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In October 2015, United Airlines pulled out of New York JFK, moving all its flights from San Francisco and Los Angeles to Newark, where it has a hub. United’s public relations staff spent considerable effort spinning the move as a positive, promising “significant benefits” and an overall “overall higher-quality experience” for flyers.
But a year and a half later, United’s new president, Scott Kirby, says moving the flights from JFK was a mistake. Many of United’s most lucrative West Coast customers, he said, want to fly into New York City and not New Jersey. And United lost some of them when it switched the flights to Newark, Kirby told employees at a recent town hall meeting in Newark.
“I wish I could roll back the clock and change the decision,” Kirby said, according a recording of the event. “It was the wrong decision.”
At the time, United’s management team — led by former CEO Jeff Smisek – argued the carrier had no choice. The airline claimed it had lost money on the two routes for seven years, and it was having trouble competing with four other carriers flying the same routes with similar business class and economy products — JetBlue Airways, American Airlines, Virgin America and Delta Air Lines. United’s lease at JFK was also expiring, so executives said the timing was right.
Kirby, who until August 2016 was American’s president, said American’s team was pleased when United left.
“You can probably personally blame me, at least to some degree, for the fact that United pulled out,” he said. “When I was at American Airlines, we were consciously trying to push United out of JFK. That was our goal.”
In his response to the employee at the town hall meeting, Kirby suggested United executives did not think strategically before dropping the JFK flights. The routes may have been unprofitable alone, but the customers on them were unusually important.
“The real reason it was a mistake was it let American Airlines in particular go win a bunch of big corporate accounts,” he said. “People like Disney and Time Warner — two big examples — are corporate accounts that had been United exclusive corporate accounts and not only flew United on the transcon [routes] but flew United from L.A. to Heathrow and all across the country.”
Many of the corporate contracts were unusual because the companies cared less about pricing than typical businesses, Kirby said. Actors, for example, usually must fly in premium cabins — regardless of whether the fare is $1,000 or $10,000.
“Those are the kind of corporate accounts [where] on-air talent has contracts that say they fly first class,” he said. “They pay first class fares — it’s completely irrelevant what the price is. … We opened the door and let American in on contracts like that.”
May not return to JFK
Still, Kirby did not tell employees United will return to JFK, and he noted many of the lucrative customers United lost might not come back if it did. Instead, he said, United will bolster its Newark hub.
“We would never get all those customers back but one of the things we are going to focus on is making Newark the best airport, the best schedule, the best everything for New York,” he said.
Kirby’s goal is to get United back to the 30 percent market share it held in New York when Continental and United merged. Today, he said, United has about 26 percent share. “That’s a big, big drop,” he said.
He said it makes sense to grow in New York, as United executives estimate their carrier is the most profitable major airline in the region — by a substantial margin. United operates a much larger hub than American and Delta at JFK, and that additional scale usually makes flights more profitable, he said.
“We have about 15 percent margins here in Newark,” he told employees. “We estimate Delta in New York has a 4 percent profit margin, even when times are good. And American is somewhere in between.