United does Investor Day and manages to not really say much

‘Tis the season for airline investor day conferences. These are events where the airlines present to representatives from investment banks and more or less beg the banks to increase their price target for the airline’s stock. They do this by bringing a bunch of the executives together and putting together a slide deck and talks of 15-30 minutes each on a bunch of different topics. United Airlines had their event yesterday and I listened in on the webcast. It was amazing how they spent three hours talking and didn’t really say anything of note.

Dots & Lines

Some of the news out of the day came in the form of route announcements. United is cutting back further on beyond-Tokyo flying while increasing non-stop service from the USA to Asia in the coming year. The company proudly touts the advantages of the joint venture partners in helping to realize better connectivity beyond foreign hubs and that mostly works most of the time. It does ignore the fact that for customers the JV arrangements are not truly metal-neutral. Things like upgrades, mileage earning and credit towards elite status qualification and even lounge access rules can all vary based on which carrier you fly. But 80% of the time it would seem to be a wash to the passenger so apparently that’s good enough for them.

There were a couple choice quotes offered up on the route planning side of the discussion. With respect to dropping the SEA-NRT route they were pretty blunt, “Seattle is not a hub for us. The competition in the market has grown.” And half of that competition is part of the joint venture where they can share costs and revenue. That seems like a reasonable business move. Plus they have no feed in Seattle and what little they might have pushed through there they can now push via Denver if they want. The other quote, one which is a bit more disappointing, was with respect to choosing new routes, “You follow the demand.” Yes, you should. But part of growing the company is being able to identify underserved markets and stimulate demand, not just follow everyone else around. Then again, the company is decidedly “not in growth mode” right now so the lack of creativity there should not be much of a surprise.

Bits & Bytes

Another chunk of the briefing was spent talking about technology. United is showing off their new website and iPhone App and had some interesting thoughts on how they function and what they mean from a revenue perspective. On the apps side of things the goal is more self-service and easier customer access to relevant data. It mostly works in that regard. It was interesting to see the numbers they have on average use frequency of the app by customers. They’re proud that the average is reasonably high. I’m not necessarily convinced that’s a good thing as it could mean a customer spending more time checking flights status or trying to rebook in IRROPs versus buying more tickets, but I get that more use is better than not.

On the website front the new layout of the homepage (Hello, Windows 8!) isn’t the only big news. The presentations talked about all sorts of fun buzz words like data mining and “big data” to do a better job with selling ancillary revenue products. Now that many components are unbundled it is time to start bundling them again in a manner which will realize the “maximum perceived value from high margin products.” Things like Economy Plus are already up 30% YoY in ancillary revenue per available seat and they expect a further 20% increase in 2014. Things like dynamic pricing (different E+ seats have different prices) will help with those revenue numbers.

Another bit they mentioned was providing “filters” for searches. In their view this is a good thing, allowing a customer to pick only non-stop flights or to search based on specific flight times. Customers with specific requirements are typically willing to pay a premium to meet those needs. But it isn’t all good news, really. United has already begun to artificially limit the options available for display on their website including hiding cheaper flights which may be available through other channels. When customers discover that they are not being shown the lowest fares available there is significant potential for problems. And United would seem to be headed directly down that path.

Finally, on the in-flight connectivity front, the company seems pretty happy with their satellite-based internet services. Jeff Foland, Executive Vice President Marketing, Technology & Strategy, was particularly upbeat, noting that, “We are taking a unique and distinctive path when it comes to putting wifi on our aircraft. We know how important it is and our customers tell us how important it is.” Unfortunately the implementation on the Panasonic side (Airbus & long-haul fleets) has had a number of problems and the LiveTV version (737 fleet) is still not flying. I appreciate the plan and, assuming they get it working, I agree with the view that “What we’re trying to do…is make sure that our investment is correct in the long-term.” But the current progress seems to be coming up rather short. Even the impressive speed of deployment at this point – almost a plane a day – doesn’t help a ton if the service is not working reliably. If a traveler cannot depend on it being on and available during the flight then it may as well not exist.

Points & Miles

Probably the most disappointing portion of the presentation to me was the section on MIleagePlus. It isn’t that there was particularly bad news that came out of the briefing. It was more that there was no news at all. The company is (rightfully) very proud of running a program with 90mm members and one which makes them a lot of money. But the entire focus of the presentation seemed to be about the power and value of the MileagePlus currency and its ability to draw in other partners and drive member participation. Naturally they glossed over the recent changes to the award charts which call in to question just how powerful a currency the points are, but that’s not important, right?? Seriously, though, I am somewhat concerned that the company sees only upside in the points part of their business. There’s a lot more to it than just issuing piles of points and the partner integrations are weakening in many areas, not strengthening. That could spell trouble.

There were a couple tough questions asked, including one analyst who brought up ExpertFlyer and the fact that United blocked out accessing the useful data but won’t show the same themselves. The response was all about screen scraping and controlling IP and data which should come as no surprise. But it was certainly entertaining to hear that brought up in the session.

Yawn

Overall the event really was a bit of a sleeper. No real news and certainly nothing to get excited about. Sure, plans to save $2bn are great, but much of that is highly variable based on things like fuel costs and getting employees to do more work more efficiently. Some of it will come from driving more bookings to the website versus 3rd party platforms but that depends on getting the new website actually live and users not realizing that they might not be getting the best price. All in all, a lot of risk there. Much of the savings they expect to realize will come in the form of lower operating expenses. That’s roughly $2-2.5mm/plane as they swap 757-200s for new 737-900ERs, for example. That’s going to happen over the coming few years and those numbers are reasonably stable. A lot of the other numbers seem much more flexible to me.

The full presentation PDF and an archive of the webcast is available here.