United: Goodbye International First Class; Goodbye Guam Hub?

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United CEO Jeff Smisek makes it official that United’s 3 cabin first class is on the way out,

“One aircraft he won’t be buying is the A380. “That is a product for state-subsidised airlines, or airlines that have it and wish they didn’t,” he says. Another thing he doesn’t like is international first class. “It’s a money loser, and we will be eliminating it over time. For example the 767s that have it today, as they get retrofitted you will not see it reappear. The problem is that it takes a lot of real estate, and people are not willing to pay for that. I suspect the other carriers, apart from the subsidised Gulf airlines, would say the same thing.”

Mind you, United has what is usually ranked as the worst 3 cabin international first class in the airline industry, so it’s no surprise that it’s a money loser. Why would anyone pay for United first class when the competition’s first class offerings are far superior?

And it’s not just the gulf carriers with successful first class products, United’s own joint venture partners ANA and Lufthansa have successful first class products. As do other Star Alliance airlines like Asiana, Singapore, Swiss, and Thai.

Sure, not all routes are cut out for first class, but the demand is there.  That demand is just voting against United’s extremely lackluster product.  Of course United themselves tacitly acknowledges this as since last year they charge a fraction of the miles for first class on their own flights as they do on partner first class flights.

Smisek eliminated first class on United’s JFK-LAX/SFO p.s. transcontinental routes a few years ago, even as American went ahead with a new plane order affirming that first class demand exists on those routes. Later this year United will completely retreat from JFK as they waive the white flag against competition from American, Delta, Jetblue, and Virgin America.

Of course Smisek’s motto is “Ultimately, we can’t create demand, but we do have a responsibility to react to it.”
As in, why proactively improve our first class product to compete when we can just reactively decide that it’s not profitable and eliminate it.

The irony is that Gordon Bethune, one of the most popular airline CEOs of all time, wrote in his excellent book “From Worst to First” exactly how that kind of reactionary thinking is what nearly drove Continental out of business is the early 90s. Or as he put it, “You can make a pizza so cheap, nobody will eat it. You can make an airline so cheap, nobody will fly it.”

Smisek may think that United is unable to create demand. The truth is that they’re quite adept these days at driving away premium demand.

Can you tell I’m not exactly Smisek’s biggest fan? Even if he did give me a framed photo of me sitting at his desk.
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At the beginning of 2014 United had a whopping 9 domestic hub airports (Chicago, Cleveland, Denver, Guam, Houston, Los Angeles, Newark, S. Francisco, and Washington/IAD)

Cleveland was downgraded to a focus city in June.

Is Guam next?

A few months ago I had the unique experience of flying on the Island Hopper to Guam.  It had been on my bucket list for a decade and I’m glad I did it when the opportunity arose.

8 months ago United eliminated flights from Guam to Hiroshima, Niigata, and Okayama. They also reduced the number of daily flights to Sapporo and Tokyo, meaning that the Island Hopper could no longer connect to Tokyo.

In September United will eliminate flights from Guam to Cairns, Australia and from Guam to Seoul.  AJK and I had debated whether to fly the Island Hopper to Cairns for the Great Barrier Reef and then United up to Seoul via Guam connecting to Asiana first class to get back home. Ultimately flying to Palau and then home via Tokyo on ANA first class won out as it meant we would be home for Shabbos (well, it would have meant that had United been willing to hold a flight for 6 people for a few minutes as they did for 1 dog for 45 minutes). Korean still connects Seoul to Guam, but nothing else connects Cairns to Guam.

Now these reductions don’t have to spell the end of the Guam hub.  But as Brian Znotins, VP of United’s network strategy, explained to me in 2012, hub airports can go into virtuous cycles where flights keep getting added as more people flow through the network, or vicious cycles with flight cuts that eventually spell a hub’s doom.

It’s not looking good for Guam.

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29 Comments On "United: Goodbye International First Class; Goodbye Guam Hub?"

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AR

Why do you presume to know better than Smisek how to run United? If he feels it’s a money loser than so be it. How can you even argue without knowing the finances and what’s involved?

Dan

@AR:
I don’t doubt that it’s a money loser for United.

But the reason for that isn’t “demand.” It’s that it’s a loser of a product.

The US carriers are beyond complacent. The gulf carriers are starting to eat their lunch. Rather than fix their broken product and poor service (flight attendants are here for your safety, better think twice before hitting that call button) they’d rather complain and have the competition removed.
But that’s a whole ‘nother story.

James

Why doesn’t united just put an end to its own suffering and eliminate itself entirely.

Robbo

International First on any American airline is crap, and UA were super-crap. It borders on fraud even calling it First. So goodbye to what is pure crap anyway. Now, I wait in the wings until the whole operation closes down. UA is dreadful and the sooner this blight on the industry shuts down, the better.

Broussard

Still waiting for the next installment of the island hopper tr

Achshell

Iv’e just flown various eouropien budget airlines (EasyJet and Pegasus) all I can say is that united is a far cry even from these budget airlines. Shame on United! We want Continental back!

Moe

freakin love that pic, story behind it?

Dan

@James:
I’d rather Gordon Bethune return 🙂

@Robbo:
At least AA gives you pajamas 😉

@Broussard:
One day I’ll find the time…

@Achshell:
Amazingly both Continental and United were better than the current version of United.

Really a shame they were allowed to merge. Kellner (Bethune’s hand picked successor) had it right, but the board forced him out for not being willing to merge with United.

Then again Bethune said that “United is HIV positive.” Guess he knew what he was talking about.

@Moe:
Thanks 😀
It’s from the United DO at UA headquarters,
http://www.dansdeals.com/archives/25684

washdc
Barry

My biggest beef with United is that they have so watered down their loyalty program that I have almost stopped giving any preference to United. Not long ago I would (and did) pay substantial premiums to accumulate my United miles and status. Now… I buy the cheapest ticket I can find. The cost savings now outweigh the value of the miles. I have gone from Gold to Nada.

Dan

@washdc:
Question will be how they can enforce that?
I guess they can go after your mileage account…

@Barry:
Indeed. Until last year their redeeming factor was their amazing mileage program.

It’s still good, but no longer good enough to keep people loyal despite running a poor excuse for an airline.

sox22

What’s the best use of 250,000 United points? I just can’t decide how to get the most value out of them.

jack

@sox22:
look in some of the ideas at the end of this post
http://www.dansdeals.com/archives/53006

AJK

I think you’re right. Smisek’s comments are akin to not watering a tree, and then when it dies, rip it out of the ground because “it’s not growing.” Way to be a shepherd to your flock, big guy.

With respect to UA cutting flights out of Guam, it was only a matter of time; the loads are absymal. Remember how empty the GUM-NRT leg was? I voluntarily downgraded myself from business to coach because I could pick one of 15 rows of 5 seats across to sleep on!

ADub

Dan – Quick question. I have a United coach saver award ticket from LAX-EWR-TLV-TLV-YYZ-LAX. For many months I’ve been watching for saver business to come up, and only this morning did the LAX-EWR leg opened up, but not for the rest. I’m willing to pay the extra 12.5K points for that one leg, but in speaking with UA they wont allow it…Is this correct or do I need to HUCA?

Dan

@sox22:
Lots of ways to get value, just depends in what you’re interested in.

@AJK:
Great analogy.

That was the lightest load I’ve ever seen on a 777. Doubt it’s sustainable.

@ADub:
You need to set up a Plan B redemption, should have done that in the first place in fact.

http://www.dansdeals.com/archives/38212

If you don’t clear business for EWR-TLV then you won’t pay any extra miles for having flown in business for LAX-EWR.

ExGingi

@Dan: From an objective real estate perspective, I would guess that economy is more profitable to airlines than business class and possibly first.

The ratio of paying passengers per square meter of cabin floor space, coupled with extra fees paid by economy passengers and ratio of cabin crew per passenger, would lead me to believe that economy is simply more lucrative to the airlines.

ADub

Thanks Dan. So what’s the best strategy now in contacting UA, after the fact? How does it work if my TLV-YYZ-LAX is booked through Air Canada?

Dan

@ExGingi:
If that were true then airlines wouldn’t have business and first class.

A business class fare can be 10 times a coach fare and a first class fare can be 5 times a business class fare. Those fares more than cover their real estate. Assuming that the offering is good enough to get people to pay for it.

@ADub:
You can still set it up, it will just likely cost a $75-$100 change fee.

ExGingi

@Dan: I can only comment based on my travels between NYC and TLV. And looking at fares between ADL and TLV.

I found Business class fares to be between 1x economy (recent JFK-TLV on Transaero – granted not your best airline or business class, but definitely good value for me) to 4x economy.

While I prefer to travel for “free” using miles, often the flights are not available, and close-in fees and/or fuel surcharges just make it more worthwhile to pay for the business class ticket and book the miles for use another time.

I realize that first class is better, and possibly more profitable IF IT CAN BE SOLD. But how many reasonable people would actually PAY for First Class? Is the extra value really there to justify the price (unless you’re a Middle Eastern Oil Baron?)

I think airlines started becoming profitable when they started nickel and diming the economy passengers and competing with the low cost carriers. Super Luxury is a niche market, you have to make a conscious decision to compete there, and I don’t know if you can compete on both end concurrently.

I would love to see an airline that will fly all Business Class between NYC and TLV, but it’s probably less profitable than having sardine class, with some business seats to satisfy the market.

Dan

@ExGingi:
Lol, please don’t bring Transaero into the discussion.

United does very well selling its business class to paying customers. Just look at EWR-TLV on most dates.

You can’t make it with just coach or just business.

Just coach means there’s not enough high-yield traffic to make it profitable.
It’s been tried, look up United TED.

Just business means there’s not enough paying customers (without discounting the seats) to make it profitable.
It’s been tried, look up Singapore A340 from LAX and EWR to SIN.
http://www.dansdeals.com/archives/28722

The key is finding the right mix and the right aircraft for each route.

ExGingi

@Dan: You obviously are well versed in the airline business. I appreciate learning from you.

So looking at the right mix, how many routes can justify first class cabin? It seems to me like airlines are mostly giving 3 classes of service with Economy, Economy Plus and Business.

And while you don’t want Transaero in the discussion (and I understand why, I’ve flown DL, US, TK and LO in business, and Transaero is indeed in a class of it’s own), if my goal is to get to my destination in reasonable shape, and I’m not looking for any pampering, $1,520 for Transaero business sure beats $1,600 in Economy on DL or UA, when I’m leaving on Sunday and am back on Wednesday. And Transaero business on narrow bodies is actually better than most European narrow body airplanes (TK and LO come to mind).

And since I don’t see myself ever paying for first class, but I definitely am hoping to get an opportunity to try an SQ suite using miles, maybe you can answer a question that keeps on lurking in my mind: How do airlines account for award seats amongst themselves? What does AA pay it’s partners flying a passenger in Business from Australia to TLV when they charge (in miles) for that 24 hour one way trip approximately the same as they charge for NYC-TLV in economy?

ExGingi

@Dan: As long as you keep on posting Spirit “deals” you have no right to bar Transaero 😉

CA

I love it when people herw complain about airline services, when most fly on miles or fare glitches, if the airlines would be relying on you for revenuw they woukd all be bust

ADub

Dan – just reporting back. Firstly, I just want to tell you that I’m your biggest fan. Seriously, thank you for everything. Second, I just reached out to UA to do the after the fact Plan B as you suggested above, and they were able to confirm me in first for the LAX-EWR, and it also shows in my confirmation that I’m in Business First on the EWR-TLV now as well, although it doesn’t allow me to choose a seat. Does that mean I’m waitlisted? Am I guaranteed on this connecting flight without a confirmed seat? Makes me a little nerves since I’m flying with wife and kids. Btw the fee was $50.

Dan

@ExGingi:
1. A route with premium traffic (such as flights to Hong Kong or London) can work with business and first.

2. The $1,500 Transaero business class isn’t competing with people who would pay $5,000 for United business to TLV.
It’s competing with the people who would pay $1,500 for United Economy Plus to TLV.

The $500 Transaero coach fares isn’t competing with people who would pay $1,000 to fly Delta.
It’s competing with people who would otherwise not fly to Israel.

3. They pay very little for partner awards.

@ExGingi:
Not barring anything.
The $68 Spirit round-trip to LAX isn’t competing with people who would pay $400 to fly JetBlue.

It’s competing with people who would otherwise not fly to LAX.

@CA:
That shows what you know.
Mileage sales are the most profitable aspect of carriers like American and United. If not for that they’d all have never exited bankruptcy court.

@ADub:
If you can upload and post a screenshot of your itinerary I can comment.
Did they actually pull the extra miles from your account?

ADub

Yes, they deducted an add’l 27.5K miles from my account. I cant figure out how to post a screenshot..

Anonymous

Looking at the picture with you and the United CEO. Boy! do you have credit cards ☺

Michael

hey Dan, thanks again for all of your insightful information. I’m a long time follower using MS to generate miles on the various cards. I would like to know if you have or whatever post a post on carry on luggage and good places to get good deals. for me I have multiple needs in that area. Lastly, if you know, I need to get from ZRH to SFO on August 9. I’m willing to fly out of any European city but I can’t seem to find anything for less than 65,000 miles one way. Thank you!

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