https://airwaysmag.com/airlines/analysi ... ic-growth/

Just found this article on Airways. The premises it's based on are so bad it's laughable. Seriously, who writes this crap? Anyways, have a laugh.

What's so funny about it? Why slug it out with subsidized capacity dumping internationally when a profitable alternative exists?

Nothing to laugh about. In fact, this is really happening:
viewtopic.php?t=1359725

Certainly no joke. International traffic has been less profitable than historical levels while domestic traffic has increased on low levels of capacity growth resulting in a very profitable domestic route map. Any company worth its salt would place resources in the most profitable areas while relaxing less profitable areas.

Yeah, this piece is a little silly. United has already said it needs to beef up domestic capacity, and UA is doing that. All of the 772As have been pulled off international routes and are now 364-seat domestic people haulers. Many of the routes he lists have already been cut, and UA's summer schedule is pretty strong on domestic with a lot of new adds. Aside from everything they've done or are planning to do, what more does he expect? If "only" 38% of United's revenue comes from international, well that's still a lot of revenue. I don't see why anyone would think UA can't have *both* profitable international and domestic offerings at the same time.

Wasn't it about 5 years ago that cutting domestic and adding international was the new secret to financial success? Which is not to say that things go back and forth, and as markets change strategy needs to change. But some of this could be that US airlines are not competing well.

True or not, Airways Magazine has become unreadable. After 15 years I didn't renew my subscription. The two magazines out of the UK that focus on airlines/airports make Airways look like a comic book.

Varsity1 wrote:

What's so funny about it? Why slug it out with subsidized capacity dumping internationally when a profitable alternative exists?

Especially those state-owned and state-subsidised Chinese airlines!!!!

frmrCapCadet wrote:

Wasn't it about 5 years ago that cutting domestic and adding international was the new secret to financial success? Which is not to say that things go back and forth, and as markets change strategy needs to change. But some of this could be that US airlines are not competing well.

I don't know about that necessarily. That was certainly Smisek's strategy, and the new UA executive team's strategy is quite the opposite. But to say U.S. airlines aren't competing well internationally is to ignore that there's also a ton of competition domestically — competition that Smisek's UA retreated from. This is more about UA being competitive again and trying to regain all the ground they lost domestically to AA, DL, and WN.

On the international front, there's a definite global slowdown happening. The dollar is much stronger than it was five years ago, so Europeans aren't traveling to the U.S. like they used to, and Americans don't really travel overseas in quite the same fashion. The U.S. airlines don't seem to be too worried about low cost long haul competition the same way the EU3 are panicking over DY, Wow, et al, though the US3 certainly raise a stink about the ME3, for better or for worse.

Two important things to note:
-While the financials show that 38% of revenue is from International, that's based on segment allocation--it's probably 50% when you factor in domestic connections feeding international.
-What the author misses about the hubs is that United has more international because their hubs are less optimal for domestic and better for international--many on the edges of the country like SFO and IAH.

A friend showed me this article on Facebook. He wants to cut "oil routes". From Houston. The oil capital of the world. As well as a flight to a partners hub with whom they have ATI.

The author has no credibility to me.

This is part of the cyclical nature of the airline industry and also the advent of LCCs entering the domain that used to be legacy exclusive. There was a rush to gold mine of long haul international to chase yield when domestic market was in the dumps. Now the domestic market is strong with international getting weaker / more diluted/ more competitive/ you name it, not the money pot it used to be.

This is also why the US3 have been pairing their new widebody orders and breathing new life into their existing fleet.

If you UA doesnt do this, it will be deja vu all over again to the bleeding red airlines of yesteryear.

This person has no credibility, isn't in the financial market, or a certified analyst; this is strictly his own opinion. Why would anyone quote him as a source then expect discussion on the subject?

Airways unfortunately has lost all credibility with me along with their articles becoming like a comic book. A shame, I used to enjoy them and even personally knew some of their writers. That being said, it does seem like UA is scaling back International travel and increasing/focusing on domestic travel.

I always hear that international long haul flights make the most while domestic short haul flights are unprofitable.

Shows how much they need the MoM. More seats, same costs.

USA doesn't really have any proper international airlines - the international network of the US3 is embarrassing . Nothing to compare with the global airlines like EK, TK or even Ethiopian ...

Might make sense just to fly domestically for United and the other 2

intotheair wrote:

frmrCapCadet wrote:

Wasn't it about 5 years ago that cutting domestic and adding international was the new secret to financial success? Which is not to say that things go back and forth, and as markets change strategy needs to change. But some of this could be that US airlines are not competing well.

I don't know about that necessarily. That was certainly Smisek's strategy

...and Grinstein's, and Anderson's, and Kellner's, and Parker's, and Arpey's.
Probably best to not ignore history for the sake a Smisek dig.

RyanairGuru wrote:

United's long haul network though, especially Pacific, stands head and shoulders above the competition

Quite the exaggeration.

What's so "head and shoulders above" about serving a small handful of mostly-secondary destinations that its two primary competitors don't, in a single region?

The same can be said of AA over UA in Latin America, and of DL over UA in some parts of Europe and all of Africa.

LAX772LR wrote:

intotheair wrote:

frmrCapCadet wrote:

Wasn't it about 5 years ago that cutting domestic and adding international was the new secret to financial success? Which is not to say that things go back and forth, and as markets change strategy needs to change. But some of this could be that US airlines are not competing well.

I don't know about that necessarily. That was certainly Smisek's strategy

...and Grinstein's, and Anderson's, and Kellner's, and Parker's, and Arpey's.
Probably best to not ignore history for the sake a Smisek dig.

Oh that wasn't really meant as a Smisek dig, and I don't think history has much to do with it on the surface. It was merely a comparison of the current CEO and president's strategy with their predecessor's. And I don't think focusing on international growth was or is necessarily a bad strategy. It made sense in the Smisek era when international flying was really hot — much hotter than right now. The mistake of Smisek's tenure, at least in this regard, is that domestic really did shrink and became a much less compelling product and schedule compared to UA's rivals at many hubs. Capacity did need to be pared down, yes, and much of it was already happening pre-merger and pre-Smisek at least on the PMUA side. But UA is now learning that they can't continue to run on the playbook of shrinking to profitability and cutting capacity on a week-to-week basis in order to boost the short-term yields of individual routes. UA has some nice global gateway hubs like EWR, SFO, and IAH, but FFs will not stick with them for very long if they have to put up with low frequency RJs to everywhere else and if the competition flies mainline. Kirby's EWR-ATL example at the investor day was a good articulation of this problem (see slides 10-13 here, warning PDF link).

Of course international flights are important and profitable, and of course they need feed in order to work. (Insert Pan Am reference here.) But I doubt the belief that domestic flights are largely unprofitable and "only" exist to feed international, as either Smisek or Rainey once said. Plenty of airlines in this country have figured out how to make money in domestic air travel, and at least one or two of them have figured out how to run a robust domestic operation alongside long haul international. Maybe UA can someday figure out how to do the same.

I'll also add, before anyone later tries to suggest otherwise, that I don't think UA needs to significantly cut their international network either, as the writer in the OP link suggests. They seem to have already trimmed off some of the more marginal routes like a lot of the Asia fifth freedoms, IAH-LOS, and EWR-secondary Europe. I don't see much left that screams "well this must be a money pit!"

There is a lot of nonsense in this article and in this thread. Did you read his bio at the end of the story? He is an airline enthusiast and misses Northwest everyday. In other words this article could have been written by any avid reader of this site, in fact he probably reads this site and contributes to it. Need I say more?
The writer talks about a number of routes that are already gone.
His analysis is like this "UA flies to AMS to other hubs in addition to IAH, so IAH-AMS serves no purpose. GRU is served from EWR, so it should be dropped from IAD,.IAH-FRA is served by LH, so that can go too. And so on, and so on.

RyanairGuru wrote:

United Airline wrote:

I always hear that international long haul flights make the most while domestic short haul flights are unprofitable.

In Europe that is basically true, but not in North America.

United are already allocating significant additional capacity to their domestic network and have also trimmed some peripheral European markets and intra-Asia tags. United's long haul network though, especially Pacific, stands head and shoulders above the competition who seemingly still haven't figured out how to compete with SFO. They would be dumb to mess with that too much.

is it that SFO is to hard to compete WITH ? Or that they don't want to allocate the resources TO compete from the west coast?? LAX and SEA could do what UAL is doing at SFO but it wasn't done overnight. I was just at NRT and I saw ONE DL airplane while UA had 5 on the ground, Maybe they're not trying to compete. OR? It's not a priority to them.

strfyr51 wrote:

RyanairGuru wrote:

United Airline wrote:

I always hear that international long haul flights make the most while domestic short haul flights are unprofitable.

In Europe that is basically true, but not in North America.

United are already allocating significant additional capacity to their domestic network and have also trimmed some peripheral European markets and intra-Asia tags. United's long haul network though, especially Pacific, stands head and shoulders above the competition who seemingly still haven't figured out how to compete with SFO. They would be dumb to mess with that too much.

is it that SFO is to hard to compete WITH ? Or that they don't want to allocate the resources TO compete from the west coast?? LAX and SEA could do what UAL is doing at SFO but it wasn't done overnight. I was just at NRT and I saw ONE DL airplane while UA had 5 on the ground, Maybe they're not trying to compete. OR? It's not a priority to them.

Yes, SFO is that hard to compete with. SEA doesn't have the volume that SFO does and LAX is too fragmented (airline wise). If an airline could dominate LAX the way UA does SFO, it would compete just fine (probably better), but I don't see that happening anytime soon.

Well there is some truth in the headline of this topic, but I must agree that this article is just full of sh*t. Why the hell should UA drop IAH-AMS or IAH-FRA? Does he have any source of how those flights doing financial wise?

Galwayman wrote:

USA doesn't really have any proper international airlines - the international network of the US3 is embarrassing . Nothing to compare with the global airlines like EK, TK or even Ethiopian ...

Might make sense just to fly domestically for United and the other 2

You should probably take a closer look at the US3's route maps (and fleets) then if you think their international networks are embarrassing.

TransGlobalGold wrote:

True or not, Airways Magazine has become unreadable. After 15 years I didn't renew my subscription. The two magazines out of the UK that focus on airlines/airports make Airways look like a comic book.

I also had an Airways subscription at one point in time. I've found their site and social media pages littered with basic errors on multiple occasions. I've found myself correcting them in the comments. Maybe I'm just nitpicking...just my

-Rowen

Galwayman wrote:

USA doesn't really have any proper international airlines - the international network of the US3 is embarrassing . Nothing to compare with the global airlines like EK, TK or even Ethiopian ...

Might make sense just to fly domestically for United and the other 2

Unlike the airlines named, the US3 are wildly profitable.

This isn't an airplane club. It's a business. The whole point is to generate returns for investors.

Varsity1 wrote:

Unlike the airlines named, the US3 are wildly profitable.

This isn't an airplane club. It's a business. The whole point is to generate returns for investors.

Indeed. Unlike some other countries' national flag carriers, the U.S. global network carriers are not explicit tools of U.S. foreign policy - and haven't been since, essentially, Pan Am. I'm not necessarily arguing for or against the use of national flag carriers as tools of national foreign policy - there can be reasonable debate on that subject based on historical experience with countries ranging from Singapore to Emirates to Alitalia, and everything in between.

And in any event, the comparison is also moot since, obviously, the U.S. in such a vast country - geographically, demographically and economically. That's not being nationalistic or ethnocentric - it's just a statement of fact. With a society, territory and economy as sprawling as the U.S., it's only natural that the U.S. global network carriers would derive a substantial portion - the vast majority, in fact - of their revenue from the domestic market. That clearly won't be the case with flag carriers from tiny countries with tiny populations and, relatively speaking, tiny economies.

Don't get me wrong - I think there are clearly numerous opportunities for continued improvement for the U.S. global network carriers, and plenty of deserved criticism for those airlines and the broader U.S. air transportation system. But the mere fact that no U.S. global network carrier derives more than 2/5 of its revenue from international traffic is not, in and of itself, a reasonable basis for criticism.

One clue to the knowledge level of the writer: He recommends cutting international flights like Newark to Geneva so that the carrier can concentrate on "domestic" routes like Denver/Vancouver and Newark/Vancouver. The analytical prowess of somebody who doesn't understand details well enough to know that Vancouver is an international destination is probably not very strong.

Ok as the author of the article, allow me to explain my rationale a bit further. There's a piece of context here that it appears everyone is missing.

There are three parts to this thesis:

Part 1 - United should grow its domestic network because there are revenue and margin gains to be had on domestic flying
Part 2 - Wall Street won't let United grow capacity because of its own obsession with PRASM and penalizing airlines for capacity growth (plenty of examples over the last few years)
Part 3 - Because United can't grow top line capacity in a vacuum (the ideal outcome) and only because it can't grow top line capacity too much, it should cut small pieces of its international network to fund the domestic growth.

Everyone seems to have glazed over Part II which is essential to understanding the overall point. For those of you who have been paying attention to airline earnings in recent quarters (clearly not everyone in this thread despite the snide comments about my credibility), Wall Street has clamped down severely on capacity growth from US airlines. If United should grow its domestic network, which no one has counteracted, then the only way to do that without tanking the company's market cap is to cut international flying.

Ok now in terms of the cuts, I specifically propose the following:

ICN - NRT (cut literally a day after I posted the article)
HKG - SIN
HNL - NRT (after ANA brings the A380)
IAH - UIO
IAH - GIG
One of IAH-MUC or IAH-FRA (leaving the other to Lufthansa)
IAH-AMS
One of EWR-GLA/EDI
One of EWR-MAN/BHX
EWR-HAM
EWR-SNN
IAD-GRU

That is a mix of secondary Europe, intra-Asia, and oil routes from Houston (given a sustained downturn in oil fortunes, these routes are much weaker in their business case - at least a cut in frequencies is justified). The other buckets are one EWR+IAD consolidation in Brazil (a weak market right now), and then routes where United can leave flying to a JV partner and still benefit financially from demand on the route.

In an ideal world United would cut none of these routes, but in a world where United cannot grow domestic capacity without international cuts because of Wall Street restrictions, these are the least worst routes to cut or cut back frequencies on.

intotheair wrote:

Yeah, this piece is a little silly. United has already said it needs to beef up domestic capacity, and UA is doing that. All of the 772As have been pulled off international routes and are now 364-seat domestic people haulers. Many of the routes he lists have already been cut, and UA's summer schedule is pretty strong on domestic with a lot of new adds. Aside from everything they've done or are planning to do, what more does he expect? If "only" 38% of United's revenue comes from international, well that's still a lot of revenue. I don't see why anyone would think UA can't have *both* profitable international and domestic offerings at the same time.

Its a two part problem. United can in a vacuum have both, but it cannot under the constraints imposed by Wall Street. So yes they're adding domestic capacity, but that was funded by already announced cuts. To add any more domestic flying, they need more international cuts. Of the routes I listed (other than ICN-NRT which happened after I wrote the article), which of them have been cut?

RyanairGuru wrote:

United Airline wrote:

I always hear that international long haul flights make the most while domestic short haul flights are unprofitable.

In Europe that is basically true, but not in North America.

United are already allocating significant additional capacity to their domestic network and have also trimmed some peripheral European markets and intra-Asia tags. United's long haul network though, especially Pacific, stands head and shoulders above the competition who seemingly still haven't figured out how to compete with SFO. They would be dumb to mess with that too much.

I agree, which is why I don't think United should cut anything from SFO, it's only more intra-Asia and peripheral Europe cuts, plus some consolidation in Latin America.

drgmobile wrote:

One clue to the knowledge level of the writer: He recommends cutting international flights like Newark to Geneva so that the carrier can concentrate on "domestic" routes like Denver/Vancouver and Newark/Vancouver. The analytical prowess of somebody who doesn't understand details well enough to know that Vancouver is an international destination is probably not very strong.

One clue to the knowledge level of a reader, not reading carefully enough to recognize that I was using Vancouver to illustrate the math of how ASMs work, not claiming that 1) United should drop Newark to Geneva or 2) That it should add more Denver/Newark - Vancouver flights. I was simply illustrating the math of how ASMs work.

TWA772LR wrote:

A friend showed me this article on Facebook. He wants to cut "oil routes". From Houston. The oil capital of the world. As well as a flight to a partners hub with whom they have ATI.

The author has no credibility to me.

Far from being reasons to keep routes, the fact that Houston is an oil capital and partner hub ATI routes exist is precisely why United should cut those routes. The oil routes are weak in today's economy and global macroeconomic approach, and the ATI routes are ones where United can still profit from traffic on those routes while reducing its capacity.

intotheair wrote:

LAX772LR wrote:

intotheair wrote:

I don't know about that necessarily. That was certainly Smisek's strategy

...and Grinstein's, and Anderson's, and Kellner's, and Parker's, and Arpey's.
Probably best to not ignore history for the sake a Smisek dig.

Oh that wasn't really meant as a Smisek dig, and I don't think history has much to do with it on the surface. It was merely a comparison of the current CEO and president's strategy with their predecessor's. And I don't think focusing on international growth was or is necessarily a bad strategy. It made sense in the Smisek era when international flying was really hot — much hotter than right now. The mistake of Smisek's tenure, at least in this regard, is that domestic really did shrink and became a much less compelling product and schedule compared to UA's rivals at many hubs. Capacity did need to be pared down, yes, and much of it was already happening pre-merger and pre-Smisek at least on the PMUA side. But UA is now learning that they can't continue to run on the playbook of shrinking to profitability and cutting capacity on a week-to-week basis in order to boost the short-term yields of individual routes. UA has some nice global gateway hubs like EWR, SFO, and IAH, but FFs will not stick with them for very long if they have to put up with low frequency RJs to everywhere else and if the competition flies mainline. Kirby's EWR-ATL example at the investor day was a good articulation of this problem (see slides 10-13 here, warning PDF link).

Of course international flights are important and profitable, and of course they need feed in order to work. (Insert Pan Am reference here.) But I doubt the belief that domestic flights are largely unprofitable and "only" exist to feed international, as either Smisek or Rainey once said. Plenty of airlines in this country have figured out how to make money in domestic air travel, and at least one or two of them have figured out how to run a robust domestic operation alongside long haul international. Maybe UA can someday figure out how to do the same.

I'll also add, before anyone later tries to suggest otherwise, that I don't think UA needs to significantly cut their international network either, as the writer in the OP link suggests. They seem to have already trimmed off some of the more marginal routes like a lot of the Asia fifth freedoms, IAH-LOS, and EWR-secondary Europe. I don't see much left that screams "well this must be a money pit!"

The point isn't that these routes are losing tons of money, the point is that in order to add any additional domestic flying, United has to pare back nominally profitable or perhaps slightly in the red international flying.

727200 wrote:

This person has no credibility, isn't in the financial market, or a certified analyst; this is strictly his own opinion. Why would anyone quote him as a source then expect discussion on the subject?

FlyUSAir wrote:

Airways unfortunately has lost all credibility with me along with their articles becoming like a comic book. A shame, I used to enjoy them and even personally knew some of their writers. That being said, it does seem like UA is scaling back International travel and increasing/focusing on domestic travel.

theasianguy wrote:

https://airwaysmag.com/airlines/analysis-united-should-cut-back-international-flying-to-fund-domestic-growth/

Just found this article on Airways. The premises it's based on are so bad it's laughable. Seriously, who writes this crap? Anyways, have a laugh.

Thank you all for reading!

klwright69 wrote:

There is a lot of nonsense in this article and in this thread. Did you read his bio at the end of the story? He is an airline enthusiast and misses Northwest everyday. In other words this article could have been written by any avid reader of this site, in fact he probably reads this site and contributes to it. Need I say more?
The writer talks about a number of routes that are already gone.
His analysis is like this "UA flies to AMS to other hubs in addition to IAH, so IAH-AMS serves no purpose. GRU is served from EWR, so it should be dropped from IAD,.IAH-FRA is served by LH, so that can go too. And so on, and so on.

I've covered the US airline industry as an analyst for the better part of a decade. I also do read this site (don't contribute all too much) because I like aviation and (for the most part) like reading through the discussion threads. My premise is that if you assume that United has to cut some international flights, then redundant flying like IAH-AMS can be cut.

I don't see how the threadstarter has any more credibility than Airways Mag.
The author is sticking it's neck out at least. Whereas the threadstarter is clearly hooting and hollering from the bleachers, something a.net has been known more for, lately.

UA needs to make capacity adjustments. Even DL. But you can't just sell widebody's and change your fleet overnight. It's complicated.

I still appreciate the authors effort and rebuttal.

I don't have time right now to read and respond to the author's response. But I will in due time.
As I said, I imagine the author is a active consumer of this site. Taa Daa! I was right.
But I want to thank him for responding in this forum.

vin2basketball wrote:

drgmobile wrote:

One clue to the knowledge level of the writer: He recommends cutting international flights like Newark to Geneva so that the carrier can concentrate on "domestic" routes like Denver/Vancouver and Newark/Vancouver. The analytical prowess of somebody who doesn't understand details well enough to know that Vancouver is an international destination is probably not very strong.

One clue to the knowledge level of a reader, not reading carefully enough to recognize that I was using Vancouver to illustrate the math of how ASMs work, not claiming that 1) United should drop Newark to Geneva or 2) That it should add more Denver/Newark - Vancouver flights. I was simply illustrating the math of how ASMs work.

What you wrote was "So instead, United is in a position where the only mechanism it has for growing effectively is cutting back international flying. The math on this is pretty effective thanks to the way capacity is calculated – cutting back one daily roundtrip flight from Newark to Geneva on the 214-seat 767-300ER can fund two daily roundtrips from Newark to Vancouver or five from Denver to Vancouver on the 737-800."

You may have been "illustrating math" but you used Vancouver flights to argue a point about domestic flying. I don't need to read more carefully; you ought to write more carefully.

vin2basketball wrote:

ICN - NRT (cut literally a day after I posted the article)
HKG - SIN
HNL - NRT (after ANA brings the A380)
IAH - UIO
IAH - GIG
One of IAH-MUC or IAH-FRA (leaving the other to Lufthansa)
IAH-AMS
One of EWR-GLA/EDI
One of EWR-MAN/BHX
EWR-HAM
EWR-SNN
IAD-GRU

Let's break down the list:
ICN-NRT: Better use of aircraft elsewhere.
HNL-NRT: Near limitless market, but low yielding. May be cut.
HKG-SIN: Very high demand and high yielding. The flight number actually originates in ORD which Chicago is no slouch on yield. Once UA starts ORD or EWR to SIN, we'll revisit the issue.
All of your IAH oil routes need to stay. UA would totally leave GIG if they cut it from IAH. As someone from IAH, I can testify that ALL of those flights are full on a daily basis (especially AMS and GIG). Cut IAH-FRA? Fat chance. There goes almost all of LHs access to Latin America as well as Houston's one stop access to BOM, Saudi Arabia, Nigeria, Equatorial Guinea, Luanda, Pune, etc... on Star Alliance. I've worked for LH in IAH (both as a normal PSA and LH Personal Assistant) and those passengers are fiercely loyal to Star. Yeah I know TK is in IAH and Star, but Miles and Smiles doesn't hold a candle to Miles and More or MileagePlus, not to mention LHs soft product and actual First Class. It's UA and LH or bust for those guys. FRA isn't going anywhere. UAs 787/777 and LHs A380 are constantly full upfront. I pity my fellow nonrevs that try to fly to FRA on UA.
IAH-MUC has the best chance to be cut on your list. But it's a good alternative to FRA for passengers.
IAD-GRU: Brazil is slowly starting to recover and IAD offers East Coast pax another option to the richest city in Brazil from a rich part of America.
EWR-MAN will stay for sure.

Then the question comes, what are you going to do with the widebodies that are just sitting there? Hub to hub? That's great and all, but you're actually underutilizing the plane at that point.

And what Wall Street constraints are you talking about? Why would investors want to keep the business they invested in from growing, therefore making more money?

Lastly, UA has it great in Houston. Oil is funny in that it works in the inverse of the global economy. The economy is good now, and oil is low. When the next oil spike happens, I guarantee you will see IAH grow. IAH is the hedge for the economy. It's always good to have the 4th largest city in the US as a hub. It's even better when it props up your revenue when the times are bad.

At the end of they day, the market dictates what gets served. Not Wall Street investors.

RyanairGuru wrote:

United Airline wrote:

I always hear that international long haul flights make the most while domestic short haul flights are unprofitable.

In Europe that is basically true, but not in North America.

The United States perhaps. Don't equate the U.S. with North America.

res77W wrote:

TransGlobalGold wrote:

True or not, Airways Magazine has become unreadable. After 15 years I didn't renew my subscription. The two magazines out of the UK that focus on airlines/airports make Airways look like a comic book.

I also had an Airways subscription at one point in time. I've found their site and social media pages littered with basic errors on multiple occasions. I've found myself correcting them in the comments. Maybe I'm just nitpicking...just my

-Rowen

Oh I get it. That was my per peeve, many seemingly obvious mistakes. Since they changed ownership it seems the fired all the editors.

vin2basketball wrote:

Ok as the author of the article, allow me to explain my rationale a bit further. There's a piece of context here that it appears everyone is missing.

There are three parts to this thesis:

Part 1 - United should grow its domestic network because there are revenue and margin gains to be had on domestic flying
Part 2 - Wall Street won't let United grow capacity because of its own obsession with PRASM and penalizing airlines for capacity growth (plenty of examples over the last few years)
Part 3 - Because United can't grow top line capacity in a vacuum (the ideal outcome) and only because it can't grow top line capacity too much, it should cut small pieces of its international network to fund the domestic growth.

Everyone seems to have glazed over Part II which is essential to understanding the overall point. For those of you who have been paying attention to airline earnings in recent quarters (clearly not everyone in this thread despite the snide comments about my credibility), Wall Street has clamped down severely on capacity growth from US airlines. If United should grow its domestic network, which no one has counteracted, then the only way to do that without tanking the company's market cap is to cut international flying.

Ok now in terms of the cuts, I specifically propose the following:

ICN - NRT (cut literally a day after I posted the article)
HKG - SIN
HNL - NRT (after ANA brings the A380)
IAH - UIO
IAH - GIG
One of IAH-MUC or IAH-FRA (leaving the other to Lufthansa)
IAH-AMS
One of EWR-GLA/EDI
One of EWR-MAN/BHX
EWR-HAM
EWR-SNN
IAD-GRU

That is a mix of secondary Europe, intra-Asia, and oil routes from Houston (given a sustained downturn in oil fortunes, these routes are much weaker in their business case - at least a cut in frequencies is justified). The other buckets are one EWR+IAD consolidation in Brazil (a weak market right now), and then routes where United can leave flying to a JV partner and still benefit financially from demand on the route.

In an ideal world United would cut none of these routes, but in a world where United cannot grow domestic capacity without international cuts because of Wall Street restrictions, these are the least worst routes to cut or cut back frequencies on.

intotheair wrote:

Yeah, this piece is a little silly. United has already said it needs to beef up domestic capacity, and UA is doing that. All of the 772As have been pulled off international routes and are now 364-seat domestic people haulers. Many of the routes he lists have already been cut, and UA's summer schedule is pretty strong on domestic with a lot of new adds. Aside from everything they've done or are planning to do, what more does he expect? If "only" 38% of United's revenue comes from international, well that's still a lot of revenue. I don't see why anyone would think UA can't have *both* profitable international and domestic offerings at the same time.

Its a two part problem. United can in a vacuum have both, but it cannot under the constraints imposed by Wall Street. So yes they're adding domestic capacity, but that was funded by already announced cuts. To add any more domestic flying, they need more international cuts. Of the routes I listed (other than ICN-NRT which happened after I wrote the article), which of them have been cut?

RyanairGuru wrote:

United Airline wrote:

I always hear that international long haul flights make the most while domestic short haul flights are unprofitable.

In Europe that is basically true, but not in North America.

United are already allocating significant additional capacity to their domestic network and have also trimmed some peripheral European markets and intra-Asia tags. United's long haul network though, especially Pacific, stands head and shoulders above the competition who seemingly still haven't figured out how to compete with SFO. They would be dumb to mess with that too much.

I agree, which is why I don't think United should cut anything from SFO, it's only more intra-Asia and peripheral Europe cuts, plus some consolidation in Latin America.

drgmobile wrote:

One clue to the knowledge level of the writer: He recommends cutting international flights like Newark to Geneva so that the carrier can concentrate on "domestic" routes like Denver/Vancouver and Newark/Vancouver. The analytical prowess of somebody who doesn't understand details well enough to know that Vancouver is an international destination is probably not very strong.

One clue to the knowledge level of a reader, not reading carefully enough to recognize that I was using Vancouver to illustrate the math of how ASMs work, not claiming that 1) United should drop Newark to Geneva or 2) That it should add more Denver/Newark - Vancouver flights. I was simply illustrating the math of how ASMs work.

TWA772LR wrote:

A friend showed me this article on Facebook. He wants to cut "oil routes". From Houston. The oil capital of the world. As well as a flight to a partners hub with whom they have ATI.

The author has no credibility to me.

Far from being reasons to keep routes, the fact that Houston is an oil capital and partner hub ATI routes exist is precisely why United should cut those routes. The oil routes are weak in today's economy and global macroeconomic approach, and the ATI routes are ones where United can still profit from traffic on those routes while reducing its capacity.

intotheair wrote:

LAX772LR wrote:

...and Grinstein's, and Anderson's, and Kellner's, and Parker's, and Arpey's.
Probably best to not ignore history for the sake a Smisek dig.

Oh that wasn't really meant as a Smisek dig, and I don't think history has much to do with it on the surface. It was merely a comparison of the current CEO and president's strategy with their predecessor's. And I don't think focusing on international growth was or is necessarily a bad strategy. It made sense in the Smisek era when international flying was really hot — much hotter than right now. The mistake of Smisek's tenure, at least in this regard, is that domestic really did shrink and became a much less compelling product and schedule compared to UA's rivals at many hubs. Capacity did need to be pared down, yes, and much of it was already happening pre-merger and pre-Smisek at least on the PMUA side. But UA is now learning that they can't continue to run on the playbook of shrinking to profitability and cutting capacity on a week-to-week basis in order to boost the short-term yields of individual routes. UA has some nice global gateway hubs like EWR, SFO, and IAH, but FFs will not stick with them for very long if they have to put up with low frequency RJs to everywhere else and if the competition flies mainline. Kirby's EWR-ATL example at the investor day was a good articulation of this problem (see slides 10-13 here, warning PDF link).

Of course international flights are important and profitable, and of course they need feed in order to work. (Insert Pan Am reference here.) But I doubt the belief that domestic flights are largely unprofitable and "only" exist to feed international, as either Smisek or Rainey once said. Plenty of airlines in this country have figured out how to make money in domestic air travel, and at least one or two of them have figured out how to run a robust domestic operation alongside long haul international. Maybe UA can someday figure out how to do the same.

I'll also add, before anyone later tries to suggest otherwise, that I don't think UA needs to significantly cut their international network either, as the writer in the OP link suggests. They seem to have already trimmed off some of the more marginal routes like a lot of the Asia fifth freedoms, IAH-LOS, and EWR-secondary Europe. I don't see much left that screams "well this must be a money pit!"

The point isn't that these routes are losing tons of money, the point is that in order to add any additional domestic flying, United has to pare back nominally profitable or perhaps slightly in the red international flying.

727200 wrote:

This person has no credibility, isn't in the financial market, or a certified analyst; this is strictly his own opinion. Why would anyone quote him as a source then expect discussion on the subject?

FlyUSAir wrote:

Airways unfortunately has lost all credibility with me along with their articles becoming like a comic book. A shame, I used to enjoy them and even personally knew some of their writers. That being said, it does seem like UA is scaling back International travel and increasing/focusing on domestic travel.

theasianguy wrote:

https://airwaysmag.com/airlines/analysis-united-should-cut-back-international-flying-to-fund-domestic-growth/

Just found this article on Airways. The premises it's based on are so bad it's laughable. Seriously, who writes this crap? Anyways, have a laugh.

Thank you all for reading!

klwright69 wrote:

There is a lot of nonsense in this article and in this thread. Did you read his bio at the end of the story? He is an airline enthusiast and misses Northwest everyday. In other words this article could have been written by any avid reader of this site, in fact he probably reads this site and contributes to it. Need I say more?
The writer talks about a number of routes that are already gone.
His analysis is like this "UA flies to AMS to other hubs in addition to IAH, so IAH-AMS serves no purpose. GRU is served from EWR, so it should be dropped from IAD,.IAH-FRA is served by LH, so that can go too. And so on, and so on.

I've covered the US airline industry as an analyst for the better part of a decade. I also do read this site (don't contribute all too much) because I like aviation and (for the most part) like reading through the discussion threads. My premise is that if you assume that United has to cut some international flights, then redundant flying like IAH-AMS can be cut.

Wall Street does not impose restrictions. The airlines have sought to exercise discipline on capacity, doing so after the industry consolidated and made it more doable. The issue is on each route is the company making money or not? Next question will be whether they could use that equipment and make more money somewhere else? I do believe that UAL will do less with its hub in Narita because United has been acquiring aircraft that can reach places in Asia, non-stop from the United States that they could not profitably do before. However, your making it sound like it has been decreed by wall street that United must stick to a zero sum game with only domestic growth occurring at the expense of international flying. I do not see that being the case.

vin2basketball wrote:

Ok as the author of the article, allow me to explain my rationale a bit further. There's a piece of context here that it appears everyone is missing.

There are three parts to this thesis:

Part 1 - United should grow its domestic network because there are revenue and margin gains to be had on domestic flying
Part 2 - Wall Street won't let United grow capacity because of its own obsession with PRASM and penalizing airlines for capacity growth (plenty of examples over the last few years)
Part 3 - Because United can't grow top line capacity in a vacuum (the ideal outcome) and only because it can't grow top line capacity too much, it should cut small pieces of its international network to fund the domestic growth.

Everyone seems to have glazed over Part II which is essential to understanding the overall point. For those of you who have been paying attention to airline earnings in recent quarters (clearly not everyone in this thread despite the snide comments about my credibility), Wall Street has clamped down severely on capacity growth from US airlines. If United should grow its domestic network, which no one has counteracted, then the only way to do that without tanking the company's market cap is to cut international flying.

Ok now in terms of the cuts, I specifically propose the following:

ICN - NRT (cut literally a day after I posted the article)
HKG - SIN
HNL - NRT (after ANA brings the A380)
IAH - UIO
IAH - GIG
One of IAH-MUC or IAH-FRA (leaving the other to Lufthansa)
IAH-AMS
One of EWR-GLA/EDI
One of EWR-MAN/BHX
EWR-HAM
EWR-SNN
IAD-GRU

That is a mix of secondary Europe, intra-Asia, and oil routes from Houston (given a sustained downturn in oil fortunes, these routes are much weaker in their business case - at least a cut in frequencies is justified). The other buckets are one EWR+IAD consolidation in Brazil (a weak market right now), and then routes where United can leave flying to a JV partner and still benefit financially from demand on the route.

In an ideal world United would cut none of these routes, but in a world where United cannot grow domestic capacity without international cuts because of Wall Street restrictions, these are the least worst routes to cut or cut back frequencies on.

intotheair wrote:

Yeah, this piece is a little silly. United has already said it needs to beef up domestic capacity, and UA is doing that. All of the 772As have been pulled off international routes and are now 364-seat domestic people haulers. Many of the routes he lists have already been cut, and UA's summer schedule is pretty strong on domestic with a lot of new adds. Aside from everything they've done or are planning to do, what more does he expect? If "only" 38% of United's revenue comes from international, well that's still a lot of revenue. I don't see why anyone would think UA can't have *both* profitable international and domestic offerings at the same time.

Its a two part problem. United can in a vacuum have both, but it cannot under the constraints imposed by Wall Street. So yes they're adding domestic capacity, but that was funded by already announced cuts. To add any more domestic flying, they need more international cuts. Of the routes I listed (other than ICN-NRT which happened after I wrote the article), which of them have been cut?

RyanairGuru wrote:

United Airline wrote:

I always hear that international long haul flights make the most while domestic short haul flights are unprofitable.

In Europe that is basically true, but not in North America.

United are already allocating significant additional capacity to their domestic network and have also trimmed some peripheral European markets and intra-Asia tags. United's long haul network though, especially Pacific, stands head and shoulders above the competition who seemingly still haven't figured out how to compete with SFO. They would be dumb to mess with that too much.

I agree, which is why I don't think United should cut anything from SFO, it's only more intra-Asia and peripheral Europe cuts, plus some consolidation in Latin America.

drgmobile wrote:

One clue to the knowledge level of the writer: He recommends cutting international flights like Newark to Geneva so that the carrier can concentrate on "domestic" routes like Denver/Vancouver and Newark/Vancouver. The analytical prowess of somebody who doesn't understand details well enough to know that Vancouver is an international destination is probably not very strong.

One clue to the knowledge level of a reader, not reading carefully enough to recognize that I was using Vancouver to illustrate the math of how ASMs work, not claiming that 1) United should drop Newark to Geneva or 2) That it should add more Denver/Newark - Vancouver flights. I was simply illustrating the math of how ASMs work.

TWA772LR wrote:

A friend showed me this article on Facebook. He wants to cut "oil routes". From Houston. The oil capital of the world. As well as a flight to a partners hub with whom they have ATI.

The author has no credibility to me.

Far from being reasons to keep routes, the fact that Houston is an oil capital and partner hub ATI routes exist is precisely why United should cut those routes. The oil routes are weak in today's economy and global macroeconomic approach, and the ATI routes are ones where United can still profit from traffic on those routes while reducing its capacity.

intotheair wrote:

LAX772LR wrote:

...and Grinstein's, and Anderson's, and Kellner's, and Parker's, and Arpey's.
Probably best to not ignore history for the sake a Smisek dig.

Oh that wasn't really meant as a Smisek dig, and I don't think history has much to do with it on the surface. It was merely a comparison of the current CEO and president's strategy with their predecessor's. And I don't think focusing on international growth was or is necessarily a bad strategy. It made sense in the Smisek era when international flying was really hot — much hotter than right now. The mistake of Smisek's tenure, at least in this regard, is that domestic really did shrink and became a much less compelling product and schedule compared to UA's rivals at many hubs. Capacity did need to be pared down, yes, and much of it was already happening pre-merger and pre-Smisek at least on the PMUA side. But UA is now learning that they can't continue to run on the playbook of shrinking to profitability and cutting capacity on a week-to-week basis in order to boost the short-term yields of individual routes. UA has some nice global gateway hubs like EWR, SFO, and IAH, but FFs will not stick with them for very long if they have to put up with low frequency RJs to everywhere else and if the competition flies mainline. Kirby's EWR-ATL example at the investor day was a good articulation of this problem (see slides 10-13 here, warning PDF link).

Of course international flights are important and profitable, and of course they need feed in order to work. (Insert Pan Am reference here.) But I doubt the belief that domestic flights are largely unprofitable and "only" exist to feed international, as either Smisek or Rainey once said. Plenty of airlines in this country have figured out how to make money in domestic air travel, and at least one or two of them have figured out how to run a robust domestic operation alongside long haul international. Maybe UA can someday figure out how to do the same.

I'll also add, before anyone later tries to suggest otherwise, that I don't think UA needs to significantly cut their international network either, as the writer in the OP link suggests. They seem to have already trimmed off some of the more marginal routes like a lot of the Asia fifth freedoms, IAH-LOS, and EWR-secondary Europe. I don't see much left that screams "well this must be a money pit!"

The point isn't that these routes are losing tons of money, the point is that in order to add any additional domestic flying, United has to pare back nominally profitable or perhaps slightly in the red international flying.

727200 wrote:

This person has no credibility, isn't in the financial market, or a certified analyst; this is strictly his own opinion. Why would anyone quote him as a source then expect discussion on the subject?

FlyUSAir wrote:

Airways unfortunately has lost all credibility with me along with their articles becoming like a comic book. A shame, I used to enjoy them and even personally knew some of their writers. That being said, it does seem like UA is scaling back International travel and increasing/focusing on domestic travel.

theasianguy wrote:

https://airwaysmag.com/airlines/analysis-united-should-cut-back-international-flying-to-fund-domestic-growth/

Just found this article on Airways. The premises it's based on are so bad it's laughable. Seriously, who writes this crap? Anyways, have a laugh.

Thank you all for reading!

klwright69 wrote:

There is a lot of nonsense in this article and in this thread. Did you read his bio at the end of the story? He is an airline enthusiast and misses Northwest everyday. In other words this article could have been written by any avid reader of this site, in fact he probably reads this site and contributes to it. Need I say more?
The writer talks about a number of routes that are already gone.
His analysis is like this "UA flies to AMS to other hubs in addition to IAH, so IAH-AMS serves no purpose. GRU is served from EWR, so it should be dropped from IAD,.IAH-FRA is served by LH, so that can go too. And so on, and so on.

I've covered the US airline industry as an analyst for the better part of a decade. I also do read this site (don't contribute all too much) because I like aviation and (for the most part) like reading through the discussion threads. My premise is that if you assume that United has to cut some international flights, then redundant flying like IAH-AMS can be cut.

Lets take this at face value.

First off, I actually agree that there can be some de-emphasis on international to invest in domestic. Domestic is where the money is at right now which explains why DEN is UA's most profitable hub right now.

However, youre reaching far too much in the idea of redundancy and youre reading way too much into the oil downturn.

Lets go through the list youre suggesting being cut:

HKG - SIN - I agree, cut it.
HNL - NRT - This is the single largest US-Asia market. Why cut it?
IAH - UIO - This has zero to do with the oil market and isn't flown to any other United hub. The fares are also high. This shouldn't be cut.
IAH - GIG - Are you serious???? This flight has a large local market, isn't served by any other UA, and the fares are through the roof.
IAH-FRA/MUC - I agree, get rid of IAH-MUC for good. It brings nothing IAH-FRA doesn't.
IAH-AMS - See IAH-GIG. This route has a large local market and high fares. Do you want to send the Houston based oil execs running to KLM?
One of EWR-GLA/EDI - Why cut them year round? Keep both in the summer at the very least.
One of EWR-MAN/BHX - Why? To my knowledge there is no need.
EWR-HAM - I could see it going. HAM doesn't generate as much J traffic as other destinations in Germany.
EWR-SNN - Keep it seasonally. No need to have it in the winter.
IAD-GRU - Not sure about the fares, but the local market is big. LATAM would definitely pick it up if UA drops it.

Varsity1 wrote:

Galwayman wrote:

USA doesn't really have any proper international airlines - the international network of the US3 is embarrassing . Nothing to compare with the global airlines like EK, TK or even Ethiopian ...

Might make sense just to fly domestically for United and the other 2

Unlike the airlines named, the US3 are wildly profitable.

This isn't an airplane club. It's a business. The whole point is to generate returns for investors.

It certainly took the US3 airlines many, many, years to realise they were businesses and had to generate returns for investors. They could have cut pilot salaries and conditions more and more.

peanuts wrote:

I don't see how the threadstarter has any more credibility than Airways Mag.
The author is sticking it's neck out at least. Whereas the threadstarter is clearly hooting and hollering from the bleachers, something a.net has been known more for, lately.

Yep. The thread starter must have a Ph.D in Toxic Rhetoric.

Someone must have had a really sh*tty Monday morning

intotheair wrote:

frmrCapCadet wrote:

Wasn't it about 5 years ago that cutting domestic and adding international was the new secret to financial success? Which is not to say that things go back and forth, and as markets change strategy needs to change. But some of this could be that US airlines are not competing well.

I don't know about that necessarily. That was certainly Smisek's strategy, and the new UA executive team's strategy is quite the opposite. But to say U.S. airlines aren't competing well internationally is to ignore that there's also a ton of competition domestically — competition that Smisek's UA retreated from. This is more about UA being competitive again and trying to regain all the ground they lost domestically to AA, DL, and WN.

On the international front, there's a definite global slowdown happening. The dollar is much stronger than it was five years ago, so Europeans aren't traveling to the U.S. like they used to, and Americans don't really travel overseas in quite the same fashion. The U.S. airlines don't seem to be too worried about low cost long haul competition the same way the EU3 are panicking over DY, Wow, et al, though the US3 certainly raise a stink about the ME3, for better or for worse.

I thought Americans travel internationally from time to time.

Perhaps US3 should improve their international service.

I don't think they will cut SIN-HKG-SIN which serves people who want to travel to/from the east coast very well. Also they make a lot of money carrying cargo.

I hate to break this but Ecuador is in OPEC. In the article the author says UA should drop all oil related cities from IAH such as GIG, UIO, and CCS. I think it's very shortsighted. Fares are high to South America also.

vin2basketball wrote:

Part 2 - Wall Street won't let United grow capacity because of its own obsession with PRASM and penalizing airlines for capacity growth (plenty of examples over the last few years)

Can you explain how that works? What are some of the examples over the last few years where "Wall Street" penalized airlines for capacity growth?

I'm not an analyst, so really don't know how these things work. That's one reason why I read these threads.

Without offering said example, analysts tend to focus on unit costs without fully understanding that a RASM negative decision can still be a P&L positive decision. But RASM is fairly public, while the P&L of every action is not public. Analysts who haven't actually worked in the industry, and don't have enough data, are always over-interpreting what limited data they have. They usually don't get the subtlety of, say, how a 2-year negative strategy might be the ideal 10 year strategy, or they might say how "stage length must be increased" because long stage length appears to be associated with efficient unit costs. That's true, but also meaningless. The lowest RASM airline could potentially be the most profitable

These Wall St guys get profit, but they aren't great on logistics. The people who know logistics are the veteran FP&A, marketing and network planning staff, the dispatchers etc, and operations research. These people not only have the best data, they have experimented continuously for decades, and have real facts to back up their chosen methods.

quiet1 wrote:

vin2basketball wrote:

Part 2 - Wall Street won't let United grow capacity because of its own obsession with PRASM and penalizing airlines for capacity growth (plenty of examples over the last few years)

Can you explain how that works? What are some of the examples over the last few years where "Wall Street" penalized airlines for capacity growth?

I'm not an analyst, so really don't know how these things work. That's one reason why I read these threads.

PRASM stands for Passenger Revenue per Available Seat Mile. In short the analysts see the word 'revenue' and think "grow baby grow". The market will always decide what routes get operated and on what airline, which is a topic you learn in economics.

And Wall Street is filled with finance majors.

I don't see anything too comical about the article, for years IATA has shown the highest yielding passengers in the world are within North America. The 2017 IATA outlook had an expected average profit of $19.58/passenger in North America, $5.65 in Europe, $4.44 in Asia Pacific, $1.56 in the Middle East, $0.76 in Latin America, and an average loss of $9.97 per passenger in Africa.

http://www.iata.org/pressroom/pr/Pages/ ... 08-01.aspx

Therefore if United wanted to maximize profits for its shareholders it would stand to reason that strengthening the domestic market is a fiduciary responsible strategy.