United’s fare cuts fuel risk of fresh airline price war

Bloomberg

A price battle between United Airlines and heavy discounters is spreading to other US carriers, threatening to derail the industry’s nascent recovery in pricing power.
Competition that heated up this summer in United’s hub cities of Houston, Chicago and Newark, New Jersey, has extended to American Airlines in Dallas and to other carriers, airline executives said. Passenger revenue for each seat flown a mile, a proxy for airlines’ control over fares, had finally started rising this year after a slump triggered by a 2015 price war.
While the fare cuts are good news for travelers, they risk hurting earnings throughout the industry. The pain would be particularly acute at full-service carriers, which face higher costs after boosting wages in recent years. Southwest Airlines Co., the largest discounter, is among the carriers that have been pulled into the fray.
“There is definitely a broad-based discounting amongst certain carriers” that has expanded, Andrew Watterson, Southwest’s chief revenue officer, said in an interview after speaking at the International Aviation Forecast Summit in Las Vegas. “If one or two airlines go off on a price-cutting binge, other airlines go along for the ride. If one airline moves and another does not, you could lose an awful lot of volume and you’re worse off doing nothing.”
American Airlines Group Inc. and United Continental Holdings Inc. are matching—and sometimes undercutting—the heavy discounts of Spirit Airlines Inc., said Robert Fornaro, chief executive officer of the ultra-low-cost carrier. Its base tickets cover a seat and a small carry-on, like a purse. Seat assignments, water and bigger carry-ons cost extra.
American was charging $25 to fly from Dallas-Fort Worth International Airport, its biggest hub, to Denver International on Sept. 3, according to the carrier’s website. A round-trip ticket was $70. The availability of such fares typically is limited.
United is using new basic-economy fares to match discounters’ prices, President Scott Kirby said.
“Being competitive against anyone that we fly head-to-head against is critical and strategically important,” Kirby said. “A lot of our customers are price sensitive. Not all of them, but many of them.” A basic-economy ticket includes fewer amenities than a typical coach seat and usually requires passengers to board last and pay extra for more than one piece of carry-on luggage.
He said United is selling only “a handful of seats” at, for example, $20 and expressed doubt that ultra-low-cost carriers can remain viable if they take on the big airlines at their hubs.
“They are out of growth opportunities. The problem is, customers do not want to fly a ULCC if they can get the same price on a different carrier,” Kirby said.
Basic economy has given
the largest airlines a weapon they lacked during the 2015 price war.

United boss to offer $1mn for Harvey relief
Bloomberg

United Airlines Chief Executive Officer Oscar Munoz is pledging as much as $1 million of his own money to match donations to the company’s employee-relief fund in the wake of Hurricane Harvey, according to sources.
The CEO encouraged workers to contribute to its United We Care fund for storm-stricken employees in a letter, said the people, who asked not to be identified because the matter is private.
“We are all in this together, which is why I will personally match your contributions dollar-for-dollar up to $1 million,” Munoz said.