United Airlines Vows To Win Battle With Frontier And Other Ultra-Low Cost Airlines

United Airlines responded to a big boost in cut-rate flights from Frontier, its rival in Denver, claiming that its new basic economy fares are winning over customers, and that it will ultimately prevail in the slugfest.

“This is a battle I guarantee United will win,” said Scott Kirby, the carrier’s president, in a conference call with industry analysts to discuss the company’s second-quarter results. For the three-month period, United reported a nearly 40% rise in net income over the same period a year ago.

The positive results suggest that the carrier’s notorious passenger-dragging incident in April has had little long-term impact on its financial situation. But another factor fueling its optimism is that United has been doubling down on its performance, with an improvement in punctuality and a sharp reduction in denied boardings, partly as a result of new customer-service measures taken after Dr. David Dao was forcibly removed from a United Express flight.

But United is still facing some challenges, executives acknowledged, with Frontier announcing a sizable expansion, adding 20 new destinations out of Denver by next year.  And the budget line is throwing down the gauntlet by adding more connecting flights, saying it will have 1,000 new connection possibilities by mid-2018.   

That suggests a fundamental shift in Frontier’s strategy, moving it from a primarily point-to-point line to a network carrier. And it comes at a critical time for Frontier, which in recent years reinvented itself as an ultra-low-cost line more in the Spirit Airlines mold than, say, a United. Frontier is also preparing to go public and investors may be pushing for more aggressive growth, according to some analysts.

But United executives were quick to pounce, with Kirby going so far as to say that Frontier is “throwing in the towel” on its existing business model. What Frontier is proposing is “exponentially” more complicated than a basic point-to-point operation, he noted, making its system more vulnerable to the ripple effect of delays, among other things.  

Part of United competitive strategy rests on its expansion of basic economy fares, which carry restrictions similar to those of Frontier, Spirit and Allegiant, in exchange for prices about $20 less than the next highest fare category. In the conference call, United said that it’s pleased with initial results, but conceded that it’s taking more time to realize the benefits of this new fare class, which it had earlier predicted would add around $200 million in revenue this year. It conceded that the fare restrictions might turn off customers in some markets where competitors charge similar prices for a standard coach product.  

United that this disadvantage will likely disappear as American and Delta add basic economy fares in more markets.