Those bag fees and legroom charges? It's just business, United boss says

NEW YORK-- After years of boom and bust, United Airlines CEO Jeff Smisek--who heads Newark Liberty International Airport's largest air carrier--said the aviation industry has finally learned how to make money.

"We're operating like a business," said Smisek, whose company last week posted record quarterly profits. "This business has improved dramatically and I believe it will continue to improve."

But while acknowledging the angry pushback by many airline customers over the now common airline bag fees, extra legroom charges and other incremental service costs that were once free, Smisek said such pricing is no different from what any other business does.

"If you want more data on your data plan so you can watch faster, better cat videos, you call AT&T and they will be happy to increase your data plan--and they charge you for it," he remarked. "That's what businesses do."

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Speaking before the Wings Club of New York on Thursday, the United chief executive said most people view the nation's air carriers more as nonprofit corporations than as business that need to earn a return on their investment.

United, he said, is now paying more attention on how it makes its investments and focusing more on its employees, while safely getting people from Point A to Point B, on time. With its higher earnings--due in large part to lower fuel costs--it has been paying down debt and buying new, more efficient aircraft.

Smisek, though, made no mention of the U.S. Justice Department's opening of a price-fixing investigation into several major airlines--including United--looking into what officials called "possible unlawful coordination" to limit capacity increases and artificially boost demand, forcing up ticket prices.He told the industry crowd that inflation-adjusted airfares are lower now than they were in 2000, despite soaring profits. The airlines have said they did nothing wrong.

Separately, United is still trying to adjust to its October 2010 marriage with Continental Airlines. Five years since the merger, it has yet to reach a unified labor contract with its flight attendants. It also suffered a series of major disruptions to its computer systems in recent week, which at one point grounded the nation's second-largest airline for hours.

Airline officials say they are making major investments and upgrades, last week taking delivery on their 200th new aircraft since the merger--a Boeing 787-9 Dreamliner.

Newark presence

United is the now the largest airline by far operating at Newark Liberty and is only getting bigger. In June, the company said it would pull out of Kennedy International Airport in October and shift all of its flights to Los Angeles and San Francisco to its hub in Newark. United carried nearly 25 million passengers in and out of Newark last year. On a typical day, some 430 aircraft carrying United's blue-white-and-gold livery arrive and depart the busy airport.

Last week, the company reported second-quarter 2015 net income of $1.2 billion, or $3.14 per share., which officials said represented a record quarterly profit for the company. For that same period, total revenue was $9.9 billion--a decrease of 4 percent year-over-year, while second-quarter consolidated passenger revenue decreased 3.4 percent to $8.7 billion, compared to the same period in 2014.

However, Moody's Investors Service last month upgraded most ratings of the airline's parent holding company, United Continental Holdings.

"Markedly lower costs of jet fuel will more than outweigh the uninspiring trend in passenger revenue per available seat mile, resulting in strong growth in earnings and free cash flow," said Moody's senior credit officer Jonathan Root.

Meanwhile, Smisek yesterday repeatedly warned of the growing competitive threat to the nation's airlines from the major gulf carriers--Emirates, Etihad Airlines and Qatar Airways--which have greatly expanded flights into this country under Open Skies treaties.

United and other U.S. carriers have been lobbying Washington to take action on those treaties, claiming the gulf carriers are being unfairly subsidized by $42 billion in government subsidies and what they called "a web of interested party transactions" -- a claim the carrier have denied.

"They are clearly dumping capacity into the United States," the United Airlines CEO declared. "The level of subsidization is extreme."

Ted Sherman may be reached at tsherman@njadvancemedia.com. Follow him on Twitter @TedShermanSL. Find NJ.com on Facebook.

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