United Airlines Boasts Exclusivity & Prestige Over American & Delta | Here’s Why
Historically, a flag carrier referred to the airline(s) owned by the government of their home country and closely linked to the national identity of that country. Over time, the colloquial definition has loosened to include privately-held airlines as well that still represent their nation.
When you think “flag carrier” you think national prestige. You think about linking the world to the nation for reasons far beyond profit. It’s about the greater economy and how air traffic, both passenger and cargo, feeds into it.
Technically, a U.S. flag air carrier is any airline that holds a certificate under Section 401 of the Federal Aviation Act of 1958. That includes United Airlines and a long list of other carriers.
But the U.S. really hasn’t had a de fecto flag carrier since Pan American (and perhaps, to a lesser extent, TWA). Sure, when you see American Airlines, Delta, or United around the world, you think of the United States. But “flag carrier” implies exclusively and prestige.
And at United, the carrier is telling employees it is not only a flag carrier, but the flag carrier of the USA, implying it is the only one.
Perhaps American and Delta also fancy themselves as the flag carrier of the United States. The reference caught my eye because it is an increasingly antiquated term. Then again, with governments bailing out airlines all over the world, perhaps the concept of flag carriers are not so antiquated after all…
A close look at the stats shows a big vaccine-fueled domestic travel surge and anticipation of a crowded summer travel season, with ticket prices already getting close to the expensive summer of 2019.
Yet in many areas—international travel and hotel occupancy in many cities—the recovery hasn’t happened yet.
Take your pick. TSA airport screenings in the first 16 days of May have been down 35% compared with the number of people at airports in 2019—or up 715% compared with the same days in May last year. Either way, you can gauge progress through those numbers.
The average round-trip ticket sold through early May for summer travel was $408. That’s only $18 cheaper than the average round trip for summer trips sold in the same period of 2019, according to Airlines Reporting Corp., which processes tickets sold by travel agencies.
“While average fares are still a slight bargain compared to 2019, that savings is rapidly disappearing, and seats to popular destinations are filling up quickly,” ARC said.
21%, that’s the percentage of planes in storage at American, United, Delta and Southwest combined as of May 14, according to Cirium, an aviation data company. One year ago, 56% of the planes at the four largest U.S. carriers were in storage. That amounted to nearly 2,000 airplanes in storage as of May 14 last year—airlines normally have very few planes in storage.
Hotel occupancy in the U.S. remains below 2020 levels and way below 2019 levels, according to STR, a company that tracks hotel-industry data. The percentage of rooms filled during the week of May 2-8 of 56.7% was actually an eight-week low, which reflects more an increasing supply than weaker demand, since more hotels are reopening, according to STR.
Delta and United will operate 59 flights total to Dubrovnik in July and August, compared with zero in the summer of 2019, according to Cirium’s schedule data. Dubrovnik has become a hot destination because Croatia has declared itself open to tourists, requiring only proof of vaccination or a negative Covid-19 test.
What The New Airlines Avelo And Breeze Mean For U.S. Aviation
These two airlines are starting just as the U.S. is starting to come back to normal. Both airlines will have significantly lower costs than the largest U.S. airlines.
Does the U.S. need two more airlines? People certainly love low fares and nonstop service, so to the extent that each of these airlines offer both things, that’s great. But uncertainty in air travel demand, especially business travel, creates some concern about total capacity and its effect on price stability.
The industry continues to be shaken up by disruptors. This is a surprisingly good time for these new airlines to start.
The existing airlines will react, and Avelo has already seen this from several carriers. Consumers will decide if they like these airlines and locations they choose to fly, and again larger carriers like American, United, Delta, and Southwest will be watching closely.
Low costs of production mean that these airlines have returned to positive cash flow and will be profitable at lower revenue than larger, more global airlines.
No wide-body aircraft means not being burdened by the high costs of ownership for those planes. With long-haul business travel’s return highly uncertain, wide-bodies represent the largest risk in the industry. Low-cost carriers do not have this risk.
With fewer business travelers, large airlines will have to adjust their business models to be profitable with a higher base of leisure customers. Low-cost airlines already make money on the lower ticket prices from leisure travelers, so if businesses travel less, they don't feel the pinch.
David Neeleman has a stellar track record, and has been a success with each of his four previous airline start-ups in Canada, the U.S. and Brazil. That certainly helped him generate support for Breeze and will ensure that Breeze is financially strong on day one at least.
Andrew Levy, the brainchild and CEO of Avelo, was a successful President at Allegiant and spent time as the CFO of United Airlines as well. He understands the business well, and knows how well-structured low-cost carriers think and how the big airlines can react.
In a strong economy, big airlines are good at putting pressure on new carriers by both lowering their prices and adding capacity. But in the current environment, especially after taking a lot of taxpayer money, the largest U.S. airlines will have to be more careful about how hard they try to snuff out these two new airlines.
For many reasons, the two newest U.S. airlines have a good chance to be successful. They are well capitalized, will be well run with strong leaders, and are starting at a time that is uniquely beneficial for their business models. The real winners are travelers, who get more choice and lower fares.