In an upbeat message to employees, United Airlines CEO Scott Kirby conceded that United has seen a short-term drop in demand, but also expressed his firm conviction that it would not hinder United’s long-term growth plan. Kirby even teased “a couple of cool really big announcements” that will be made later this year. Is Kirby realistic or setting up employees (and investors) for disappointment?
United Airlines CEO Openly Concedes Short-Term Economic Headwinds, Still Sees No Long-Term Negative Impact
In a “Straight from Scott” video message to employees viewed by Live And Let’s Fly, Kirby candidly conceded that “we have seen a slowdown in demand in the last couple months” and noted that while government demand was down in particular, a general slowdown in demand has been observed.
“In the short term, however, you’ve seen all the same headlines that the rest of us have and some of the turbulence and some of the questions that are coming out of Washington. And it is true that we have seen a slowdown in demand in the last couple months. That’s particularly concentrated in the government demand and in government markets, but we have seen a slowdown in demand.”
The airline playbook for such scenarios typically calls for cutbacks and furloughs, but Kirby believes there will be no such action necessary, even if recession hits:
“In the past here at United, when something like that happened, that meant there was a standard playbook that United would go to. Shrinking, furloughs, cutting marketing, cutting investment. What I really want to tell you today is we’re not doing any of that this time around.”
Kirby reasons that United saw this coming (“the reality is we’ve known a day like this was inevitable”) and has set up United since the pandemic to avoid such furloughs (“never again”).
“We were going do everything possible to set the company up to never again have another furlough, and I believe we have now done that.”
While Kirby stops short of actually promising there will be no furloughs, his language is strong with the intended effect of assuaging concerns among employees. Not only will United avoid furloughs, but per Kirby, its growth plan will continue:
“And so now as we enter a period where things may be slowing down, we’re gonna stay focused on the long-term. We’ve got the right long-term plan. We’re going to continue to take delivery of airplanes. Not only are we not going to furlough, we’re going to continue all the hiring and all the classes that are scheduled. We’re going to continue to invest in the product, including Starlink, and more clubs, more in-flight-entertainment on the airplane.
Here Kirby drops a hint at a couple of major announcements to come, adding, “And we’ve got a couple of cool, really big announcements to make later this year that are still fully on track for customers.”
What do you think he means?
Come slowdown or recession, Kirby believes, “We ought to be able to come out of any slowdown that happens–if it does happen–as not just a bigger but a stronger and even more, the leading airline around the globe.”
Is Kirby Too Optimistic?
As the days pass, I become a bigger admirer of Scott Kirby. No, I don’t like what has happened to MileagePlus under his tenure, but I think his words make a lot of sense and I so appreciate his candor in both public and private settings.
Indeed, we all are reading the same headlines and observing the same “turbulence” coming out of Washington, DC. I happen to be far more pessimistic than Messr. Kirby and think that transatlantic demand will be depressed this summer, particularly in a westbound direction. Furthermore, the economic pain brought on by the tariffs (President Trump claims it will be short-term pain, but does not deny it) will also dampen demand.
Let’s also not forget Kirby admitted last week that United is accelerating the retirement of 21 aircraft, though United also recently indicated that a slowdown in business travel has been offset by an uptick in premium leisure travel.
Ultimately, this comes down to a game of cash. Does United have the liquidity or credit line to keep up the investments in anticipation of an eventual recovery? Will investors go along with it? Unlike American Airlines and Delta Air Lines during the pandemic, Kirby and United heavily invested in technology and did not retire entire aircraft fleets, believing (rightly) that demand would boomerang. The plan seems to have worked well.
If United can weather what may turn into a long-term storm, it will be well-positioned to challenge Delta for industry dominance in the USA. But I’m not sure I’d be doing so much hiring or new aircraft acquisition with all the economic and political uncertainty we’ve seen over the last two months.
CONCLUSION
Kirby remains optimistic, even as he concedes United has observed a slowdown in demand. At least at this juncture, United will not pause hiring or investment, an assurance Kirby hopes will “make sure all of you [employees] know you can sleep well at night.” But United has clearly and unequivocally added another data point that it is experiencing a slowdown and that alone is cause for concern.