Is United's Transpacific Bet Paying Off?
Photo courtesy of United Continental Holdings
United Airlines has just launched its 14th Asia-Pacific route from San Francisco International. The carrier will now fly to Hangzhou, China three times per week. No other U.S.-based airline offers direct flights on this route. The new service comes on the heels of another new Pacific flight from SFO to Auckland, New Zealand, which took off for the first time last week.
Since May, United has launched five international routes from San Francisco. In addition to the two already mentioned, the carrier has new services to Tel Aviv, Singapore and Xian, China.
A bright spot
The international growth in San Francisco has been one of the bright spots for United during what has been a tough year. The airline has been struggling with labor relations, boardroom tension and unhappy investors since CEO Oscar Munoz returned to his office after recovering from heart transplant surgery.
Now, United seems to be doubling down on its international expansion strategy. In addition to continuing to expand its route offerings from SFO, the airline has announced a major cabin overhaul that will see its wide-body planes, such as the Boeing Dreamliner, used for many transpacific routes and get a new business class setup called United Polaris.
Munoz called Polaris a game changer for international business travel and said that it was United’s biggest product overhaul in the past decade.
Better quality is a necessity
The upgrade was necessary because United will now be flying routes also served by some of the world’s top rated airlines. Singapore Airlines will start flying the San Fran-Singapore route in October and Air New Zealand now serves the SFO-Auckland route. Luckily, both these competing airlines are members of the Star Alliance alongside United. In fact, the Auckland route is part of a well-planned joint venture, so competition with ANZ will be limited.
United has been successful on its San Francisco to Sydney route, where it differentiates itself from rival Qantas with its newer 787 (the Australian airline still flies a 747 on the route) and by offering access to partner airlines’ lounges in Sydney.
So there are examples of United successfully competing with major international airlines in terms of overall quality.
The other part of United’s SFO strategy is to develop new destinations before everyone else does. The new Hangzhou route is an example of this. No carriers fly between San Francisco and Hangzhou directly. The Chinese city, which is in the same general region as Shanghai, has become known as a tech hub — a kind of Chinese version of Silicon Valley — so it makes sense to offer a direct flight from the Bay Area.
United is also flying to Xian and Chengdu, which are Chinese boomtowns with no other direct service from the U.S. If there is demand in these secondary cities, United will probably be able to fill it without leaving room for a second airline to launch competitive service. (There simply won't be enough demand to make competition financially feasible for other airlines).
United is also using a similar strategy on the other end of the ocean. It has shifted focus to San Francisco from ultra-competitive LAX, where the other legacy carriers are also vying for control of the market. At SFO, United can be THE airline instead of being one of three jostling for international routes.
United’s plan is clear: focus on developing its own routes instead of trying to compete with other legacy carriers while also improving the quality of international service so that it can compete with top-rated Asia-Pacific airlines. Success is not guaranteed, but the airline's transpacific bet could pay off big time in the future.
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