United Airlines’ CEO Scott Kirby is warning that airlines aiming to return to 2019 operating levels are destined to fail if those companies ignore fundamental changes that have occurred in the aviation industry.
Kirby told analysts and investors in a Jan. 18 earnings call that for a host of reasons United believes the industry’s capacity aspirations for 2023 are simply unachievable. United, he said, has taken a different approach as industry fundamentals shift.
The drivers constraining capacity include pilot hiring and training as Kirby noted that United, along with competitors American Airlines, Delta Air Lines, and Southwest Airlines will hire roughly 8,000 pilots in 2023 compared to historical hiring levels of 6,000 to 7,000.
He believes pilot challenges will remain a significant constraint on capacity for some operators, citing lower levels of experience among new hires and new rules in some U.S. states that make it easier for staff to call in sick.
Additionally, across the board, there are supply chain constraints that limit the ability of airlines to grow, Kirby said. United believes any airline that attempts to operate at pre-pandemic levels is “bound to fail, and likely to tip over to meltdown any time there are weather or air traffic control stresses in the system.”
“The FAA and most airlines with the exception of network carriers have outgrown their technology infrastructure and simply cannot operate reliably in this more challenging environment,” Kirby said.
United has calculated it needs to “carry about 5% more pilots per block hour than pre-pandemic,” Kirby said. Additionally, air traffic control challenges are resulting in the airline’s taxi and en-route flight times becoming elevated and growing, he noted.
“So, the same number of block hours probably produces 4% to 5% fewer ASMs [available seat miles],” Kirby said. “Put it together, you need 10% more pilots and 5% more aircraft to produce the same number of pre-pandemic ASMs. Like it or not, that’s just the reality, and new math for all airlines.”
Kirby concluded United may be “the only airline that has figured this out, and likely the only airline” that has factored the new operating reality into its unit cost guidance excluding fuel for 2023.
The airline expects its costs per available seat mile (CASM) excluding fuel for 2023 to remain flat compared with 2022 on capacity growth in the high teens year-on-year. The airline’s 2022 capacity, measured in ASMs, was 13% below its 2019’s capacity deployment.
United CFO Gerald Laderman said the airline’s cost guidance for 2023 is inclusive of investments in the systems that support operational reliability, higher inflation for all parts of the company’s business, and current expectations for labor increases that include possible signing bonuses.
“One lesson learned during the pandemic recovery is that it is both economical and profit maximizing to provide cushion to our aircraft utilization,” Laderman said. “Instead of pushing utilization to its theoretical limit, we are focused on protecting our reliable operation.” That focus minimizes delays and cancellations that would otherwise drive higher costs such as overtime and accommodation costs, he said. United also has roughly 25% more spare aircraft than prior to the pandemic, Kirby said.
Even as United takes its declared different approach from airlines that are attempting to reach 2019 aircraft utilization levels, the company’s 2022 fourth-quarter (Q4) revenue of $12.4 billion was 14% higher than 2019. For the full-year, United’s 2022 revenue of $45 billion was 4% higher than same period in 2019. The airline’s $1.1 billion Q4 net income was 34% increase over Q4 2019, but its 2022 $737 million net income was 76% below pre-crisis levels.
During 2023, United expects to take delivery of 92 Boeing 737 MAX narrowbodies, seven 787s and four Airbus A321neos.
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