Monday, March 9, 2020

United's April Cuts

At the Chamber of Commerce Aviation Summit, airline CEOs compared the demand environment to trends similar to those following 9/11. Airlines are now starting to react to the demand environment. As we discussed last week, airlines are trying everything they can to get bookings. Change and cancellation fees waivers continue to be spread for future travel periods. Heck, Alaska is even trying to bonus people into status runs with a 50% mileage bonus towards elite statusAlaska also announced an aggressive fare sale last week when other carriers were stating they could not even stimulate demand with fare cuts.

If you got a call from United late last week, you knew it was not going to be a fun conversation. You did not answer the call expecting a new route announcement or frequency increase, as many airports expect during these calls. In your mind, it was "how much capacity am I losing?"

On Wednesday, United announced they were decreasing April domestic capacity by 10% and international by 20% to offset demand reductions associated with the Coronavirus. Anecdotal data points throughout the industry show a massive drop off in bookings. Sabre reported a 15% drop in bookings in January and February. Remember, the booking trends accelerated recently, so this number is likely to understate the severity of recent trends. 

As we go through today's post, we will first discuss the reduction in terms of ASMs (available seat miles). ASMs is the capacity unit of measure that is communicated to Wall Street and drives a vast majority of airline's standard metrics. This was also the only way I could tie United's capacity guidance with what was filled. Later in the post, we will switch to trips and seats, which drives passenger demand much more than ASMs.

Over the weekend, United's April capacity reductions were loaded. In total, United's schedule currently shows the airline down 13% year-over-year in ASMs vs. 2019. This is significantly off their 2-3% ASM growth that we saw scheduled in winter, as well as what is currently filed over the summer. 

How substantial were these reductions, in terms of ASMs? Well, 1/3 of United's routes were decreased or exited. Additionally, United removed the equivalent of 92% of Spirit's or 138% of Frontier's April networks. Take your pick. Whatever measurement you use, this schedule change was massive.

These cuts were truly network-wide. The reductions hit each of United's hubs and fleet types. But that does not mean they were all hit equally. The middle of the country, which has fewer long haul international ASMs, saw a much more modest decrease in capacity compared to the coasts. 

As we might expect, two-thirds of United's ASM reductions came from the international side of the house. Much of the international cuts came from outright market exits. For the most part, the market exits were where we would expect them, heavily impacted areas in the world where the virus has hit hard; China and Italy. However, we also see Chicago to Zurich and Houston to Vancouver and Edmonton, Canada, also exited. ORD-ZRH and IAH-YVR appear to be temporary exits. However, IAH-YEG seems to be a permanent exit.

We also see another 48 international markets saw their capacity reduced as well. Again, long haul international frequency reductions drove the vast majority of these cuts. Most of these reductions targeted flight originating from the West Coast to Japan, South Korea, Singapore, and a slight reduction to Israel.  

With these reductions, widebody service took it on the chin, hence, why United is asking those pilots to take time off. In total, widebody capacity is scheduled to be down 13%, with the 777s taking the brunt of the impact. A month ago, United had nearly 130 average daily 777 expected departures in April. As of this weekend, the United is reducing the 777 to just under 100 daily departures (23% reduction). 

Long haul international is not the only international franchise that saw significant reductions. European service from both Dulles and Newark is scheduled to see capacity reduced. United had much more flexibility to reduce its European service. While FRA, GVA, and MXP saw frequency reductions, other European routes were cut by downgauging 777s and 787s to 767-400s or 767s to 757s. 

Turning towards the domestic front, United took multiple approaches to reduce domestic capacity. While the smallest amount of ASMs removed, United did exit eight planned markets in April. Most of these exits appear to be April seasonal exits; however, SFO-XNA, CAK-IAH, and JAN-ORD all seem to be permanent exits. 

Next, United cut 2 to 3 daily flights in long-haul, Florida, or higher-frequency markets. The only market here that sticks out like a sore thumb is PAE. PAE does not fit the mold here compared to the other higher frequency reductions. I've analyzed PAE in the past, and I am a little surprised why United kept the city at all. My only assumption is United's executives have decided on no city exits until they understand if the virus demand trough is temporary or a much longer recovery. 

With the remaining flight reductions, you have to get really into the weeds to understand why United cut them. First, United reduced its later-night arrivals. These flights typically were associated with end-of-day flights out of United's hubs into smaller spoke cities. This approach also drove a 17% reduction in the number of flights departing in the 6am hour. 

If you survived all other cuts, you there's still a pretty good chance you saw a downgauge in your aircraft. Of the markets which did not see a capacity reduction, 59 markets saw some level of gauge decrease. Gauge changes ranged wildly, from a couple of seat gauge adjustments across the entire month to FAT-ORD, which saw a gauge swap of a mainline narrowbody to an E-175. 

If you are traveling in April, I suspect you will have the highest quality United schedule in quite some time. They likely are operating with spares than they have had in quite some time. However, this does come with a cost. 

If these cuts impacted you,  you are not alone. This type of capacity reduction is unprecedented in the modern airline industry and it appears globally more carriers are reducing their capacity as well. Please remember this if you are working with any of the airline commercial groups. They are under intense pressure to right the ship in an environment they mostly do not control. If your crew member is a little on edge on your next flight, remember that many of them are worried about job security. 

I'd say hug an airline employee. But given many of us dorks are huge introverts, and we aren't even supposed to be shaking hands, just give them a gentle nod and a bottle of Purell--- if you can find one. 


If you are an airport or visitors bureau and are in need of support, please reach out. I am happy to refer you to a few great consulting groups. If you need data to run your own analysis, please feel free to reach out to Airline Data, Inc. I do not get any commissions for any referrals. I just want you to have access to quality analysis and data as we all work through this together. 

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