In January, United Airlines President Scott Kirby told investment analysts news many didn’t want to hear: The airline would grow capacity significantly over three years to regain “natural share” it lost under previous management, which had sought to shrink the airline to better profitability.

Analysts were spooked for simple economic reasons. By adding 4-6 percent capacity in 2018, 2019 and 2020 — primarily from Houston, Chicago, and Denver — United would add more seats into the market. Greater supply generally leads to lower fares.

Kirby, 51, didn’t care. He 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.”

United’s stock fell 18 percent in two days. Some analysts questioned whether United had made the right decision, saying they feared American Airlines and Delta Air Lines would take drastic action from keeping United from poaching their customers.

It has worked out fine. Competitors have mostly ignored the expansion and United executives said in July that their share has grown faster than expected. United’s stock has been trading near its 52-week high, and the narrative has shifted so fast some analysts now wonder if United, long a laggard, is in stronger financial shape than American. (No one is comparing United to market leader Delta.)

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.

Note: This interview has been edited for length and clarity.

Skift: Why were you sure Wall Street would eventually come around to your plan?

Scott Kirby: Look, it seemed pretty self-evident to me. In January, I got up there and I know people gave me grief or made fun of me for saying, ‘It’s just math.’ It really is just math, and it’s self-evident it ought to work. It’s not surprising to me that it is working.

It’s been a little gratifying how quickly the market has reacted. I expected a negative reaction, but the market is starting to come around. All that said, I also recognize that if we have any stumbles, the knives will be out again. You’d like to have a better longer track record of success, and that makes the stumbles less impactful. And so keeping this rolling is important. I obviously expected that eventually the market would do something like this. Otherwise we wouldn’t have launched the growth plan. This was our expectation. Probably, the change in sentiment has happened a little faster than even I would have thought.

Skift: Investors have gotten burned on airlines many times. But your old boss at US Airways and American, CEO Doug Parker, has said the boom-bust cycles are over. He has said well-run U.S. airlines may never again lose money, though they may have less profitable years. Do you agree?

Kirby: Well, I’m not going to say what Doug 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. The stock hit an all-time high on [August 20]. It’s dramatically different.

Skift: Delta wants Wall Street to value airlines like other high-quality industrial stocks. Do you think we’ll get there? Or will past experiences always make investors skittish?

Kirby: I guess I’ll leave it to Mr. Market to decide on that, but I think that the valuations will improve. I think that the most important thing to do is deliver what you said you’re going to do. Any company that says, ‘I’m going to make this earnings margin or this absolute earnings or this EPS,’ and then has a track record of not delivering, is going to have a low multiple. At United, we’ve adopted ‘a no excuses sir’ mentality. When we make commitments, like our $11-13 EPS [by 2020], we’re going to move heaven and earth to make sure we hit that commitment. As opposed to what is happened a lot at airlines in the past. Investors don’t want to hear excuses. If you’re going to say a number, they want you to hit it.

Skift: United took a big hit to its brand last year with the Dr. Dao incident. But it didn’t seem to affect your earnings. Does stuff like service quality and brand perception affect your ability to revenue targets? Or do passenger return no matter what?

Kirby: I believe it does. It’s hard to find effects of those things in the short term, but in the long term, I believe it matters. In the long term you can look at airlines like Southwest who’ve had a history of good customer experience and perception and they drive superior results. We have a strong belief that even though we can’t put it in a spreadsheet and say how people feel about this one thing is going to show up in the next earnings report, we have a core belief that it does matter in the long term and that it’s tables stakes now to change the perception. It’s not true just at United, but certainly for us, it’s true at United.

Skift: At a conference in May, you said United needed to have a competitive product with other airlines. You called it, “keeping up with the Joneses.” Is that enough? Do you not need the best product?

Kirby: I mean that we need to have a quality competitive product, particularly with our primary competitors. I mean essentially I don’t think our government is going to give us $50 billion like the Middle East carriers, so we can’t lose money and create a product that uses government subsidies. But for all of our competitors that have to compete without government subsidies, we’re going to have a quality product. I think particularly the Polaris product — it’s not rolled out everywhere yet, but where it is rolled out — is the best in class. Flying across the Atlantic, flying to South America, flying in most Asian markets, it’s a best in class product.

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. But the airline within an airline, it just doesn’t work. You wind up with a cost structure at those airlines that is not consistent with the low cost carriers that you’re trying to compete with. That kills it.

Skift: You have a lot of older aircraft you must replace. Some people were expecting a big order this summer, but you committed to only some regional jets and four Boeing 787s. What’s the plan?

Kirby: Broadly, we have a big order. We’ve taken a couple, but we have 161 firm deliveries of 737s coming. We’ve got a bunch of 787s coming. We continue to look at more options for both narrow and widebodies. We’re pretty active in the used aircraft market right now. We’re working on some used aircraft deals that might bring more airplanes.

In the longer term, we’ve got to decided whether we’re going to buy 100-seat airplanes or larger narrowbodies. Really depends on negotiations.

Skift: I thought you’ve argued you’d never buy 100-seaters because the economics don’t work.

Kirby: I didn’t say never. I’d say it’s probably not the best option, but it depends on the scope negotiations. Today, we could go buy 100 seaters instead of 737s and that unlocks scope for us. Probably a better answer is to buy 737s and unlock the scope, but we’re working with our pilots on that. I think, ultimately, we’ll get to the right answer. Longer term, the replacement of the 757 and 767 is on the horizon. It’s not just on the horizon, it’s in the here and now, and we really don’t have a great option for that. Longer term, by the time we get out of the middle of the next decade, we’re going to probably start replacing the 777-200s.

[Editor’s note: Scope refers to the union contract United maintains with its pilots. Under the current deal, United can only add more 76-regional jets, which are flown by contractors, if it also adds 100-seat jets flown by United pilots. Kirby seeks to alter the language so United would be allowed to add more 76-seaters if it buys 737s, which have more than 100 seats.]

Skift: You’ve now been at United for about two years. You’ve made a lot of changes. Has it been tough to change the culture?

Kirby: I would’ve expected more resistance to making changes, but instead, people embraced the change with open arms. It has got to the point where I’m not the one driving change. We’ve created a culture where there’s just hundreds of things going on where people are trying new things, experimenting, innovating. If it works, great. If it doesn’t, it’s OK to fail. And that’s a change because it used to not be okay to fail at United. It was a culture of lay low and avoid the big mistake. Now we’ve got a culture of innovation and trying new things and experimenting. A lot of our success right now is because of hundreds of smaller things that happening, many of which work and are successful.

Skift: And what’s your priority for next year?

Kirby: (Next year) and beyond really is going to be about changing our DNA and changing how people feel when they fly United. You know, not just the hard metrics of, “Did you get me there on time and what are the financial numbers?” But changing how people feel. The epiphany for me after Dr. Dao was [realizing] how different the world is today and how perception and opinion matter so much and how much more quickly something can go viral.

Photo Credit: United Airlines President Scott Kirby said he remains confident with his plan to grow the airline's market share. Bloomberg