Chicago based United Airlines could hike fares next year amid high demand, even though they expect the Boeing 737 MAX to be back in service. While speaking at a conference last Thursday, United Airlines President Scott Kirby said he saw room for an increase in fares based on the current supply and demand situation.
Since the grounding of the Boeing 737 MAX following two fatal crashes, airlines that were operating the MAX have had to cancel thousands of flights. With the MAX out of action, capacity during the peak summer travel season took a hit. As a result, some airlines were able to raise fares.
Oversupply once the 737 MAX is back in service
Airline investors are worried that once the Boeing 737 MAX is certified by the FAA to resume flying in the United States, there could be a capacity surplus.
Investors are starting to ask whether or not airlines will be forced to lower their domestic airfares to fill the extra seats that will become available. While speaking at the Morgan Stanley, 7th Annual Laguna Conference, United Airlines President Scott Kirby tried to address investors’ concerns, according to Reuters, by saying:
“This is an industry that prices below the point where you would expect supply and demand to intercept today, which means there’s room to raise fares.”
United Airlines revenue to grow
According to airline analysts, the United States domestic capacity is expected to grow 6% to 7% over the next year. This figure is far greater than the current growth estimate of 2% to 2.5%.
Back in 2018, United Airlines had investors worried when they unveiled a plan to grow the airlines capacity between 4% and 6% over the next three years. Despite United’s ambitious plan being more aggressive than their competitors, so far an increase in the number of flights is paying off.
In spite of the grounding of the Boeing 737 MAX, the tit-for-tat trade war with China and other external pressures, United Airlines’ share price has risen 7%. In comparison, American Airlines has seen its stock plunge by 7% during the same timeframe.
United’s boss has a reputation for being a spreadsheet man
Now having secured United Airlines’ position as the number three airline in the United States, the carrier plans to turn its attention to increasing earnings. Kirby pointed out that growth has all occurred in markets where United is dominant.
Kirby has a reputation of being a cost-cutter rather than an innovator. In fact, aviation website View from the Wing called the former US Airways and American Airlines boss “a destroyer of airlines.”
Regarded as being a number cruncher, Kirby wouldn’t install WiFi on US Airways flights until he saw passenger numbers start to decline. Now apparently going back on his belief that all passengers care about is schedule and price, he admits that passenger experience matters too.
As technology develops and airline customers become more knowledgeable about what choices they have, they will select whichever airline best suits their needs. It would appear that the United Airlines President has moved away from cost-cutting and is now becoming keen to keep up with the latest industry trends.