United Airlines CEO outlines what’s next

United has plans to rebuild customer trust — and boost revenue per passenger. (Image: United Airlines)

Faced with shrinking revenue per passenger and lower profit margins than its major competitors, United Airlines CEO Oscar Munoz said in a presentation to investors that the company has a plan to improve the airline’s financial performance by $3.1 billion over the next two years.

Much of the effort will focus on rebuilding trust with the airline’s customers – especially its premium passengers, Munoz said. The company will also concentrate on operational improvements to reduce delays and cancellations.

“We’ve been distracted with so much drama and crap for the past year,” Munoz remarked in his presentation. (Part of the drama included his own heart attack and transplant, which kept him out of the office for a few months.)

Link: PDF of Munoz presentation

The airline will make an effort to “re-attract” premium customers that it has lost to competitors by giving them a “consistent experience” aimed at regaining their trust, he said.

Part of that will include taking steps to improve on-time performance and minimize cancellations – and making sure passengers are quickly accommodated when there are disruptions by deploying more mobile tools to United airport staff to handle rebooking. Another part will include paying closer attention to passengers’ needs and opinions; United’s existing passenger survey program will be overhauled, Munoz said, because “it is so damn complex and involved that it just doesn’t make any sense.”

United expects to “upsell” more travelers into Premium Economy seats. (Image: United)

On the revenue enhancement side, Munoz’s presentation predicted that the airline would achieve an increase of almost 50 percent from 2015 to 2018 in “customer choice revenue” per passenger – not from the usual checked bag and ticket change fees, but from “ancillary products including premium cabin, Economy Plus and entry-level fare upsells.” The revenue per passenger from those things is expected to grow from $10.94 last year to $16 or $17 by 2018.

The airline expects to see Economy Plus revenues increase by 20 percent and premium cabin revenues grow by 30 percent in the next two years, Munoz said. He confirmed that United plans to introduce new “entry-level” fares (similar to Delta’s Basic Economy) this year for price-sensitive customers, and also said the airline will create new “bundled” fare products that will allow travelers to customize their ticket purchase; those two product introductions are expected to boost revenues by $250 million in two years.

United continues to replace small regional jets with larger ones like this Embraer 175. (Image: United)

Munoz said United anticipates an $800 million benefit due to fleet changes from its “slimline and upgauge” projects – i.e., using slimmer seats to fit in more per aircraft, and continuing to replace the smallest regional jets with larger models. Those programs will increase the average number of seats per United departure from 105 last year to 121 in 2018.

While United’s international operation is well-positioned – and should improve with its recently announced Polaris business class product – Munoz said the airline needs to improve its domestic network, where it has seen a shrinking share of capacity at its hubs and a loss of premium business to competitors. United plans to increase premium seats in key business markets, overhaul its United Clubs at airports, continue to improve its food and beverage offerings, and bring more customer-friendly enhancements to its mobile app, he said.

There were some things Munoz did not say that might have been expected – he did not announce plans to eliminate any United hubs, for instance, nor did he announce that United will match American and Delta in bringing a true premium economy cabin to its long-haul international fleet.