United aims to get more out of its hubs

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United projects that connectivity out of Denver will increase 15% this year.
United projects that connectivity out of Denver will increase 15% this year. Photo Credit: Shutterstock

Aiming to drive higher profit margins, United plans to increase connectivity out of its hubs this year.

During the airline's fourth-quarter earnings call, United president Scott Kirby lamented that United doesn't use its connecting hubs as efficiently as American and Delta. United offers only half as many connecting itineraries as American, Kirby said, even though United has what he described as a strategically outstanding collection of hubs in Chicago, Houston and Denver.

To correct that shortfall, United plans to increase service to high-yielding small markets in 2018 with the help of 31 new regional aircraft. Connectivity out of Houston will be up 21% by the end of 2018 and connectivity will increase 15% from Denver and Chicago, Kirby said. Overall, United will grow capacity by 4% to 6% during each of the next three years. 

"A hub and spoke airline is really a manufacturing company, and it's about manufacturing connectivity," he said.

Also, during Tuesday's call, United said it will begin offering basic economy passengers the option to purchase seat assignments.

"It's an opportunity for our customers who are buying a basic fare to be able to select a seat, and it's an opportunity for us on the ancillary revenue front," chief commercial officer Andrew Nocella said during the carrier's fourth-quarter earnings call Tuesday.

Nocella didn't reveal the price nor when the option would be available. He did say the fee would be small.

The move will make United the only legacy U.S. carrier to let basic economy passengers buy advanced seat assignments.

Also, Nocella offered new details about Premium Plus, the premium economy cabin that United will introduce this year on overseas routes. Rollout of Premium Plus will take three years, he said, as United retrofits aircraft to accommodate the product, which bridges the wide gap between business class and coach.

United reported net income of $580 million in the fourth quarter, up 46.1% from a year earlier. The difference is due primarily to United paying $467 million less in income taxes this year. The carrier's pre-tax net income was down 32.1% year over year.

For all of 2017, United reported net income of $2.13 billion, down 5.8% from 2016. The carriers' pre-tax net income in 2017 was $3 billion, down from $3.81 billion in 2016.

United reported revenue of $9.44 billion in the fourth quarter, up 4.3% over 2016 and $20 million more than analyst expectations, according to Seeking Alpha. Earnings per share was $1.40, 6 cents higher than expectations.

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