United Airlines is struggling to fill transatlantic economy class seats at reasonable fares, but is making up the difference by capitalizing on a robust market for premium seats, an executive said Wednesday at an investor event in Miami Beach, Florida.
The admission is not a surprise. Many airlines have increased transatlantic capacity in the past three years. Discount airline Norwegian Air has grown most — it’s the biggest foreign airline flying to the New York area and flies to 17 U.S. airports — but legacy carriers also have expanded, in part as a competitive response.
In spring and summer, airlines fill economy class seats at decent fares with U.S and European vacationers. In winter, that’s tougher. Even with fare sales, airlines have trouble persuading Americans to visit Paris or Barcelona in January.
“The economy class transatlantic has been challenging,” Dave Bartels, United’s vice president for revenue management, said at the Barclays Industrial Select Conference 2019. “You saw it in the first fourth quarter and this quarter as well. That is a weaker spot relative to others in our network.”
Premium travel is stronger for several reasons. Norwegian does not have flat-bed business class seats, so legacy carriers can set high prices without fearing an upstart will undercut them. And with the economy strong, businesses and premium leisure travelers are willing to pay high prices for a better experience. They’re not nearly as price-sensitive as coach flyers.
“The business class side still looks good,” Bartels said. “That has helped consistently through this time.”
It’s important, as United is placing a big bet on premium transatlantic cabins. United soon will introduce a new configuration for 21 of the Boeing 767-300 jets it flies from the Midwest and East Coast to Europe.
Instead of the usual 30 seats in business class and 184 in economy, United is reconfiguring planes to have 46 seats in business class, 22 in premium economy and 99 in economy class.
United has said it expects the special configuration to fly to business-centric destinations, including London.
Basic Economy Update
United is the only full-service U.S. airline that does not allow passengers buying its cheapest fares to bring a large carry-on bag for free.
American had a similar no-bags policy for its no-frills fares, called basic economy, but pulled it in September, saying it was uncompetitive. Some wondered if United might follow to align its policies with Delta Air Lines and American.
But on Wednesday, Bartels said United’s offering is competitive.
“We rolled it out pretty aggressively and maybe went a little too far, too quickly and scaled that back,” he said. “Now we are in a place where there is parity in terms of the scope of the rollout at least with our primary competitors.”
Since Scott Kirby joined United as its president in August 2016, the airline has moved quickly to fix what he viewed as past mistakes, altering orders for jets, strengthening hubs, and adding capacity so it could regain the “natural share” it lost to American and Delta under previous management.
But one major item remains. Kirby seeks to renegotiate a contract with United’s pilot union that would allow United to add more 76-seat regional jets. United hires contractors to operate these airplanes, and their pilots are paid less than United pilots.
United’s current contract with its pilots puts limits on how many of these large regional jets the airline can use. United can only add more if it also adds roughly 100-seat airplanes flown by United pilots. Kirby has said he is not interested in buying 100-seat jets.
Jonathan Ireland, vice president for finance, told investors Wednesday the airline having “healthy and productive conversations,” with the Air Line Pilots Association.
The union did not respond to a request for comment, but union leaders have said they little interest in changing this clause of their contract.
As a short-term fix, United is taking larger regional jets and putting fewer seats on them, as the pilot contact permits. But that’s probably not the most efficient long-term solution.
“We have still been able to execute a growth plan without having that, but of course we would be a more profitable airline with it,” Ireland said.