Money-losing routes should not survive under a strategic label

Transcript

Transcribed by machine (Whisper) from the episode’s audio, so a word may be off here and there.

1. 1:01:17

   And companies get stars in their eyes, and they're not disciplined. What's the version of discipline for you? Because it's easy. Like, United, you guys are a huge global airline. You fly big aircraft. You fly small aircraft. You fly internationally. You fly domestically. and so it would be easy to want to do everything where it's like we're cost competitive but we have a great wine list and so what is your version of staying disciplined?

2. 1:01:36

   In an airline business discipline is really about where you fly. The foundation, our product starts with the routes that work. You fly places that make money. And fly places that make money. Like every time I go. Like where are you less point to point than you domestically? So we don't fly point to points. And like I hear it all the time in LA yesterday when I do stuff at San Francisco tomorrow with employees like they're always asking wanting to fly new routes and point-to-point routes.

3. 1:01:59

   It won't work for us. We're an airline that flies to our hubs. We fly to our hubs. That's our strength and a whole bunch of reasons that works. And we're not going to go try to fly point-to-point routes. But if you're not first, you're last. If you're not first, you're last. And that's true in the airline business. And it's by market. It's not overall. But like, you know, people in Dallas ask me, like, when are you not a player?

4. 1:02:18

   Because we'd lose. You know, America has too much network depth. And if, you know, when they fly from Dallas to Los Angeles, 75% of the people on the airplane are connecting from other destinations. And if we're just flying Dallas, we can't compete because we don't have any connections. We're competing for 25% of the market. It doesn't work. Does that then mean the little decisions you make are, okay, should we fly from, is it Newark to Greenland?

5. 1:02:42

   That's a little decision. The big decision is, are we going to launch a beachhead and take a new hub? And how frequently do you make those decisions? Rarely. It was the last big hub up like Denver when you grew it hugely, like 50 to 20 years old. But those were an existing hub that we chose to grow. JFK. In my 30-year career, I've closed three hubs and never opened a new one. It's a hard decision to do.

6. 1:03:09

   It's very rare that that's... Lots of examples in the airline industry of that not working. And almost none of that working in the post-deregulation era. And so do you think it's basically impossible to launch a new hub these days? Is it like building a new airport? It just hasn't happened in the last 50 years? Yes, is the short answer. So take the southeast. It's the one part of the country where we're number three.

7. 1:03:37

   Because Delta has a hub in Atlanta, America has a hub in Charlotte. I'd like us to be bigger in the southeast. It does matter to customers. But there's just simply no airport that's big enough where we can be competitive. We would need to have 600 flights a day to be competitive with American and Delta. And, you know, like the biggest city that sort of would work that's a big enough city maybe is Raleigh-Durham.

8. 1:04:00

   The airport's not big enough. They don't have gates, they don't have runways. You couldn't have 600 flights a day. Trying to do something just because it's a cool vision, we don't do it. We're disciplined. But this would be a big enough deal for a region that could you work with Raleigh-Durham to expand the airport? Expanding airports in this country is like a decade-long process. Yeah. More. That's optimistic, probably.

9. 1:04:24

   Yeah. Okay, so you think it just... I think it's just... you know okay so discipline for you you it's possible someday we'll you know at least experiment with going into more into you know a big city that's not really a hub for anyone but and delta's done some of that you know it's been i think sort of break even-ish um but they've not lost you did though this is not a hub at all but way back in the day you used to have a hub in japan in narita yeah and you've added a few like connecting flights as well from hong kong to Thailand and to Vietnam, and you're flying to Kaohsiung from Narita now.

10. 1:05:00

    Is that just more on the margins sort of things, or international? It's on the margins, but there are places, like in Tokyo, we have connectivity with our partner. Right. And so a lot of the people that, and like Ulaanbaatar, we realized that something like 12% of the people that were flying us into Tokyo were ultimately trying to get to Ulaanbaatar, and it was really hard. A&A didn't fly. Wait, that's Yeah, yeah, what's going on there?

11. 1:05:27

    It was only in the summer, but it was a high percentage of people. For vacation? Yeah. Am I missing something and I haven't been to Ula Batara? Am I missing out? I haven't been there either. My mom went. My mom travels a lot. She uses my five benefits and travels a lot. She's awesome. Awesome. But, you know, so we had seen that data and we added the flight, but now it's a lot of the people that fly us into Tokyo connect on to It was a particular flight that it was 12%, you know, one time a day, at that time of day.

12. 1:05:57

    But then we also have all the ANA connections. And so they weren't flying there. Kaohsiung is the same thing. For us. Like to Sapporo. That would be fun. Sapporo is booking really well. It's going to be. Is that for skiing? Skiing, yeah. But Japan has become like the hottest destination for. The tech people here in San Francisco. People just love it. And even like in Dow, like people love Japan. Yeah, like I have all kinds of friends that, you know, like we went to Japan for spring break and they just, they love the food.

13. 1:06:26

    The people are great, you know, they just love it. So what I'm taking away from this is that route selection makes or breaks airlines. Yes. It broke, you know, Spirit or the low cost carriers. It broke American and this, you know, Fracca, you guys had us. Well, they haven't accepted that it broke them, but it did. And then similarly, success means a disciplined route expansion strategy that understands your strengths.

14. 1:06:51

    I mean, look, that's pretty insightful. That's like, I tell new CEOs, which many of them call and talk to me, I don't think any of them have taken my advice yet. But I tell them, the one thing I'll tell you, I start with like, the route network is the foundation. If that's broken, it doesn't matter how good you do it, everything else. If you have bad routes that lose money, you cannot make the airline work.

15. 1:07:11

    It is impossible. And you're going to hear, if you look through the route, P&L, which you should do, you're going to see a bunch of negative flying. And when you ask people about it, they're going to say it's strategic. They're going to have convincing excuses. Well, they're going to call it strategic. Yeah. And if you hear the word strategic flying, you don't need to know what hub it is. You don't need to know what route it is.

16. 1:07:31

    You should cancel it. You have to stop flying. Anything that if you default to it loses money, but it's strategic, you have to cancel it. And they don't do it.