United CEO Says Beware Flying Airlines Without a Vaccine Mandate

After his successful Covid-19 staff mandate, Scott Kirby, United CEO, warns travelers not to book on any airline. Despite his boastings, over half of United's domestic flights fly by airlines without such mandates.
Scott Kirby, CEO of United Airlines, may not consider the carrier's successful Covid-19 vaccine mandate to his airline a competitive advantage. He does not believe that his airline's Covid-19 vaccine mandate will be a competitive advantage. However, he advises travelers to use caution when booking flights.

United customers can book with confidence, but they must follow government regulations if they are booking on an airline without a vaccine requirement. He spoke during Wednesday's third quarter earnings call. Kirby warned of the potential for large-scale operational meltdowns in cases where unvaccinated employees who must submit to Covid-19 testing are negative.

Kirby indirectly pointed the finger at Southwest Airlines by citing possible operational disruptions. According to the Dallas-based carrier, unvaccinated employees can continue to work if they apply for an exemption and undergo regular testing. Southwest also experienced a staffing crisis that resulted in nearly 2,000 flights being cancelled over the Indigenous Peoples Day weekend holiday. This was in September.

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United also found themselves in a bit of a bind by these comments. While Kirby advised travelers to be careful about which airline they booked flights with, United President Brett Hart stated that the carrier hasn't asked or required its regional affiliates, who operate United Express flights, to follow the same Covid-19 requirements. These affiliates include Mesa Airlines and Republic Airways, SkyWest Airlines and SkyWest Airlines. They operate most of United's domestic flights at 59 percent according to Cirium schedules. There is little difference between them and their partner, except for the planes they fly.

Kirby said that we have encouraged them to do so and are pushing them to. It is the right thing to do, we believe.

Spokespeople from Republic, Mesa and SkyWest could not be reached immediately for comment.

United was the first U.S. carrier that implemented a wide Covid-19 mandate in August. It has now vaccinated approximately 99.7 percent of its employees, excluding those who were exempted. And it is making moves to eliminate those who refuse to get their vaccines.

Emerging Premium Leisure Segment

United Airlines joined Delta Air Lines, citing the rise of premium leisure in recent months. These leisure travelers are prepared to pay more for a seat in premium economy or business class.

Andrew Nocella (chief commercial officer of United) stated that this trend had made the Premium Plus premium-economy cabin one of the most financially successful in the Atlantic segment. United anticipates that premium leisure travelers will drive a 2-3% improvement in leisure travel yields over the long-term.

United, however, has not committed to reconfiguring long-haul planes to attract more travelers like Delta. Nocella said that the airline will wait to see how business travel returns before making interior modifications. United will continue to install Premium Plus seats on its 14 Boeing 767 300ERs without the product. It also plans to install the cabin in the 50 Airbus A321XLRs that it has on order, with deliveries starting in 2024.

International Confidence

United is bullish about the international travel recovery. For 2022, the carrier already forecasts 10 percent international capacity growth compared to 2019 while domestic capacity will be flat year-over-three-years. This is quite a change from the years prior to the pandemic, when United was focusing on domestic growth in its mid-continent hubs of Houston, Denver, and Chicago.

However, the outlook may not be the same for all regions. Bookings are rising across the North Atlantic as the airline continues to expand. The news that the U.S. would eliminate country-specific travel restrictions and replace them with a mandatory vaccine for all passengers arriving on November 8 led to a surge in bookings. In October, United announced five new destinations: Amman, Jordan, Bergen, Norway, Azores, Portugal, Palma de Mallorca, and Tenerife (Spain) as part of an eight-route transatlantic expansion. However, the Pacific is expected to recover between 12-18 months later, with 2022 capacity still significantly lower than three years ago.

The Atlantic is now seeing bookings close to 2019 levels. Nocella said that we expect a strong rebound next year, especially in spring and summer. Nocella said that United will make a significant international network announcement in October for 2022.

United's 2022 forecast includes the return of 52 Boeing 777-220s equipped with Pratt & Whitney engines, which have been grounded following an engine failure in February. With the goal of speeding up their return, United has started modifications to these aircraft ahead of a U.S. Federal Aviation Administration directive.

United's growth in the next year is consistent with what its leaders have been describing for many months. United will continue to outperform its rivals across the Atlantic, and the Pacific in years to come due to market changes such as airlines closing their doors to consolidation or carriers retiring aircraft. United will be the de facto U.S., according to executives. Its long-standing market leadership and refusal to retire any aircraft are the key factors. Flag carrier during the recovery.

However, executives have repeatedly stated that they could dial back growth plans if demand is not as high as forecasts. This is important considering the volatility that the market experienced during the Covid-19 crisis. United executives had forecasted that there would be a significant increase in travel during the fall, with business travelers returning. However, the Delta variant had already stopped this optimism by September and forced them to retract their forecast.

The Numbers

United reported a net loss of $329 million in the third quarter, which excludes a $1.1B benefit in federal Covid-19 relief. Revenues fell 32 percent to $7.8billion, while expenses dropped 32 percent to $6.7billion. The airline did not meet many of its 2019 metrics. Passenger unit revenues fell 11.7 percent, traffic decreased nearly 37% and capacity was down 28%. However, unit costs, which exclude fuel and other special items, rose by almost 15 percent.

It expects to earn 70-75 percent in 2019's fourth quarter. The airline also forecasts that it will fly roughly 77 percent of its capacity from two years ago. Nocella said that November is a strong month, and bookings are up to 2019 levels.

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