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Airlines Confidential Podcast
346 - Scott McCartney with Guest Co-Host Oscar Munoz
00:42:07
Scott McCartney with Guest Co-Host Oscar Munoz. T…
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- [00:04]
A
Airlines confidential with Scott McCartney is made possible with support from RTX. RTX has the vision, expertise and scale to see the future of flight and build it. RTX.com infinity flight the leader in Cadet Academy flight training programs. Infinityflight.com Ontario International Airport in Southern California SoCal so Easy flyontario.com the executive MBA in aviation at the University of Colorado Denver Business UCDenver. EDU and by Cirium, the world's most trusted source of aviation analytics. Cirium.com we also welcome your business's support. Contact us at airlinesconfidential.com welcome to Airlines Confidential.
- [01:02]
B
I'm Scott McCartney, and it's World cup time for aviation football. Isn't the star this week, no matter what the TV ratings on Sunday's World cup soccer championship tell us? No, this week is all about things that fly with wings, not kicks or headers. Monday was the start of the Farnborough International Air show in England, the Woodstock of the airline and defense world. And Monday was also the start of EAA Airventure, better known as Oshkosh, the Woodstock of the general aviation world. I'm headed to Wisconsin for Oshkosh later this week. Look for me Thursday or Friday in an airline's Confidential shirt if you happen to be among the 700,000 attendees. Oscar Munoz, welcome back. Are you partaking in either of the Aviation World cup events this week?
- [01:54]
C
You know, I've had a couple of offers, but I was just in Europe for some other things and so I'm not going to get back. But I tell you, I always smile at this time of year because aviation really does have kind of you mentioned something, but two Super Bowls, right? I think Farnborough is where the industry talks about the future. You know, that's what orders, technology, defense is out there. Geopolitics come into play because it's in Europe. And so it's a great place to be and I think you'll have a great time out there and I'm sure you'll have some good insights. And the oshkosh I just always remember it as a place where you remember why you fell in love with flying and all things aviation in the first place. It's just a martyr place. And they're very different events, but they both celebrate aviation in a really wonderful way.
- [02:45]
B
Yeah. Yeah, absolutely.
- [02:47]
C
Now, of course, for this week, it's, you know, the continuation of earnings season. And so we've already had results from two of the big four, Delta and United. And I know we'll talk about that here and then Just fairly soon, we get Americans and Southwest and everyone else. So, you know, as always, everyone thought the story would be high fuel prices crushing airline earnings. Instead, you know, it's kind of been of higher revenue airlines being able to recover a lot of the higher cost, and that's because of the strong demand for tick. As I said, I just flew back and forth from Europe and my flight was absolutely packed both ways. So we're going to talk a little bit about that this week.
- [03:26]
B
Yeah. So much to talk about in light of the surprising revenue strength and fare increases we've seen. Because a listener had questioned my recent comments about how competitive the industry is. Even with mass consolidation that we've seen among big airlines over the last year, 18 years or so, I thought it would be a good time to take a deep dive into fare data and really look at how fares today compare to 10 years ago and also how fares compared to other consumer costs over the past decade. With all the attention right now on high airfares and premium pricing from big airlines, I think these numbers are going to be a surprise to many. It'll be a fun discussion, Oscar. I'm also really curious to get your perspective on a topic I raised last week on the podcast. What I think is the new interest in airlines among private and public equity. I think Apollo Global management's bid for EasyJet is both fascinating and also really telling. I think there could be a lot more of that. Last week I talked about which airlines might be vulnerable to activists investors, and I think there's something happening in the industry that hasn't happened in a long time and you know a lot more about this stuff than I do. So I'm really curious to hear what you think. You have a lot of experience both managing activist shareholders and investing in companies, so really looking forward to discussing this topic with you in some detail and curious if you think I'm crazy to think that private equity is sniffing around a bunch of airlines.
- [05:10]
C
You know, gosh, I. I've had lots. There's been a lot of activity. I'll just say that. And there's conversations and I mean, I think we, everybody hears of those conversations. But, you know, whether it's Apollo, the interesting question isn't really whether Apollo or someone else. It's just sophisticated investors. I would qualify them, who largely ignored airlines for all the obvious reasons, are suddenly paying attention. Which means there's investable revenue.
- [05:39]
B
There's.
- [05:39]
C
There's management teams are more sophisticated and disciplined. The premium aspect.
- [05:44]
B
Right.
- [05:45]
C
You're seeing so many announcements about what the front cabin is going to look like loyalty programs, all of those things. And my point, and I make this in DC Consolidation in this particular case has created stability, right? Not immunity, but stability. I mean, we really do have a. Not everyone's going to agree with that. Now, on the private equity side, I think PE likes businesses where they can pull obvious levers. And you know, the folks that I've spoken to, airlines don't always have obvious levers or you can pull all of them, but something like fuel hits you. So it is very much still an operational business. And I don't think you can financially engineer your way around poor operations. And PE tends to have a time horizon, you know, call it five to seven, five to ten years. Fleet life and management, as we all know, is a much longer time frame. So I think there's a bit of a mismatch there. Something like EasyJet is a different perspective. But I think the bid there, I mean, the prices are. Their stock prices are depressed and it's mostly with fuel. And it's going to get worse, I think. I believe fuel's still going to go up, not insignificantly in the near future. So it's an interesting. So I look forward to digging in some more. I'm sorry. It's an easy thing to get lost in.
- [07:03]
B
No, it's great, great stuff, great stuff. And you know, the fuel really is a big part of this because it's created as buying opportunity and depressed stocks. If you think that's going to, you know, the war will someday end and fuel will come down, airline stocks will go up. That's part of your return right away. So all very interesting. All right, let's start with United Airlines second quarter results. United beat expectations both in earnings and revenue, but the market wasn't really impressed. The stock lost a bit of ground last week. Oil prices were rising, as you just noted, because of increased fighting between the US And Iran. And that probably had a lot more to do with it than anything. But I think there's a little bit of disappointment for investors in the United Results. United estimated third quarter earnings, earnings of between $2.50 a share and $3.50 a share. And Wall street had been expecting more. For the current quarter, the consensus estimate for third quarter earnings was $3.60 a share. So a little bit higher than United's range that they just put out. The difference, obviously, is higher oil prices. For the just completed second quarter, United's passenger revenue was up 16.4%. Delta's passenger revenue, as a reminder, was up 13%. So better performance than Delta. United is growing a tad more than Delta. United's capacity was up 3.5% and Delta only 1%. So that accounts for some of that bigger revenue growth. A good bit of that bigger revenue growth. Scott Kirby has been saying that United is catching up to Delta on premium revenue, and there is a bit of that in these numbers. It seems United's operating expenses were up more than 19%, and most all of that came from higher fuel prices, so profits were down. Still, United earned $805 million in the quarter, which is pretty darn amazing given the 84% increase in fuel costs that United paid for those keeping score at home. Delta's operating expenses were up a bit more than United's, up 23% compared to United's 19.2%. United's operating margin was 6.2% and its net profit margin was 4.6%. Delta's operating margin, by comparison was 9.4% and Delta's net margin was 8.1%. So higher margins at Delta. But I can hear Scott Kirby screaming in my ear and I could probably hear Oscar Munoz in a minute screaming in my ear, oil refinery. Oil refinery. Take out the 577 million that Delta's oil refinery contributed to the company's net earnings. And, well, sorry, Scott, Delta's net margin was still higher than United's. I think the most interesting reports of the quarter are still to come. I'm fascinated to see if American is making any progress in terms of building back its earnings, margins and financial performance. I'm fascinated to see how Southwest fared in terms of its ability to raise fares and capture fees from customers. Remember, we're just past the one year anniversary of bag fees at Southwest and coming up on six months since the start of seat assignments. So it'd be really interesting to see both those airlines report later this week. I'm equally fascinated to see if Frontier is improving financially under new CEO Jimmy Dempsey and whether JetBlue's Jet Forward plan is making progress in light of higher fuel prices. Both those airlines should have benefited in the second quarter from the demise of Spirit Airlines. JetBlue reports next week. And Frontier, along with Allegiant, reports the first week of August. So get your popcorn ready, Oscar. We're going to learn a lot more about the health of the industry over the next few weeks. But what do you think about United's Results in Delta 2?
- [11:14]
C
Oh, you're really going to put me in that situation, aren't you? Well, you know, first of all just a really quick story on the oil refinery. I remember when they went after that, I was actually working at my railroad job and we were moving a lot of that oil for that refinery. So we had to go into. And so I had to recuse myself because I was already on the Continental board at the time. And I remember the promise of it, but the proof is not coming through. So, you know, good for them. You know, what's striking isn't really who won the quarter. I think it's just again, as we've all said, we're talking about profitability during oil spike. I mean, 10 years ago, heck, we'd be talking about furloughs, grounding airplanes. I mean, this whole thing would be grinding to a horrible, horrible halt. And so today's airlines have multiple revenue streams and stronger balance sheet. And I think the discipline on pricing has been really good. And I completely echo you with regards to. I cannot wait to see what some of the other airlines are going to report because I think it's going to be really telling and it's going to inform our subsequent conversation about private equity and or activists because I think that's where we're going to see some activity. So Popcorn is right and looking forward to that.
- [12:32]
B
Yeah, yeah. So last week, Oscar, I tried to look at the big picture of private equity and public equity, too, because we've had Berkshire Hathaway back in the airline business. I just think this is really significant. We've had Elliot Management's attack on Southwest, which forced changes and paid off with big returns for Elliot. No doubt that got everyone's attention in the investment world. Now we have two private firms competing for EasyJet. A bid from Castle Lake, a US firm that does a lot of aircraft leasing transactions, was topped by a bid from Apollo Global Management, a giant private equity firm with something like a trillion dollars under management. Castle Lake has until August 3rd to up its offer. So be interesting to see what, what they do there. I think it shows a lot of things. There's a lot of dry powder in the, in the private equity world and not, I think, not a whole lot of really attractive investment opportunities at this point, unless tech company prices continue to come down out of the stratosphere or whatever. I think airlines now seem more investable because, you know, as we've talked about, the product is no longer a commodity. Different brands can attract premium prices, and demand has fundamentally changed. People want travel and they're willing to pay to improve their flying experience. The airlines are offering them choices that they want that they're taking. It's a different, more rational, more stable business. I think travel is much more important in people's lives. They want experiences, not some, you know, experiences over things. So the recent ability to increase fares in the face of higher oil prices and expectations that those fares aren't coming down anytime soon even if oil prices drop, that's caught investor attention. And as you just said that United earned eight hundred and something million dollars in a quarter when in the past these kind of oil shocks spikes would be causing all kinds of financial losses. Not so right now. So this industry is different. I also think there's opportunity here because airline stocks are depressed by those high oil prices and that's probably temporary. It'll rebound once things stabilize in the Persian Gulf. But there is an investment opportunity there right now if you believe the war will end. And that opportunity is different across the industry. Big variance in the airline business, right? Delta and United are trading much higher multiples because they're ahead of the other carriers in this revenue revolution. Southwest is catching up the shares of American and Alaska in particular. And those are the two I identified last week that I thought were most vulnerable. Those shares are depressed compared to other big carriers and yet you could look at those two and say they have potential to catch up. It's going to take a lot of work and probably a lot of time. And it's riskier than the Southwest bet where you could see a clear path to profits. Right. If you just started charging check bag fees and moved to extra legroom and assigned seats. But I think Alaska and American are vulnerable to potential outside aggressive investment simply. Well, because they both have potential and because their share prices have lagged behind others. American and Alaska are significant high profile brands and as of Friday, American share price was a bit lower than where it started the year on January 2nd. Alaska Airlines was down 4% year to date, yet Delta was up 22%, Southwest up 16%. So Americans market capitalization is half of Southwest Airlines. I noted last week that the restaurant chain Texas Roadhouse is now worth more than American Airlines. I'll add to that South State Bank Corporation Corp. Ever heard of that? That's worth more than American Airlines. So is Magnum Ice Cream Co. Well, I do understand that one. To me, the relative low market cap and the new investor interest in airlines makes American potentially vulnerable. Am I crazy? Oscar, what do you think?
- [17:12]
C
This is such a complicated question and I'll try to be succinct with my views and opinions because I know a lot about. I mean when I came into the industry I was running a railroad whose market cap by itself was larger than all of the airlines put together. So, wow, we have had our ups and downs and now Magnum ice cream. Well, it's not one you want to be responded for. So, you know, so let me see if I can frame this coherently to some degree because, you know, you need to separate activist investing from private equity. I think activists don't necessarily believe they can run an airline better. They say they can, but, you know, they just believe management isn't unlocking the value that's already there. And so those factors are in play for sure at some of the companies you mentioned. But more importantly, private equity is looking for cash generation and activists are looking for value creation. And if I had to look at, let's say, Americans as you make that example, the big headache for the PE side is of course, the regulatory side. You got DOT control issues, you got a regulatory regime, you got long term pension obligations, et cetera, et cetera. Just make it a really big headache for a private equity firm that it's likely to have a time horizon that's much shorter than an activist. Again, American has tremendous assets, great hubs, a really strong loyalty program. The people are talented, and it's like they just need to make sure they can, you know, really consistently earn returns that justify those assets. So it'll be an interesting play. But as I've always said, the best way to avoid any of this kind of activity is to produce the kind of results that people are, are requiring. And so good luck to all of them. But I suspect you might see some additional noise here probably fairly soon, especially after these earnings are announced, because that's when everybody will really get into action. Because as you say, there is a lot of money out there still looking for outlets, and this could be one.
- [19:14]
B
Yeah, yeah. If it was, if an activist investor got interested in American, what, what do you think they would? How would you be an activist? Would it be new management? Would it be sell this, sell, sell that, what, what? What would be the play?
- [19:31]
C
You really can't spreadsheet your way to a great airline. And again, the Elliot conversation at Southwest, and I was tangentially involved with management there on how to frame this. I wrote a big article about this that just making the kind of changes that you want on a spreadsheet are, are difficult operationally.
- [19:50]
B
Right.
- [19:51]
C
Operational excellence has to become a financial strategy as well. And when you run better, things are better. So an activist would say, yes, I think we need a new board and new management that's what they usually come in with. Can they get enough of a board? I mean, Southwest is not necessarily in my mind, a activist success. I mean, Elliott's trimming, they're taking their money and running. They only got five board seats, which isn't control. And Bob kept his job. And one of their board members made a significant investment in the business. That was the thwart. So, yeah, they would come after the board and enough board members to replace management and they'd make a double case. It would be similar to what they did at Southwest. Now, the point is, can a resource like American, with its highly leveraged fleet against that debt? Is that too much to overcome and is there too much space between them? So they would come after management and they would come after the board.
- [20:54]
B
Yeah. Yeah. Interesting. Okay. Before we get to more news, let's take a moment to thank our sponsors. We want to thank the Executive MBA in Aviation at the University of Colorado Denver for its support of Airlines Confidential. Really? For its partnership with Airlines Confidential, which started with you, Oscar. The Executive MBA in Aviation at CU Denver is the first degree of its kind in the world, taught by industry experts and designed for ambitious leaders from across the aviation ecosystem. With classes located at Denver International Airport and week long residencies in Washington, D.C. and at airports around the world, students experience a hybrid flexible course structure that balances in person and online classes without career interruption. Go to Business UC Denver Edu to learn more. And thanks to longtime sponsor rtx. At rtx, a century of aerospace and defense innovation shapes a unique perspective. It takes more than technology alone to rapidly advance the future of flight and strengthen global security. It takes the vision to see what's next, adapting expertise and scaling manufacturing capability to deliver where and when it matters most. Perspective is everything. RTX. Visit RTX.com to learn more.
- [22:18]
C
We also want to thank Infinity Flight Academy for its sponsorship. The path to the flight deck starts long before a pilot reaches the airlines. And Infinity Flight Academy, they're proud to serve as a flight training partner from the American Airlines Cadet Academy, helping prepare the next generation of professional airline pilots. Infinity Flight Academy's training is structured, standardized and built around the discipline today's airlines expect from day one for future pilots pursuing a career at the highest level. Infinity Flight Academy is proud to be part of that journey. Infinity Flight Academy training tomorrow's airline pilots through American Airlines Cadet Academy. So, Scott, I'm curious. You said you did a deep dive into airfares. Oh, boy. And how they compared to other consumer products. What did you find?
- [23:02]
B
Well, this started with the recent Government Accountability Office report on airline competition that found that after all the consolidation, the industry is still pretty darn competitive. Right. That's. And, and certainly with the stability that you mentioned earlier, it's an important report because there's been a lot of hand wringing in Washington and elsewhere about airline competition or the lack thereof. I think a lot of this was sparked by the recent multiple fare increases. Right. Instead, the GAO found that fares have not risen as one might expect in a non competitive industry. That might be considered an oligopoly with only a few players and a lot of pricing power. I thought the research was pretty good by the GAO though. One criticism is that the fair data, which included ancillary fees and looked at changes over two decades, stopped in 2024. So. So quite dated even though the report came out now and not reflective at all of what we've seen recently with Spirit's demise and fair hikes related to oil. So when the Consumer Price Index report for June came out last week, I thought, okay, let's jump into that. That's the most recent pricing data that we have. The Bureau of Labor Statistics keeps an index of prices in a multitude of categories so you can compare change in different categories over time. I decided the most relevant would be to compare June this year as current as we can get right now with June 10 years earlier. June 2016 was obviously pre pandemic. And post all the big merger activity. Delta Northwest merged in 2008, United and Continental in 2010, Southwest and Air to train in 2011, and American and US Airways in 2013. So by 2016 most of the consolidation was in place. I will add that Alaska and Virgin America didn't merge until later in 2016, so that isn't factored in. But the big concern about competition is big eight airlines combining into the big four, so to speak. The Big four is the real concern here. What do we find? The biggest increase in the categories I looked at from June 2016 to June 2026 was energy. Not a surprise given what's happened to gasoline, natural gas, electricity, all kinds of energy. Energy prices according to the CPI index have risen more than 64% over that 10 year period. Rent. Anybody renting an apartment I think feels this. Rent was up 51%, food was up 41%. Remember, this is over 10 years. To me, that's a real eye catcher. Grocery shoppers instinctively feel that all items in the CPI basket have risen 38% in price over 10 years below that average, if you will, included medical care services up 32%, alcohol beverages up 24%, new vehicles, cars and pickup trucks up 22% and apparel up only 8.4% over the 10 years. I'm purposely burying the lead, Oscar. Airline fares were up only 4.5% over the 10 year period. 4.5%. And remember, that includes the higher fares we've seen this year, at least into June. 4.5% over 10 years is nothing. Sure, those numbers could be higher if you throw in baggage fees and other fees, but not hugely different. Let me tell you what is included just to be really clear about this. The CPI index tracks both domestic and international airfares. It's for non business travel since it's the Consumer Price Index, right? So hefty business class fares aren't a part of the index for the most part. And that's certainly where a lot of airline profit comes from. The Bureau of Labor Statistics says it relies on Department of Transportation fare data. The DOT continuously samples 10% of all airline tickets to track pricing. BLS says the vast majority of its observations are for discount service. A much smaller but still significant number are for full coach and a very small number are for first class service. Of the quotes priced for discount service, the BLS assigns approximately half of the lowest available discount fare. So they're taking the DOT fare data and they're picking out the sort of basket of different fare classes in there. And about half are the lowest available discount fare. The remaining half is for specific discount fares other than the lowest available fare, a recognition that not everyone flies on the cheapest ticket, right? Fare data is proportional to the number of passengers in a city. So more fares are priced from New York than from Albuquerque. For for example, one note on these discount fares. Basic economy started with Delta in 2012, but the adoption and expansion was slow and targeted mostly at Spirit Airlines markets. Initially, American United came in with their own versions in 2017. So when you're looking back at 2016, my guess is not many of the markets sampled had basic economy fares. Now most markets do. So that's one big difference. That helps keep fares down. And consumers who want the cheapest prices benefit from the availability of basic economy on big carriers. Another reminder, the price changes I quoted are not inflation adjusted. So with only a 4.5% increase over the past 10 years, you can clearly say airfare is cheaper today when inflation is factored in, airline tickets are a much better bargain than just about anything else you compare them to over the past 10 years. So that's my deep dive. What's your Takeaway.
- [29:18]
C
Scott, as always, you come up with incredibly wonderful facts and detail and analysis. And as a former CEO who's had to defend this so many times and explain it to people constantly, it tells us that this is still a very competitive industry. You know, when you think about all the costs that have gone up over the airlines over the last 10 years, labor, fuel, aircraft, airports, we forget about how much airports charge airlines. It is unbelievably remarkable that the industry is more profitable today than it was 10 years ago. And airfares have not really increased, certainly not in pace with all the costs. So the point I always make to people, and you try to lay folks, it's like, now you understand why there are more seats on a plane. I know it's crowded, but, you know, we're still flying. You have to get more people on each plane to get more revenue. If you can't raise prices. Not a popular point to use on cnbc. Of course, you also understand why fees are so important to airlines. I mean, you know, you understand why airlines have to be productive and get as many flights as they can out of each airplane and each employee. And this is back to private equity and, or, and, or activists. I mean, you know, the, the operation running well requires financial, requires culture and all those things, but you got to get so much out of each airplane in each employee. And so, but the bottom line, there's still a bunch of big airlines competing against each other, and that competition absolutely keeps prices down. My earlier point that this consolidation has created is stability for lack of a thing. I mean, airfare has gone up a lot lately. I saw that when the CPA numbers were compared to June one year ago, you know, airfare was up 26%. And everyone's feeling that increase. You see it, we've conditioned people to get, you know, there's still a lot of us that remember $99 fares across the country. And that's, that's the index, which is not fair. But nevertheless, but with only, but over the past 10 years, with only that four and a half percent increase that you mentioned, not annually, but over the decade, that shows you just how competitive this business is. And you know, people ask me, it's like, oh, golly, you know, why don't you just raise price? And that's the layman's aspect of that. And I said, yeah, go ahead, you know, and you know, again, which competitor do you think is going to follow us? And that's the thing we dealt with every day, many times a day, when, you know, the Pricing folks would say somebody tried to raise do we match or not? And it's just so competitive. And you don't price in a vacuum. One airline moves, everybody responds or doesn't. And of course, as we all well know, every seat that pushes back from the gate empty perishes forever if it isn't sold. And so, you know, it's, I don't think competition ever sleeps in this industry. And on the whole, you know, the competitive angle that we were talking about, you know, well, we're going to talk about competition and that next, so I'll hold off of that. But it is a, it is a continuing issue. And the people that manage this pricing in the industry are just, you have to be in those rooms to feel the intense competition that's out there. And I just marvel at again how, how much, how profitable and how stable some of the big airlines are still, despite all the issues and forces against them.
- [32:43]
B
Yeah, really true. You know, it's a great point on empty seats, too. You know, one of the big changes in the, in the business over the last 10 years, 20 years, has been the increase in load factor. Right. Fewer empty seats. So, you know, between seat density and higher load factor, you are getting more people on, on the airplane. And so the airline is, you know, it's an interesting question of, well, wait a minute, if, if the cheapest tickets are cheaper today than they were, how can airlines be more profitable? And what, And I think, you know, a lot of changes within the business to enhance profitability, frequent flyer programs and everything else. But the CPI numbers don't capture, you know, what people are paying in the front of the cabin. It's really, it's really looking at what the cheapest ticket is. And so people who opt to pay more, that is a big, big, big part of the profitability story, the competitive part of the story. We had a listener write in questioning my interpretation of the GAO report and the competitiveness of the airline business. Tim from Richmond, Virginia. Tim said the airline business was a textbook example of a, quote, monopoly slash oligopoly industry. He noted supply constraints, limited gates in Runway infrastructure, industry capture of a public good turned into a private property like airport gates, local monopolies and labor restraints. Tim argues that when there was more competition, airlines cut wages, but they don't do. You can't do that anymore. The government hasn't helped. Tim argues stopping American and JetBlue was anti competitive. He notes stopping JetBlue and Spirit was anti competitive. Here's another quote from Tim. I'm not familiar with another industry where consolidation generates more competition. Tim adds, whether the industry today is better off misses the point. It is certainly less competitive and I would argue it is a complete oligopoly run by four companies. And then he says, keep up the interesting podcast, be well, okay. All really smart, interesting points, Tim, but I do think the numbers don't lie. If we measure competition by the prices consumers pay, and that would seem to be the bottom line, then this really is a more competitive industry. And here's why. I think because the survivors of consolidation are stronger, more stable. As you said, they can compete more vigorously than they could when they kept losing money amid a constant PO post deregulation struggle to stay alive. They were constantly on life support in the past. Their survivors of consolidation have much bigger networks and can offer more choice to consumers. So more competition. The reality was Northwest didn't compete in a lot of markets. It was irrelevant to competition in many parts of the country. Same for US Airways, Continental airtrain, just about every other airline. Now every big airline reaches most every region. Second, unique airline competition factor. This is an industry where there's almost perfect pricing information available to consumers. Can I really find out what all the television prices are locally with a couple of keystrokes or. Or what a gallon of milk costs at every grocery store in town? No. That ability to compare prices makes the business hyper competitive and price sensitive. And final point from me, this is a business where you can add one flight in a market and offer hundreds of products routes, right? That makes it hyper competitive. That trip from Des Moines to Chicago isn't just service between Des Moines and Chicago. It suddenly is new competition for tickets from Des Moines to Detroit or Des Moines to London or Des Moines to Tokyo or Des Moines to Bangor, Maine, wherever the the one new Des Moines Atlanta flight can compete with all those destinations and more as well. So you get that scaling effect in competition. Pricing is not about the lack of gates at Chicago O'. Hare. It's about the 199 gates that exist at O' Hare and the 43 gates at Chicago Midway. And the reality that even in markets dominated by the Big four four there still is lots of competition to sell seats and lots of price competition between the big four, maybe more than there was 10 years ago.
- [37:35]
C
They all great points and Tim, great points, thoughtful points. But you know, the practical reality is I think people can sometimes confuse concentration with lack of competition. You know, four large competitors, which we have today, can still compete incredibly aggressively. And I, you know, I spoke about it earlier and frankly, consumers, they don't care how many CEOs, how many airlines there are. They care what they pay and whether they have choices. And more importantly, increasingly in this stream, what you're seeing really produce earnings and stability is the premium revenue because it isn't about charging more. In my mind and philosophy and strategy at United when I was there, it's about giving customers reasons to choose you. You know, I started with the culture and the people and the friendly skies thematic coming back in and Scott and others have taken on and really began to grow. And you just, you see the incredible new service level products that are being invested in. And to your point earlier, you can't do that if you're literally flying by the fumes of your very expensive fuel. And so, you know, great points, but you know, if you live in this industry and work in that, you would never say that you're just skating away to higher prices because that's not the case. Not even close.
- [38:53]
B
Yeah. Yeah. All right, before we go, I want to thank Cirium for making this podcast possible. Cirium offers the most accurate and precise data and analytics to enable airlines to optimize planning, operations and passenger services. The right intelligence drives operational efficiencies, enables you to predict market shifts, and helps airlines respond quickly, quickly to maximize revenue, manage costs and seize commercial opportunity. Visit cerium.com for more.
- [39:22]
C
And we want to thank Ontario International Airport, which just launched the ONT BOLD Bolt program. It's a proposed vision to transform the airport's facilities to streamline the passenger journey while also creating jobs, growing the regional economy and building on Ontario's legacy as a global gateway. The program includes plans for a new terminal, a multi story parking garage, upgrades to existing terminals, enhanced roadways and new utilities. The Ontario BOLD program is in the early planning phase and so visit flyontario.comb to learn more and join the journey to Ont's boldest chapter yet. And again, as I've said before on this podcast is I now I have family nearby and I go to LA a lot. And it's just, it is a, it is an easier place if you don't mind a little bit of a drive at the right time. And you see the signs and you see the energy behind what they're doing. So it's good to see them and good luck to them because we always, always need good, clean, efficient, effective landing programs for our aircraft in the industry.
- [40:28]
B
Yeah, absolutely. We will be right back with more on airlines confidential promotional support provided by
- [40:35]
A
the ultimate avgeek website. The aircraft, a vast collection of airline memorabilia, timetables, route maps, rare cabin and airport photos, special flights and more, all@the Airiv.net, the hub of air transport history.
- [40:48]
B
Oscar, thank you so much for fascinating discussion. I'm not sure we've settled the competition debate once and for all, but I do think we've added to the discourse in an important way. And I've really, I really appreciate your insights on private equity activist investing. I think that's timely and really helpful to listeners. I hope we'll hear more from listeners about competition, about investments in the airline industry, about everything else, but just wonderful to talk airlines with you. So thank you for that. Speaking of important discussions, I'll be back next week with Charles Duncan and we'll interview Greg Anderson. The CEO of Allegiant Travel Company will talk about the Allegiant sun country merger, what he sees as the path to success for ultra low cost carriers, and why so many top executives throughout the US Airline business have come through Allegiant. It's going to be a fascinating, timely, insightful conversation, I think, and I know it will be one not to miss. So have a great week everyone and have fun at Farnborough, Oshkosh, or plus points in between if you're going. And thanks for listening.
- [42:01]
C
So long everyone.
- [42:03]
A
This podcast is produced by Mass media info@massmedia.net.