub.

But United has three new members of its senior management team — Chief Commericial Officer Julia Haywood, President Scott Kirby and CFO Andrew Levy — and on Tuesday they suggested they now plan to focus on United’s domestic strategy.

“We have the best international route structure, certainly, of any U.S. carrier,” said Kirby, who was American Airlines’ president until August 29. “No one would argue with that. But we do not have the same kind of margins domestically or the same kind of success domestically as American and Delta. We can get there. It’s another area where we have more upside than the others.”

The two executives most responsible for United’s international focus are now gone, or leaving soon. Brian Znotins, United’s former vice president for network, who was in charge of choosing new routes, left in September for Canada’s WestJet Airlines, while Chief Revenue Officer Jim Compton will retire by year end. Znotins’ job is being split in two, with one executive handling United’s domestic network, and another leading the international one.

The new team will be tweaking United’s routes, and likely will add or subtract depending on the profitability of each city pair. The airline sees “significant upside” in its domestic franchise, Haywood told analysts on United’s third quarter earnings call.

“United has the best network potential of any U.S. carrier but we are not using it fully today,” she said.

Pricing Stability

United is bullish on domestic flights in part because it sees relatively stability in the fare environment, Kirby said.

At times in the past three years, major airlines dropped last-minute fares considerably between major cities, making it sometimes possible for a business traveler to buy a roundtrip ticket between New York and Dallas for less than $120, even within a few days of departure. Major airlines offered those fares to keep customers from defecting to ultra low cost carriers, including Spirit Airlines and Frontier Airlines.

At American, Kirby was a major proponent of those fares, believing major carriers needed to compete forcefully with discounters. But the low fares have nonetheless hurt industry finances, since airlines make a major portion of revenue on close-in bookings.

In recent months, Kirby said domestic pricing has become more “rational.” He added, though, that capacity is still growing faster than demand.

“We feel pretty good about the domestic environment,” Kirby, said. “Certainly better than it has been in a couple of years. I acknowledge that’s an easy comparison.”

Kirby said 43 percent of United’s routes made more money in the third quarter than during the same period last year. Overall, though, United reported domestic unit revenues decreased 4.9 percent, year-over year.

“There are lots of little things that are going on with pricing, with a lot of carriers going through and cleaning up pricing in the domestic environment,” Kirby said.