INTERVIEW
BBT EDITOR PAUL REVEL TALKS TO UNITED CEO JEFF SMISEK ABOUT SUBSIDISED AIRLINES, TRANSATLANTIC COMPETITION, NEW PRODUCTS AND GROWING IN CHINA
UNITED AIRLINES, TOGETHER WITH ITS regional brand, United Express, operates more than 5,000 flights a day around the world – including, as CEO Jeff Smisek points out, 26 UK flights a day, of which 17 fly out of Heathrow. He is relaxed about the competitive
transatlantic market, and capacity chal- lenges at Heathrow, where he’s competing with the joint ventures of Virgin-Delta and BA-American. “Obviously, additional slots at Heathrow are scarce and difficult to obtain.” he says. “But that’s the same in any slot-controlled airport. Newark, for example.” He agrees the routes from Heathrow to
New York and United’s other US hubs are “fiercely competitive”, but, on the other hand, they’re the routes with a lot of high- yield business traffic on them. “That’s what makes them so competitive – people go where the money is,” he says.
OPEN SKIES DISPUTE So, competition doesn’t faze Smisek, but what does get his goat is what he calls “state-subsidised airlines” taking market share. Asking him about the current Open Skies dispute between the ‘big three’ US airlines and the ‘big three’ Gulf carriers is like lighting the blue touchpaper. The US currently has 117 Open Skies
treaties in place, and Smisek says United has been both supporter and beneficiary of these – apart from the treaties with Qatar and the UAE, which have been “terribly abused” by those countries’ governments using massive subsidies. “It’s off the charts,” says Smisek.
“These countries have no home markets at all; they rely entirely on taking traffic from others, through subsidies – whether subsi- dised pricing, product levels or marketing.” He adds that beyond the “indisputable, very conservative” figure of US$42 billion over the past ten years, “I suspect there are billions of additional dollars of additional subsidies buried in interested-party transactions.” United has joined Delta and American Airlines to form the Partnership for Open and Fair Skies, a coalition lobbying the US government on the issue. I point out that the Gulf carriers claim US airlines have also benefited from government support: Etihad has cited research claiming the US ‘big three’ received benefits worth US$70 billion since 2000 – the majority of this in the form of Chapter 11 bankruptcy protection. “That’s an absurd argument,” Smisek replies. “Bankruptcy protection is not a subsidy.” Etihad CEO James Hogan has talked about the “dark clouds of protectionism” – are the US carriers being protectionist? “Our government has had a long-standing trade policy, that it won’t tolerate dumping of sub- sidised goods into the US – whether that’s subsidised steel, cotton or airline tickets. This is a pure trade dispute, not protectionism.”
CHALLENGING MARKETPLACE The subsidy dispute aside, most would agree that airlines operate in a challenging marketplace. So how does United dif- ferentiate itself from rivals? “You have to have a competitive product,” says Smisek. “For example, the B767-300s, we are ret-
These countries have no home markets at all; they rely entirely on taking traffic from others
BUYINGBUSINESSTRAVEL.COM
rofitting those from nose to tail, with new flatbed business class seats, economy-plus and economy, wifi and streaming video. This will be a gorgeous and completely new product.” He says the first retrofitted aircraft will appear by the middle of 2016. The airline has also invested heavily in facilities, he says, citing the two “glorious” United lounges in Heathrow’s T2, and in United’s home hubs, including a US$500 million facility in LAX, and a new terminal in Houston, both under construction, as well as restaurants in Newark Liberty airport that feature 6,000 iPads for ordering food. Smisek is also enthusiastic about the B787
Dreamliner, saying its fuel efficiency opens up new markets such as the San Francisco- Chengdu route that started last year. But not so about international first class (“It’s a money loser, and we will be eliminating it over time”) nor the A380 Superjumbo: “That is a product for state-subsidised airlines, or airlines that have it and wish they didn’t.”
APPS AND AGENTS
Smisek adds that the United app is a key focus for the airline. “We’re investing heavily in technology and control for con- sumers. We’ve had 20 million downloads of our app, and we’re upgrading it to implement a new journey management system, for irregular operations such as maintenance or weather problems.” Which brings us on to the thorny issue of distribution. “My view is we want to be on as many distribution shelves as possible,” he says. “It’s great that our app and direct distribution is growing rapidly, because that’s a low-cost system for us. But if pas- sengers want book through a high-touch travel agency, that’s fine. Travel agents can deliver high-yield customers – we are always willing to pay for that. “Philosophically I don’t have opposition to global distribution systems or travel agents. If they’re delivering value, they should be compensated. But when they demand more compensation than the value they deliver, we have to come to a more commercially reasonable solution.”
n Full interview at
buyingbusinesstravel.com
Jeff Smisek is chairman, president and CEO of United Airlines. He previously held the same roles at Continental Airlines, which merged with United in 2010. Smisek joined Continental in 1995. He graduated from Princeton University in 1976 and from Harvard Law School in 1982. He serves on the board of governors of IATA, and is chairman of the board of trade body Airlines for America.
BBT SEPTEMBER/OCTOBER 2015 35
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84 |
Page 85 |
Page 86 |
Page 87 |
Page 88 |
Page 89 |
Page 90 |
Page 91 |
Page 92 |
Page 93 |
Page 94 |
Page 95 |
Page 96 |
Page 97 |
Page 98 |
Page 99 |
Page 100 |
Page 101 |
Page 102 |
Page 103 |
Page 104 |
Page 105 |
Page 106 |
Page 107 |
Page 108 |
Page 109 |
Page 110 |
Page 111 |
Page 112 |
Page 113 |
Page 114 |
Page 115 |
Page 116 |
Page 117 |
Page 118 |
Page 119 |
Page 120 |
Page 121 |
Page 122 |
Page 123 |
Page 124 |
Page 125 |
Page 126 |
Page 127 |
Page 128 |
Page 129 |
Page 130 |
Page 131 |
Page 132