United declares war on Southwest

Earnings call meetings and announcements are often dull affairs but United Continental Holdings shook theirs to the core.

Airline costs generally are rising. Fast. That’s entirely manageable if fares go with it but that isn’t happening. Fares are stagnant in the US at present, if not falling.

The problem is too many seats. So when United announced that over the next three years it would increase capacity by 6-7%, a year for three years, with a focus at key hubs in Houston, Denver and Chicago, everyone knew who they were aiming at: Southwest.

United think Southwest have used the situation and stolen tens of thousands of customers because United didn’t have the capacity to deal with them.

If there’s one thing aviation industry people in general accept in the US, it’s there is way too much capacity and it’s depressing prices. Low price, high costs says zero profit, even losses.

The mildly annoying Doug Parker of American Airlines who seems to live in his own little bubble much of the time, only recently declared airlines would never make losses like they had before. Everyone was too sensible now, they’d seen the error of their ways.

So United has in effect declared open war on Southwest. Anyone else in the vicinity will be dragged in like it or not, unless of course they just decline to compete and withdraw.

Maybe that’s part of the strategy – remove the peripheral opposition from key routes and just battle it out with Southwest, until things level out in a price matching unofficial truce.

Either way United shareholders were not amused. The price fell $15 in a day. Who knows what the outcome will be. Southwest won’t just take it lying down.

Advertisements