Au revoir. Auf Wiedersehen. Arrivederci. So long.
Wednesday, UAL Corp.'s (OTC BB: UALAQ) United announced a plan to cut available seat miles for domestic trips by 12% while increasing capacity on international flights by 14%. United expects to need 68 fewer planes for the revised schedule, cutting its fleet to 455 aircraft.
The strategy is designed to "follow the money," said John Tague, United's executive vice president of marketing, sales, and revenue, quoted in an interview with Reuters. How's that? Well, United books more high-margin revenue from international flights.
That's because it's not uncommon for executives taking long-haul trips to, say, Asia to fly business class. A check at United's Web site this morning shows a business class ticket from Los Angeles to Tokyo leaving a week from today and returning the following week is priced at more than six large. (That's, um, $6,000.)
Not only is the strategy good for margins but also it plays to United's strength. The carrier has arguably the best international route network of any domestic airline.
Of course, the news could also be construed as a defeat, as if United is giving up on the U.S. market in the face of increasing pressure from discounters such as AirTran (NYSE: AAI ) , Frontier (Nasdaq: FRNT ) , Southwest (NYSE: LUV ) , and Motley Fool Stock Advisor pick JetBlue (Nasdaq: JBLU ) . Well, so what if it is? Would United waving a white -- or maybe beige? ecru? -- flag in its battle with discounters be a bad thing? Only if you like throwing away money.
Before you start typing that e-mail that says, "United isn't giving up its domestic routes; there is no white flag," stop. I know the airline will keep its domestic routes. But it will make more use of regional jets and repurpose some bigger craft for long-haul flights. That saves moolah -- lots of it. The cost, however, may be a lessening difference between United and the discounters on both price and customer experience in the markets in which they compete. So be it.
So long as United can keep inching toward the $5 billion in annual savings it's targeting by next year, then I see no problem with saying "sayonara" to a few domestic trips.
For more high-flying Foolishness, read:
- Last month was a tough one for JetBlue.
- US Airways (OTC BB: UAIRQ) has been in a holding pattern for months, but a crash may not be far away.
- Fellow Fool W.D. Crotty recently made the case that there's simply no good reason to own a legacy airline.
- Along those same lines, Fool Bill Mann says Delta (NYSE: DAL ) will crater; I just think they're schizophrenic.