United’s risky push at LAX

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Recently, Bloomberg wrote about United’s desires, as expressed by President Scott Kirby, to expand in LAX in efforts to return to the top of that lucrative market.  Although just four years ago United was both the largest airline in the world and in LAX, things look much different today.  Lagging behind American and Delta in Los Angeles after a tumultuous several years culminating in a C-suite management shakeup, United intends to take back what it has lost.  If only someone would’ve shared with the airline that line from one of the Pirates of the Caribbean movies: “Take what you can, give nothing back.  Well, that never happened, and now the company is on the verge of a big push out west.  But could this planned coup d’état be too far-fetched?

I was initially excited at the prospect of a revamped UA presence in LAX.  Outside of being a gateway to the Pacific, it’s a hot domestic spot for obvious reasons.  All top US airlines want a sizable share in this huge market, both on the corporate and the leisure side.  But herein lies the first area of concern, as Adam Levine-Weinberg from The Motley Fool points out.

Here are some points to think about as United pushes at LAX.

  • The fierce competition that L.A. carries will make for a very difficult -or at least very expensive- move from United.  Being such a popular market, the cost of running a large operation there will naturally exceed that of many other markets, while at the same time the solid competition will make it difficult to capitalize on revenue.
  • Other airlines are looking to expand too.  For instance, both Delta and Alaska are already in the process of adding routes, more terminals, or both at LAX.  One can bet they’ll push back on United’s desires.  American won’t just quietly allow United to try to earn the top spot at LAX as it once had.  It’ll be a war zone down in So Cal.
  • United is pushing many initiatives at the same time.  Many of these -like the new Polaris brand, and the mobile strategy- are promising for the customer, while others -like the Basic Economy fares- aren’t as promising.  But regardless of good and bad, it’d good to see United shuffling, not standing idle and waiting to see if things fix themselves…they won’t.  But could this expansion be too much?  This may prove to be too much at the same time; something’s gotta give, right?
  • Interestingly, while Delta has hubs in just 2 of the 5 largest travel markets in the U.S., it has been the most profitable airline in recent years.  Operating in the smaller markets makes for good profit margins, and Delta has capitalized on these.  United, on the other hand, has hubs in all 5 largest U.S. markets.  Something to be proud?  Indeed.  But it’s a tough ask, given competition and high costs.  So one has to wonder if United already has the bay area, why not just expand there?  Could that be a good and more reasonable response to Delta’s recent but aggressive push in Seattle?

Of course, most of these questions and concern will take a good chunk of time to be answered.  It sure looks like Kirby and United have a vision, and to some extent it’s good that they’re being proactive in search of that vision.  But they must avoid trying to do too much at the same time.  That could spell disaster and prove conflicting with the positive changes we’ve seen recently.  A previous employer of mine contained this phrase in their corporate strategy: responsible growth.  That’s exactly what United needs as it braces for war in LAX.

 

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