United chief Jeff Smisek is bullish on the airline industry.
In his presentation to the Chamber of Commerce’s Aviation Summit, he enthused that, “for the first time, I have hope for this business. And when I say hope for this business, I mean transforming this from an airline into a business.” A profitable business, that is.
Smisek was referring to the fact that, as famously pointed out by Warren Buffet, in the history of commercial air travel, airlines have lost more money than they’ve made.
That’s changing, in Smisek’s view, for three reasons.
First, consolidation. Historically, “we priced our product below its cost and tried to make it up on volume.” With fewer competitors come more pricing power and higher fares.
Smisek next alluded to the virtues of the airlines’ post-recession focus on aligning supply with demand. “Capacity discipline is profit maximizing,” he asserted.
Lastly, Smisek cited what he sees as a new breed of airline manager. =”Airlines are now run by businessmen, focused on earning returns in excess of our cost of capital.”
Smisek spent considerable time lauding the industry’s newfound stability and profitability, pointing up the benefits to investors and airline employees. But on the subject of benefits for the traveling public, he was mostly silent.
Indeed, the combined effect of the factors so welcomed by Smisek has been crowded planes and higher airfares. Not exactly the sort of facts that make good talking points in executive presentations, even for a decidedly pro-business audience.
Following Smisek’s speech, a Chamber of Commerce representative gushed, “There’s hope for this country when we have CEOs like Jeff Smisek.”
Hope for investors, perhaps. The outlook for travelers remains murky at best.
Reader Reality Check
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This article originally appeared on FrequentFlier.com.
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