United expects to remain half its size till the end of next year, when CEO Scott Kirby thinks a vaccine will be widely available. But will it be in a position to respond quickly to demand if the company is forced to lay off tens of thousands of employees?
United Airlines expects to remain 45 percent of its pre-pandemic size for the next 15 months, CEO Scott Kirby said at the Skift Global Forum on Tuesday. Absent the development and widespread distribution of a vaccine, which Kirby believes will not occur until the end of next year, the airline will not grow beyond its current size.
Kirby, however, is confident that demand will spring back as soon as a vaccine is widely available. But will United be in a position to spring back? Airline employees — technicians, pilots, flight attendants, among others — are licensed and have specialized skills. If United and its peers are forced to furlough tens of thousands of such workers, as they say they will when payroll support through the CARES Act expires on September 30, they won’t be able to respond quickly to rapidly returning demand if their employees have taken other jobs or need to be re-trained.
“Huge kudos to everyone in Washington,” Kirby told Skift Editor-in-Chief Tom Lowry, referring to the bipartisan support for the $2.2 trillion CARES Act, which he credits with saving the economy when it became law in March. Airlines got $25 billion in federal aid to continue paying employees through September 30, but were forbidden from laying them off until October 1. If Congress doesn’t extend the payroll support program, United will lay off or furlough 16,000 employees when the program expires. This is in addition to the 25,000 employees that are on unpaid leaves of absence or other types of voluntary leave. “It could literally take years,” to return to a full bench of qualified employees, Kirby said.
United has joined its peers on calling on Congress to extend the program through March of next year. Senators Roger Wicker (R-Miss.) and Susan Collins (R-Maine) on Monday introduced a $28 billion bill to extend the program for passenger and cargo airlines through March, but it remains unclear whether Congress, preoccupied with the Supreme Court vacancy created by Justice Ruth Bader Ginsburg’s death last week and the looming presidential election, has the wherewithal to debate and pass the extension before October 1. Kirby and his peers, along with labor groups, have been intensely lobbying Congress and the Trump administration for more relief.
“[Airlines] are an economic magnifier,” he said. “That is why it is so important that airlines get an extension”
predicting the future
Kirby took over as CEO from Oscar Munoz in May, just as the coronavirus pandemic was bringing the industry to its knees. “The coronavirus pandemic has made this job infinitely more meaningful and important,” Kirby said. He was among the first, in March, to sound the klaxon that the pandemic was more widespread than originally thought. “I’m a huge science nerd,” he said. When he saw that the disease was circulating in northern Italy, “the genie was out of the bottle … it was almost certainly going to be a global pandemic.”
What Kirby and United management did not expect, however, was the scale and breadth of the reaction. “We thought revenue would be down 70 percent. We didn’t expect the world to be in lockdown,” he said. “I wish we had been wrong.”
When the pandemic struck and business travel all but evaporated, United, with its large Asian network, coastal hubs, and reliance on premium business travel, was uniquely positioned to be affected the worst among the major carriers. And it was, at first. But since then, the carrier has repositioned flights away from its Newark, San Francisco, and Washington hubs to hubs like Denver that benefit from more leisure and connecting traffic. “The hub strategy was predicated on business demand,” Kirby said. “This was the strength of United and it will be [again], but during the coronavirus [pandemic], it’s a handicap.”
To capitalize on leisure traffic, United is launching new flights to places like Lagos and Bangalore that have strong family- and friend-visit traffic. And it eschewed its usual hub-and-spoke strategy for flights to Florida that bypass its hubs. The carrier also has broken with its recent past to fly cargo-only flights to earn additional revenue. “We hope demand will come back to where we were before,” Kirby said. “Is business travel ever coming back? Some of those questions remain to be answered.”
Travel corridors — A Good idea
“Everyone thinks travel corridors are a great idea, but we can’t get over the finish line,” Kirby said, faulting bureaucracy as an impediment. Increased and more rapid testing could make travel corridors a reality, and he believes the U.S. and the UK are close on establishing a safe corridor between New York and London. And once that corridor is open, more around the world could follow. These will help open up the world and economies, Kirby said, adding “my fingers are crossed.”
Separately, there was one idea Kirby thinks is bad: Carbon offsets. Although sustainability has been something both United and Kirby personally have focused on, carbon offsets don’t work he said, or work less than “one percent” of the time. Some, he claims, do more damage to the environment than not offsetting at all. Instead, industry needs to “do the hard work first,” focusing on sustainable fuels and technologies that actually make a difference, he said.
‘force yourself to go look’
Increasing diversity at United was a focus before the pandemic struck, Kirby said. The global crisis has not derailed that, and the focus has been crystallized by the recent racial reckoning in the U.S. But it’s a challenge. “Somebody who hasn’t grown up with the same prejudice — it’s hard for us to understand,” Kirby acknowledged. “We have to focus on action, not just talking about it.”
A challenge has been recruiting talent from underrepresented groups, not that such employees don’t exist. And the company is working with nonprofits on education and recruitment of employees from underrepresented groups. (United is about to name the second Black member of its board of directors, although the final candidate has not been released.)This exercise was instructive to Kirby. “You have to force yourself to go look, you have to take the extra step outside your own network,” he said. United has also announced it will add a second Black member to its board of directors. Kirby had no news on that appointment on Tuesday.
Toning it down
From his days at America West on, Kirby has been notorious in the industry for his outspoken candor. Despite more than 20 years in the upper echelons of the airline industry, this is his first turn as CEO. People, he said, treat him differently now, with more deference, and he has striven to change the culture so that his employees are more honest with him. And the famously gruff Kirby has made a few changes himself. “I shut up and listen more.”
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Tags: sgf2020, skift global forum, united airlines
Photo credit: United Airlines will remain at 45 percent of its earlier size until a vaccine is widely distributed, its CEO said Tuesday at Skift Global Forum. Skift