United Airlines To Cut Costs In Lieu Of Increased Labor Costs

United Airlines: Louis Nastro/Reuters

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Ted Goodman Reporter

United Airlines needs to raise revenues in order to offset increased labor costs as it works to close its margin gap to Delta Airlines and American Airlines, according to the company’s CFO.

The company brought in new, celebrated airline executives last year to help the company raise revenues and compete with America’s other large carriers. President and CEO Oscar Munoz has been credited with negotiating successful agreements with the pilots, flight attendants and customer service employees.

Munoz stated that new contracts with the unionized workforces was a major priority for him when he arrived. United’s mechanics have yet to sign on to a new contract, but forecasters predict that it might happen soon.

The nation’s third largest airline posted its third quarter earnings, making approximately $1 billion in profit. The airline posted a total revenue of $9.91 billion, which is higher than the $9.1 billion prediction from Wall Street.

The airline must now determine how to close its margin gap and catch up to Delta and American, something the company discussed Tuesday morning on a call with investors. During the call, executives explained that the airline is looking to purchase high-quality used planes, and that it planned to see some growth in the Latin American markets and the Pacific sector.

The airline discussed numerous cost-cutting measures, which include the switch from smaller, 50 person planes, to larger planes that will fly between the airline’s hubs. Currently, Delta utilizes small planes to travel from hub-to-hub.

United warned investors to expect a major increase in non-fuel costs later this year. The company said that those costs might rise as high as 5.75 percent due to the increased labor costs, which don’t include any new deal reached with the mechanics.

Andrey Levy, United’s CFO, asserted United Airlines will need to raise revenue in order to offset increased labor costs. The airline might have to increase ticket prices to close its margin gap to Delta and American Airlines. Levy also said United needed to reward its employees and make them “passionate about winning.”

“We are not really focused on 2017,” Levy said. “We are going to try to enhance our profitability over the next several years.”

United announced cuts in its weakest international sector, trans-Atlantic flights. Delta Air Lines also reported weak numbers on its trans-Atlantic flights. United cited attacks in Europe, Brexit and a weakening British pound as reasons for the lost revenue in the Atlantic, and said it plans to reduce its capacity in the fourth quarter.

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