United CEO Scott Kirby Boasts: We’re Driving American Airlines Out Of Chicago—They’re Bleeding $800 Million A Year

United Airlines CEO told his airline’s pilots that he was going to force American Airlines to de-hub Chicago.

• United is growing at O’Hare. The airport is taking gates away from American and giving United more gates and doing it in pretty clear violation of the airport lease and use agreement.

  
  
  
  

• Kirby told the excellent Brian Sumers that American Airlines is losing $800 million a year in Chicago.

  
  

  “Here’s just the facts: American is now losing, on a run-rate, about $800 million a year in Chicago,” he told me. “That’s not sustainable.”

Seven years ago American admitted to losing perhaps over $100 million cumulatively just flying Chicago – Beijing although not in a single year, and that route was $50 million a year below ‘passable’. There are certainly still numerous money-losing routes from Chicago.

However, Kirby’s explanation of American’s financials are not plausible.

“Look at their financials,” he said. “This year, they got a billion-and-a-half benefit back from their sales distribution, supposedly, and their margins are getting worse,” he said. “I’m not trying to criticize it, but they spent it in Chicago. That’s what happened.”

Note that Kirby drops ‘supposedly’ in there with respect to American’s improvement with managed business travel. He knows. Those numbers are illusory, and so American isn’t spending that money to subsidize O’Hare.

American says they’re making progress bringing back business travel but their revenue is not going up so this billion isn’t money that they are spending, let alone spending it in Chicago.

And they’re unlikely to be growing Chicago to defend turn if they were actually losing a billion dollars a year. To get to negative $800 million in Chicago requires some very creative accounting, or ‘doing it wrong’ by attributing revenue that wouldn’t exist for American without Chicago flights to other activities (like co-brand credit card revenue in the Chicago market, something Kirby specifically knows you can’t do because he’s talked about this himself).

It seems strange, though, for Kirby to be promoting that American will be forced to eliminate its Chicago hub at a time when he’s in court fighting to take gates from American, for two reasons:

1. If American’s de-hubbing of Chicago were inevitable, the court fight would be irrelevant. American would be giving up gates on its own. The outcome of the case wouldn’t change that.

   
   
   
   

2. But it seems like pointing out the fragility of competition in Chicago hurts his case in court. United is about to dominate in Chicago, and that’s bad for Chicago customers – it means fewer choices and higher fares.

Indeed, Kirby’s comments underscore that the legal position of the City of Chicago to cram down American’s gate position at O’Hare is one that helps risk competition. Although I suppose Kirby is also saying that competition will be diminished whether the City of Chicago helps kill it or not (even so, handing more preferential use gates to United, excluding other competitors, is an odd policy to pursue).

This article was originally featured in View from the Wing.