An Interview with United CEO Scott Kirby About Tech Transformation

Good morning,

This week’s Stratechery Interview is with United CEO Scott Kirby. Kirby has had a remarkable career in the aviation industry. He was one of the chief architects of the industry’s consolidation in the earlier part of this century, and, over the last decade, has transformed United Airlines into a consistently profitable and aggressively growing behemoth.

This might seem, at first glance, to be an odd interview subject for me. However, there are two interconnected angles undergirding my coverage. First, I have been a witness and personal beneficiary of Kirby’s changes; over the last decade the transformation in United’s product has been very tangible to me, and very much appreciated. Secondly, however, and more pertinent to Stratechery, is that it has been clear to me that United’s transformation has been driven first and foremost by an investment in technology. United first earned my loyalty by having by far the best website and app experience; that sort of loyalty is exactly what Kirby has been focused on, and it has in turn made it possible for United to improve many more aspects of the customer experience.

In this interview we cover all of that, including Kirby’s background, belief in differentiation, and how United’s improvements were made possible by rebuilding the company’s tech stack from the ground up. We also touch on the challenges of competing internationally, AI, Starlink, and my own personal wishlist for my most used airline.

As a reminder, all Stratechery content, including interviews, is available as a podcast; click the link at the top of this email to add Stratechery to your podcast player.

On to the Interview:

An Interview with United CEO Scott Kirby About Tech Transformation

This interview is lightly edited for clarity.

Background

Scott Kirby, welcome to Stratechery.

Scott Kirby: Thanks for having me.

This is perhaps an odd venue for you given this is a site about technology, and you are an odd subject for me given you’re an airline executive, but this is actually an interview I’ve been looking forward to for a very long time for reasons that I think will become clear in our conversation. I am, however, like many of my readers, a bit of an aviation geek, and for what it’s worth, I’ve been a Premier 1K member for many years.

SK: Thank you!

You’re welcome. So, I guess that’s my conflict of interest declaration.

SK: It’s a cool, sexy industry, even if it’s not technology.

Well, it’s fun, because it’s so sexy from a product perspective and can be very not sexy from a financial perspective.

SK: Yeah, we’re trying to change that.

I also have some very personalized feedback for you, but I’ll save that for the end. Before I get into United and the tech angle, I do want to explore, I always like to open these interviews by learning more about my subject, you, specifically. Where did you grow up? When did you get interested in airplanes? I saw that you went to the Air Force Academy, so it was clearly quite early.

SK: Yeah. I grew up in what at the time was a small town, Rowlett, Texas, not even big enough to have a high school, so I had to go to high school in a different city. But I early on decided I wanted to go to the Air Force Academy. I read a lot, and I had read history, World War II, and World War II was about airpower. So, I wanted to be a pilot, and then an astronaut. Went to the Air Force Academy, realized while there I was not going to be a fighter pilot, so I chose not to go to pilot training. Got my graduate degree in operations research, which is applied math, wanted to do something with math so just by accident wound up back in the airline industry, because I wanted to do something with math. But it’s been great ever since.

Well, a somewhat related question, when did you learn to count cards?

SK: I used to play poker a lot, and when I got out of the Air Force Academy, I went down to Biloxi, Mississippi for four-and-a-half months, and I was going out on this international boat where you could play poker and it was just like shooting fish in a barrel. People were terrible, and I would make a bunch of money and a buddy of mine told me about, “Oh, you should count cards”.

So I got the green book — I forget the title of the author, but it’s called the Bible for Card Counters [Blackjack for Blood: The Card Counters’ Bible, and Complete Winning Guide]. I learned to count cards, I went to DC working at the Pentagon, I started going off to — it’s self-taught, but started going up to Atlantic City, and then, of course, went to Vegas a lot. If you’ve ever read or saw the movie about the blackjack team that was in Boston, two different times when I was in Vegas, somebody came and asked me if I wanted to join their team, because it’s obvious to tell if there’s another card counter.

Yeah.

SK: But, anyways, that was a long time ago. They’ve made it impossible now I think for card counters to be successful, but you could do pretty well back in the day.

Driving Consolidation

I’ll circle back to that, but you actually moved back to the airline industry with America West.

SK: Yeah, America West.

So you are a part of America West, a series of acquisitions that, ultimately, ends up at American Airlines. Tell me about that, that path, and how you rose through the ranks.

SK: Sure. I was at America West, the number two executive, I got appointed to be the Chief Commercial Officer on September 10th, 2001.

And what level did you join at?

SK: I joined as a Managing Director of Route Planning and Scheduling. It was a small airline — like 80 airplanes at the time I got there, based in Phoenix, Arizona. A guy named Bill Franke, who is still around, owns a bunch of ultra low-cost carriers around the globe, I saw him last week when I was out in Phoenix, but was the CEO. Not an airline guy, he hired a bunch of us young kids.

What I remember about the interview with Bill, at the time I was at American Airlines, at a subsidiary of American, it was doing well and I went to interview with Bill, and he said, “I’ve been told that you’re an up-and-coming star, and you’re going to go far at American. American is on top of the world, why would you possibly want to come to little America West?”, and I said, “Well, at American, they are doing well, they’re the best in the world, but if you want to change or try anything new, you have to prove beyond a shadow of a doubt that you won’t break anything and it won’t screw up, which is impossible, so you can’t change or try anything new”. And he said, “Well, everything at America West is effed up” — he didn’t say effed — “Is effed up, and you can do anything you want, and if it works, you get promoted, and if it doesn’t, you get fired”. I was like, “Perfect, that’s what I’m looking for”, so off I went.

You obviously succeed, you rise up to number two, then you set off this series of consolidation. What was the industry pressure that was happening around that time?

SK: You actually said it right. We, little America West, drove industry consolidation in the industry. The first merger was America West, the first I realized I was running the network and the commercial side of the business, we tried this experiment with the transcontinental markets, it failed miserably. Our most overlap was with the best airline in the world at the time, Southwest Airlines — we had to get bigger and change to survive.

And so, the first deal we did was US Airways, who was in bankruptcy at the time. People described it, one it’s impossible to raise money for. I had 52 meetings with investors trying to raise money for that, some of your tech clients will probably recognize me going around trying to talk to people about raising money, until one finally said yes. We raised a billion dollars, and got the merger done. We did it in September of 2005. By the way, so, two small airlines merging, the same month that both Northwest and Delta filed for bankruptcy, so a really tough time in the industry to do it.

Yup.

SK: It was really successful, right out of the gates it was successful. A year later, we made a hostile bid for Delta Airlines, who was in bankruptcy and planning to come out on a standalone basis. That drove changes in their executive team and board — we failed in that, but—

Right, you had no idea what you were creating.

SK: Yeah. We knew we were creating a risk, or we knew that we were starting a ball rolling, we figured it was good no matter what happened. That caused Delta to then merge with Northwest.

Next we went after United, and actually had a deal with United and I negotiated that deal along with their Chief Financial Officer who led the negotiations for United and I can remember going to dinner with her in Washington DC, which is where we’re all negotiating, we were even drafting the press release and she told me, “Just so you know, we’ve decided to leak this to test the market reaction”, and I knew we were in trouble when that happened, because it meant Continental would get in. Continental came in, and Jeff Smisek had one of the more infamous, he’s the CEO of Continental, quotes at the time that they decided on the pretty girl instead of us, and they merged with United, but we drove that to happen.

And then, of course, American files bankruptcy, and we made a hostile bid against American. Everyone told us it was impossible, and we got it done. So, that little America West team, a bunch of young kids who really didn’t know enough to know that everything we were doing was just, in theory, impossible really changed the whole industry.

It may have seemed impossible, but, like you said, it completely changed everything. I presume you’re on board that consolidation has been good for the industry. Perhaps it’s a different question, has it been good for the consumer?

SK: It absolutely has been good for the consumer. You look at air travel today compared to where it was 20 years ago and it is a far better experience for you. You’re a frequent flier, it’s far better today. Back then it was just a heavily commoditized industry where the product, the service, the quality, the communication, none of that mattered. It was a pure, “Just get the lowest cost possible” industry, and it is much better for consumers today.

And, by the way, it’s still a great value. In fact, I’ll just give you the most recent stats. In the six years pre-COVID to today, so, 2019 to 2025, airfares actually went down by about 2%, inflation was up 23%. Airport inflation, which drive our air costs, are up over 50%, airfares went down pretty significantly. That, by the way, is going to cause some ultra low-cost carriers to go out of business, already in bankruptcy, they’re going to go away, so a little bit of that is going to reverse. But airfares consistently for the whole period of deregulation have grown at much less than the rate of inflation, but the product and the service and the quality is infinitely better today than it was 20 years ago.

To go back to the poker bit, you have a reputation for being very data-driven and you mentioned, “Well, back then it was shooting fish in a barrel”, was that the case when you started at America West? Was just by virtue of looking at the numbers, being buried in spreadsheets, was that why you were able to take over the industry?

SK: No. We started with the weakest hand of cards at the table, we just played it the best, to keep the poker analogy, we had to bluff and bluster, we had the weakest hand, but we played it more aggressively than anyone.

You had nothing to lose.

SK: Well, we did, we had the whole company to lose.

Right.

SK: But we just played it more aggressively than anyone else. We also recognized that doing nothing was a huge risk in and of itself. In fact, one of the things I say, “The biggest mistake most people make in their careers is never making big mistakes”, they’re so afraid of taking risk that they miss all of the opportunities and we were balanced about recognizing the opportunities, but also the risks of doing nothing — deciding on the status quo is a decision in itself.

Actually, that reminds me of one of my favorite quotes is from Teddy Roosevelt that goes something like, “If you’re in a crisis, the best thing to do is quickly make the right decision, the worst thing to do is make no decision, and the second-best thing to do is to make the wrong decision. Do something!”.

Airline Differentiation

That makes a lot of sense. You do talk much more, though, about things like the customer experience, and things that are not necessarily data-oriented.

SK: Yeah.

Is that just part of softening the edges, as you know you’re one of the big three CEOs, or has it been a real shift in mindset?

SK: Well, I think it is probably a shift in mindset, but it’s also something I’ve always thought. I am really good at data, I’m good at math, understand data, use data to inform my opinions, but data doesn’t tell you the answer. In the big questions, they’re uncertain and data helps inform your view of the world, but you can’t just rely on data. Doing something new and different is — you can’t ever use data to prove it, you have to trust your gut, trust your instinct. Two of my favorite quotes that are similar, but both Henry Ford and Steve Jobs. Henry Ford once said something like, “If you ask people what they want they’d say a faster horse”, and Steve Jobs famously never used surveys. I hate surveys, never used surveys, because you’re trying to invent and create something that people don’t know they want yet, you can’t get that from data. But data can inform your opinion, and help you build the foundation that lets you have the big leaps of insight.

Was that the issue in the early 2000s when you were talking about everything was purely commoditized? Because if you did any survey you asked people what they want, they wanted direct flights, I would assume, and low prices.

SK: Yeah.

And that was very tricky.

SK: That was the industry convention, and all the modeling, and all the math supported that and really no one had tried very hard to challenge that orthodoxy. And, for me, the first big challenge to that orthodoxy was JetBlue when they started, and they put live TV on the airplanes. I thought that was a gimmick at the time, but then I went and flew it and like, “Holy cow, this is a meaningfully different experience”.

JetBlue was 12 or 13 airplanes at the time, and we had gotten up to 100 and so we cut a deal with a company that was called LiveTV to put live TV on all of the America West airplanes. They would have been growing eight or nine times with that contract, a huge transformative deal, live TV, nobody else is willing to do it, everyone else talked about it like a gimmick and it would have been the biggest CapEx investment outside of aircraft we’d ever made by far at America West, got the board to approve it.

I called the CEO of LiveTV to tell him we got that done and he didn’t call me back, I’m like, “This is weird”, it took, like, 24 hours. I was starting to text people, or call people and say, “Is he okay?”.

Right.

SK: “Did something happen?”, he finally called me back, and he said, “I’m so sorry”, he said, “We told JetBlue that you were going to do the deal, and they bought the entire company to keep you from putting it on the airplanes”. So, that would have been like 2000 or something, maybe 2001, ’99 or 2000 probably, and that was my first big point of, “You can get people to pay for a better experience”.

Well, tech is on the extreme in terms of thinking about massive fixed costs upfront, and then zero marginal costs in terms of actually serving customers.

SK: Yeah.

Airlines are challenging. You mention that would have been one of your largest CapEx expenses ever. You have large fixed costs, you have the airplanes, but you also have ongoing marginal costs in terms of employees.

SK: Yeah.

Also fuel, which can be very much out of your control. When you’re thinking about managing these companies, or making that decision about this LiveTV, how do you think about balancing those different types of costs that go into your COGS?

SK: Yeah, we’re much more operating expenses as opposed to the CapEx. Our CapEx can be big but if you just look at depreciation, for example-

If you’re on a 30 year depreciation cycle, it doesn’t add up to much.

SK: Yeah, it’s a relatively low. Most of our expense is employees and labor and maintenance and landing fees and all things that are variable with how much you are actually flying. So, it’s very different than tech in that sense. But I think it’s probably similar in that you’ve got to make big bets upfront, particularly about the aircraft and what you’re going to do with the aircraft.

Right, you’re stuck with them for a long time.

SK: And that is the one decision, almost everything else you can fix that you screw up but if you make a bad fleet decision, that can be the unpardonable sin, that’s what’s happened to the ultra low cost carriers, they bought too many airplanes that are way too big. And when you do that, you can’t fix it because they are 30 year assets, when you make big fleet decisions, you bet the company. Those are decisions that you have to feel really good about the analytics, but at the same time, the analytics, who knows what’s going to happen in 30 years? Good grief, we don’t know what’s going to happen this year, much less the next 30 years.

This is the way I think of — people get lost in the spreadsheet, I often say, the spreadsheet doesn’t have the answer. The spreadsheet is good for, “Under this set of assumptions, here’s what the outcome is”, but in your brain, you’ve got to have a whole variety of differing assumptions to say, “I can make it through, I can live with this decision if things get a lot worse than I hope, if things get a lot better”. You’ve got to be able to think through a wide variety of outcomes, and the spreadsheet is just a starting point for the real analytical process that needs to go on in your brain.

So when I think about flying in general, just as just a consumer, I think of there being two markets, domestic and international. Given that I lived in Taiwan for most of the last two decades, I was obviously much more focused on international. When I get my 1K, I’m always on the miles or spend side, not on the segment side. Is that a division that you think about in terms of your business and your competitive set? It seems kind of obvious from the outside, do you think that it’s more of an integrated whole?

SK: We do, but they are an integrated whole. So, our flight from Taipei to San Francisco.

Two a day now, makes me happy.

SK: Yeah, it has a fair number of people that are connecting from other places. San Francisco is a great gateway, it’s the best gateway to the Pacific, we can connect the whole country. Obviously, given the tech and also just the heritage relationships between the Bay Area and Asia, there’s a lot of the traffic is coming locally, but a lot of it is connecting and from others. And there’s other divisions, business versus leisure travel, premium versus price sensitive so there are a lot of divisions, but we’re the largest international airline from the US. In fact, we fly to more cities internationally than all the other US airlines combined.

So when you talk about those, you talked about all those divisions, like premium versus low cost, or whatever it might be, what matters domestically? Is it different there? I think about domestic, I think about all the segmentation that you’ve been doing, for example.

SK: So, the primary way I think about the segmenting in the market is brand loyal customers versus price sensitive commoditized customers.

That makes sense.

SK: And commoditized customers typically are, this isn’t a perfect distinction, but typically, people that don’t fly very much, they care about the schedule, so they’ll pay a premium for a nonstop. But all else equal, they don’t really care what airline they fly. They don’t fly enough to have be in the frequent flyer program, they’re just looking for the cheapest price, and it’s a commodity for them.

The brand loyal customers are the ones that we’ve focused on really trying to over-index on and when, and those customers care about the service, they care about the product, they care about the technology. I think one of the biggest and under-reported advantages-

Oh, we’re getting to that, don’t worry. We’re just building up, we’re building up to this.

SK: But the app on United, it’s like, I don’t know what airline in the world is second best, but there’s no question that they’re just a second.

It’s true. It is 100%, there’s no comparison.

SK: Yeah.

United’s Tech Advantage

Well, actually on that point, I had a little soliloquy here in the middle about my personal experience, because I’m very focused on international. So several years ago, I booked a business class flight on Singapore Airlines, long regarded as one of the best airlines in the world. I had to cancel that trip and it blew my mind that in order to get a refund, I had to submit a refund request, and it was literally a WordPress form on their website. I love WordPress, I’m very familiar with their ecosystem, doesn’t feel like the best tool for claiming a refund. I’ve told this story before in other contexts, but there’s an addition to it, which is in preparation for this interview, I went to find the email trail from this. It turns out they did email me eight weeks later asking why I wanted a refund, and I don’t think I ever got the refund.

SK: Oh, geez. You should go back!

I know, we’re going back, it was an expensive ticket!

SK: By the way, I will tell you, there are some airlines, I know at least one in the United States, who do that on purpose because it helps what they call breakage. The harder they make it for you, like I’m talking about the things we were doing to make refunds easier, and putting up flight credits on our website and things so that you would know you had them. Somebody’s like, “Are you crazy?”.

“Make people search for it!”

SK: People will use them now instead of you just get to keep the money. I’m like, “Oh my God, you don’t understand the customer, thank God I’m competing with you”.

Well, so anyhow, as I was filling out that stupid form, but I can remember thinking this in my head, I decided then and there, and I’m in Asia Pacific, so obviously it was United was the option, I was only flying United if at all possible, and the reason was solely because the website and the app were so superior to everyone else, by a massive margin. I could change flights, I could cancel, I could do whatever, I didn’t have to talk to anyone, and I followed through. I used to fly a lot more EVA Air, which is one of your Star Alliance partners, not the best partnership, I have complaints about that as well, but now I almost exclusively fly United. The one exception is EVA does have Taipei-Chicago direct flight, that one’s very nice, but to me, but this is the part that I always said I want to get to, I realized that for me, someone who flies a fair bit, changes my schedule a lot, nothing matters more than technology, and United had the best tech in the world. That’s my soliloquy. I think I’m putting the ball on a tee for you, but is this the sort of outcome that you foresaw when you come to United in 2016 and you start really making these investments?

SK: Yes, but it’s been even more impactful than I thought, and I’ve always thought that using technology to anticipate a customer’s needs, solve them before, make it easy, treat them fairly, was more important even than things like the product. And you’re seeing with your Singapore Airlines experience, you can’t get over something like that when you treat people that way and force them that.

Yeah, walk me through this journey because again, I fly on a lot of airlines, I do fly United the most. How did your technology become so good? What was the change management process here? How did you go through it? What was it like when you showed up there?

SK: So one, we have a great team, we have great people. It’s the one part of the budget that’s been sacrosanct that I every year increase the budget, tell them to spend more money. Even during COVID, we didn’t cut it, so leading by example, but also pushing ideas really hard that are important, and pushing things that everyone thinks we shouldn’t do or that are impossible.

I’ll give you one example. One of the biggest culture changes, this isn’t really customer facing directly, but it is indirectly, that we made was, as soon as I became CEO, I eliminated what are called delay codes. Every airline in the world has a delay code, if there’s a flight that’s even a one-minute delayed, “Is it the flight attendant’s fault?”, “Is it the pilot’s fault?”, “Is the FAA’s fault?” — somebody gets blamed, and that’s true at every airline in the world. And you’d have these meetings that would go on for hours where groups of people were trying to pin the blame on a different group and management teams at United and around the world say, “Oh no, we never hold anyone accountable for that, this is all about we have to have this data in order to run the airline”, and I just always thought it didn’t matter if people were held accountable or not. People didn’t have four or five hour meetings about a single flight if they didn’t think they were going to be held accountable and so that’s all that mattered — I just made them stop and they said it’ll be impossible to run the airline.

Within a couple of months, we now have built technology, we have better data to analyze what’s happening with delays and all the things that are happening, put cameras up, use AI, I use AI to figure out what’s going on, far better data than any airline in the world. And because of that, it also made our culture infinitely better. We took that off of the plate and told employees, “We want you to just do the right thing. You’re a team, work as a team. It doesn’t matter, there’s this delay, it doesn’t matter whose fault it is, you’re not going to get blamed”.

It’s transformational for the culture and we built a better data architecture that lets us start explaining delays to customers and doing things that no airline has the ability to do it, because they’re still doing paper and pencil, sitting in the conference rooms, blaming each other for delays. And that’s a deep in the weeds kind of thing, except what sounds like a simple decision, but it has done as much as anything to change not just the technology, but the culture at United.

What has been the balance between the consumer facing tech changes, whether that be in the app — I know a manifestation of that data is you now have LLM generated explanations for why flight is delayed, which is very cool; I remember the first time I was sitting on the right side of the airplane, I got a notification that my bag was being loaded and I saw my bag going up the track, that was very cool — versus the stuff you’ve done on the backend, like managing your irregular operations, all those sorts of things. Is that a cohesive effort or you pick one thing to focus on and go back and forth? How do you think about that?

SK: We’re trying to do it all, because it all ties together. One of the big enablers was, that we started after I got here, we spent several hundred million dollars just getting off of our legacy mainframe systems, several hundred million rewriting code.

Is that the key? That is the the key enabler?

SK: That was a key unlock. You can’t do what we do unless you do that first, it was a key unlock.

So, just for the nerds, what was the system that you were running on before?

SK: Oh, we were on, it was called SHARES, but it’s a Fortran-based system that was written in the ’60s.

And so, what are you on now? Are you just on a regular cloud environment now?

SK: We’re on our own stuff. Yeah, it’s all cloud and it’s our own stuff, but we spent hundreds of millions. It’s not done. In fact, the last cutover’s coming next year for the last piece.

Oh, now I’m feeling nervous.

SK: Most of it’s done.

Just out of curiosity, when is the last cutover?

SK: Well, we’ve done it a piece at a time. So none of them have ever been really impactful because you’ve done a piece at a time, and there’s several pieces next year, so they come, but we’ve never had any issues with it because we’ve done them a piece at a time. And when you do it a piece of time, there have been problems before, but it’s easy to roll back when you do it a piece at a time, relatively easier to roll back.

Has anyone else done this?

SK: Not that I’m aware. No, certainly not to the extent that we’ve done it. They’re still on old legacies, because it’s hard. If you’re sitting at airlines, which haven’t been great margin businesses, you’re sitting and somebody says, “I want to spend $150 million next year to just take it off of the legacy mainframe system and put it into modern coding system”.

No obvious, immediate benefit.

SK: And there’s no ROI, there’s no nothing. “I don’t know what I’m going to be able to do with it, but it’ll just be easier to do stuff in the future”, I’m probably the only CEO that says yes to that, none of the others do.

What was the process here? Who convinced you to do this? Why did you make the decision?

SK: I think they did bring it to me, I’m not sure. Actually, I think I may have been the one that was pushing, “Let’s get off these systems”.

It’s okay, you can take credit.

SK: Partly I was a programmer. I mean, I double majored, my other degree is comp sci, I understood it. When I was at the Pentagon, I got responsibility for managing a whole set of tech stack, I didn’t know Unix. I remember at the time, you’re going to be the system admin for a Unix system, and they gave me a manual that was three inches thick and at some point I erased the kernel, which took me about six months to recover from, but I learned a lot by doing that.

But anyway, I understood when I was working, I wrote Fortran and did those kinds of programs. It’s impossible to get anything done and you put it in a modern system, man, you can change it overnight. Try something new.

I think that explains a lot. I mean, especially to people in our audience, if understanding you did this level of rewrite of the underlying system, no wonder you can roll out features so rapidly.

SK: In fact, I rewrote a couple of the programs that I was responsible for. Nobody asked me to, I just did it when I worked at the Pentagon and put them in Unix, put them in C, but on a Unix platform.

That’s super interesting. Well, to go back to the question about costs, because this ties into it — it strikes me about this, you just talked about it, it’s a real example of shifting spending to upfront costs. Was this something you had to convince the board of? Be like, “Look, this is as good as buying a bunch of new airplanes, it’s a similar cost”, or were you able to just make the call?

SK: The board has been really supportive of me and everything I’ve done. It helps when it’s all working — when you have a track record, they’re willing to give you a lot of rope. But not everything has worked, and when it doesn’t work, we pull it back, but they’ve been willing to give us a lot of rope.

Another thing that we do that’s totally different than every other airline is at the end of the year, when we go through our budget every year, I at the end of it say, “Here’s another 150, some number, millions of dollars that I want you to spend on the customer”, I don’t pretend to know what the best thing is, I hardly ever eat the food on airplanes, we spent a bunch more on food, we spent a hundred million more last year on upgrading the quality of wines. Not my thing, but other people do know.

That was my next question! Actually on this point though — wine is literally my next question — but when you did this commitment to rewrite, when you were thinking through as far as cost structure goes, and you mentioned that this has exceeded your expectations in terms of the benefits, but where did you expect it to manifest? Did you think you would get lower marginal costs, you’d be better, or did you see this being able to sustainably charge higher prices? What was your expectations, and how has it actually played out?

SK: It wasn’t about cost at all, it was about doing more for customers. My goal for 20 years has been, from a technology perspective, get to a world where if your flight is delayed or canceled, pretend I’m on the airplane and I’ve called our network operating center and asked them what’s going on, what would you tell me? I want to be able to automatically tell every customer that. And it was not going to be possible to do it when we were on those legacy systems.

We’re better by far than any other airline in the world at doing that, but I think we’re still in the pregame on getting it. I think we have the data architecture that allows us to do it, and AI is really the right tool to effectuate that and I think we’re getting much better at it, but we’re talking about including things like weather forecasts for your flight 24 hours out, so you can look at the maps of, “Here’s what’s happening”, if there’s weather coming into your city, here’s the other routes that you could take to get there. Just all kinds of cool stuff that will really give you very inside baseball of what’s going on, take some of that uncertainty away.

Yeah. Well, I know I talked to Flighty, you may be familiar, the flight tracking app, and he both agrees that you are by far the best app, and also feels like you keep stealing all his good ideas, so I think he means that as a compliment.

SK: I think we talk to them a lot. In fact, I told our team, I don’t know what they’ve done, I shouldn’t say this in public, but I told our team, “We should just go buy Flighty, we’ll keep running it as Flighty, but I just want smart people that aren’t sitting at headquarters that believe anything is possible. Don’t tell me why we can’t do it, but go buy Flighty, and just let those guys tell us what to do”. They’re really good.

I’ll let [Flighty Founder and CEO] Ryan [Jones] know.

The Customer Experience

Who had the idea to greet frequent flyers by name, and why wasn’t this always the case?

SK: It wasn’t me, but it’s part of enabling it with the technology. We also have your birthday in there, if you fly on your birthday, the flight attendants or someone will usually tell you happy birthday. We have all kinds of stuff like that about you.

Well actually, my last birthday I took off from San Francisco on United on the 11:00 PM flight, and the day before my birthday, and I landed in Taipei the day after my birthday, so I missed my birthday completely. No one noticed, alas.

SK: (laughing) You’re supposed to go the other way, then you can do a double. Do a double New Year’s is the thing that people do, they start in Guam and fly to Honolulu on United, you can do a double New Year’s.

Well, anyhow, I have the menu from my last flight here, because I did have a question about wine. I called you the best airline in the world a few years ago, I think on Twitter, solely because of the technology edge. And I sort of granted in the tweet, “Yeah, the food and wine aren’t as good and the flight attendant’s going to be grumpy and da, da, da, da”. Well, first off, being greeted by name helps a lot, I love it. Secondly, when and how did United suddenly have the best wine in the world? I told you this is literally my question on here. On this flight, I had a Mascot Cab, it’s a 4.5 on Vivino, a $200 bottle of wine. It was very, very good. The biggest problem is that every other wine on the list was also really good and I wanted to have all of them. Am I talking to the United CEO, or the Emirates CEO?

SK: (laughing) That’s a high class problem. So really what happened on this was this was one of those at the end of the year I say — most airlines go back and say, “You have to cut the budget by X million dollars to meet our plan”, and I do the opposite and say, “Here’s how much extra we’re going to add, purely for customers”, and we have a great team. It’s led by Andrew Nocella and Toby [Enqvist], who’s our Chief Operations Officer, a whole bunch of people are involved in it. But they wanted to spend an extra $100 million on wine, and I trust him. Although I looked at, because I’m not a oenophile, I can’t tell the difference. I’m like, “Really? We’re going to spend $100 million on wine?”, because it’s like that is not what — I haven’t had a drink on an airplane in at least 20 years, so it’s just not what makes a difference to me. But I trusted them and they were right, and so we’re doing it next year. One of the wines they sent me, my wife and I had it.

Oh, there’s been a step up! So I noticed this happen about 16 months ago. I’m like, “Holy cow, there’s more good ones”, and then this year it’s actually taken another step up.

SK: Yeah. There’s some wine from South Africa, which I should know the name, because I drank it over the holidays, it was fine, it was good, I just can’t tell the difference. And they sent me one that’s coming on, that won some big award, global award. But anyway, that’s an example of hire great people.

So what makes this possible, why can you spend extra $100 million dollars?

SK: Because I’ve had a belief that air travel is not a commodity and that customers care. And no matter how good we are, we have to get better every year, or we will lose them, and we will deserve to lose them if we don’t get better every single year. And I believe that if we do that, we’re going to get market share, particularly for premium customers, or particularly for brand loyal customers who fly a lot, and they’re going to move to us, and that has worked like a charm.

In every one of our hubs, we’ve won massive market share since we started this. We do win every year, we get more market share, and it’s about having a long-term vision instead of the short-term. I’m just trying to maximize profitability for this year. In the short-term, it would probably be better to not spend that couple hundred million extra, but in the long-term, it’s a great investment to win customers for the future and so, we’re doing it, we’re going to keep doing it every year.

Have you actually been preparing for better wine for basically your entire career? First, by driving consolidation such that there’s a possibility to pursue these things, then with the tech enabling these new features? And the payoff is I get to have a great glass of wine on this flight.

SK: Yeah, I wouldn’t have said it was going to be about the wine, but what I was trying to do was build an airline that could invest for customers and win brand loyal customers, could win not just on schedule and price, that was my goal. And wine wasn’t what was going to make the difference to me, but it is one of the things that makes a difference to a lot of other people.

Competing Internationally

You made some very interesting comments last fall about the US having what you call a trade deficit with international airlines. Explain that to me.

SK: So about two-thirds of the long-haul international seats are on international airlines, even though only about 40% of the passengers are international and that is because those airlines have different kinds of state subsidies. Quasi-monopoly positions, if you’re in Singapore, most airlines can’t fly and compete with them, most of the route, Middle East carriers — and I’m not complaining about that, by the way. The city of Dubai, the massively wealthy, impressive city state of Dubai doesn’t exist without Emirates, they go part and parcel together, it helped build it and Singapore doesn’t exist without Singapore Airlines. It’s important, it makes sense for those places to do that.

But we’re then trying to compete with airlines that are essentially loss leaders for their country, their city state and so we’re kicking around some ideas of we don’t want subsidies, not trying to hamstring or tie up the other competitors around the globe, but how do we rectify that trade deficit and get an equal amount of long-haul international traffic?

Well, what are some examples of what you want?

SK: Well, I can’t tell you yet.

But is this something where you need outside help, or you think you can do it yourself?

SK: I don’t know what you mean by outside help.

Well, I mean you’re starting to fix it to a certain extent.

SK: Size would help.

Size in what sense?

SK: Being bigger would help.

And this is just more leverage on your costs?

SK: Well, it’s that, and it’s more ability to actually have all of the US customers. You say you love United and you mostly fly it, but there’s a nonstop flight on EVA Air for Chicago, it’s the same thing, you look in a place like New York, it’s more fragmented. And so we have customers that fly United almost all the time or they fly Delta, but when they go to the Middle East, it’s fragmented enough that they fly on Emirates, and if we’re bigger and have more offerings for those customers, possibly, it makes it more rational for them to fly us when they go to the Middle East.

And if we do that, then we can invest in — we would have the profitability cashflow to invest in better product, and really the place that the international airlines beat us is on product, premium product in particular. Ours is really good, all the US airlines are really good, all the European airlines are good, but they over-invest there. They lose money, but they over-invest there and that’s the gap that I am now thinking about how to close. I want us to be the best airline in the history of aviation and I think we’re already the best in the world, you said it too, but that’s collectively. We’re not the best at everything yet, and I’d like us to get closer to that.

So what’s the limitation in getting larger? Because I see two angles. One is can you even get airplanes? And then number two is, “We could cut an interesting deal with JetBlue, for example, if the government will let us, we could consolidate even more, that’s our bread and butter”.

SK: You’ve talked about the two interesting possibilities.

Which one is a harder nut to crack?

SK: (laughing) They both have challenges.

You’ve had some spicy thoughts about Boeing in the past. How’s the relationship these days?

SK: Well, we have a good relationship, but when they were stumbling I called them out on it, especially when they were stumbling and not willing to acknowledge that they were stumbling.

I don’t mind people making mistakes, myself, people that work for me, I can’t stand excuses. The best thing I learned at the Air Force Academy is, “No excuses, sir!”, and I cannot stand when people make excuses. And when Boeing was screwing up and not acknowledging that they had problems, that meant they weren’t going to fix it.

I think under [Boeing CEO] Kelly [Ortberg], they’ve done a really good job of getting on the right path, they’ve turned it around for the narrow bodies. Actually, the wide bodies, 77s have been a little behind, but we think we’re going to get 20 787s this coming year, we’re supposed to be getting 24 a year, but we only got 8 last year, and we’re going to be up to 20 this year, so I think they’re there. I think Boeing, the ship has been righted and I feel good about Boeing.

Just to wrap up this part, the reason I was enthusiastic about this interview beyond being a United 1K flyer, I think it’s easy in the weeds of technology to forget why technology is critical for human welfare and improvement generally. From my point of view, to your point about facing some structural disadvantages relative to other airlines, you overcame that from my perspective with technology, and the great thing about that is it benefits everyone. Even the basic economy flyer gets to use the United App and website, maybe not the refund part of it, but then by extension, that gives you the cost structure to be able to offer me better wine. That’s pretty inspiring. But do you feel you’ve reached the limit of how much you can get from that?

SK: No, not at all. In fact, I think in some ways we’re just getting started. The gap in profitability, Delta and United this year, the two of us, they have a similar strategy, although I think they were ahead of us on starting it, but we’ve caught up and are passing them. But the two of us are going to be 100% of the industry profitability this year and the rest of the industry’s under strain because they’re very much in the commodity business, they focused on the commoditized travel. And so, I think as we continue to get better, the pressure on them gets higher.

I think it’s going to lead to a better outcome for us, better outcome for our customers as well, but I think those leads are only set to grow and we’re ahead of all of our competitors. You take technology, we’re ahead. I can almost guarantee you that we’re investing more next year than anyone else — even though we’re ahead, we’re investing more. I tell our team, I said earlier on this, our job is to come up with cool stuff to wow you every year and we don’t get to take credit for the things we did last year. We got to do new stuff every year, or we’ll lose customers and that’s our attitude and we’re going to keep it going, and no one else is doing it, so it’s just remarkable to me. We’re doing all this and no one’s copying the things that matter, which is great.

Does it go back to just because you have to rewrite the entire foundations of the technology stack?

SK: It does. And it’s that, and it’s also a finance-driven, it’s short-term finance-driven cultures that if you can’t prove this has an ROI, you can’t do it. And as data-driven as I am, all the big decisions that I’ve made in my life, there was no way to calculate the ROI on those decisions. It’s just like you’re playing poker. There’s no way to know for sure what the other guy has, and you make bets when they’re good bets, and they’re just not willing to make bets.

How do you actually tell this story? Because I think that was one of my fun things to drop on Twitter, “Oh, United is actually the best airline in the world”, because it outrages a lot of people who have, whether it be stories of people dragging them off planes or their guitar or whatever, or their own personal experience with delays, people always blame the airline for everything. How do you actually convince people that it actually is different now? Or is it just a matter of people who fly a lot, they will pick up on it and you can be in Chicago and take over the market, for example.

SK: People that fly a lot do pick up on it, but we’re certainly not perfect, and there are things where we screw up and I hear stories and I’m like, “Ugh, I can’t believe we did that”, but when I hear those kinds of stories, I think, “How do we make that better? How do we change that?”. It’s not an excuse, how do we change it and make it better? And technology has been a big part of it.

One of the things, we didn’t talk about it really, but we had this, we called it Hell Week in Newark, where the airport was closed. It was a combination of storms and the FAA, we came close to needing to shut down Newark to recover, we didn’t quite get there, but we came close. And you dig through it all, at the root of it was technology problems with crew scheduling, just archaic processes.

One of them, we went out to the NOC, network operating center, the week after it to thank people for all the hard work and to talk to them, but also just to talk to them, and I’d never really focused on it. I was at the crew desk and talking to them, being like, “Why does it take us so long to get our crew?”, they were talking about how we had so many to repair and we just were behind and it just kept snowballing on us. And it turned out that we were making phone calls to every crew member that got reassigned. So you have a storm come through, you need to cancel 200 flights. Well, there’s an average of four flight attendants per flight, two pilots, so you’ve got to make 1,200 phone calls, and most of the time, people don’t answer the first time. And our crew desk was on the phone, 95% of their time was on the phone.

I was like, “Why are we doing that? Why don’t we just text them?”, “Oh, our union contract said they have to have a call”, “Well, why don’t we robocall them?”, and it was like, “What are you talking about? We can’t do that”. Three months later, we robocall them and it’s perfect. It’s better for employees, you just tell them what it is, it’s better for everyone, but we completely re-architected how we manage crews. And now, when we have these big events, we watch other airlines like, “Oh, they’re about to get in trouble, you can tell they’re in trouble”, and we’re able to repair and go on. It was great during the shutdown and other places but just the investments that we’ve made operationally and for the customers really just make the experience better.

AI & Starlink

What about AI? AI, in some respects, you’ve been using machine learning for a lot of things, it’s a big part of your investment. You do have the LLM-generated text about why your flight is delayed. Everyone wants to talk about AI, I feel compelled to give you an opportunity to say something about it.

SK: Yeah, sure.

But we’re also talking about airplanes in the sky. Does it really matter?

SK: I’ll tell you what we’re doing, and then if you want me to, I’ll give you my broader view on AI, which is different than everyone else and won’t be as popular.

So I think AI is a wonderful tool for many classes of problems. Our ability to communicate with customers and tell them exactly what’s going on in a delay is one example of that. We’ve got some work that we’ve done with AI on airspace when storms happen, because we have this massive dataset, we started in Denver — decades of data of when storms hit, which routes are open, what’s the best way to sequence aircraft in, and we can make the Denver airport dramatically more efficient, we can do it at every airport, dramatically more efficient with AI. At the moment, it’s a challenge, because the FAA can’t ingest that data, they have not modernized their systems and can’t ingest that data, but it creates benefits for us anyway.

But also, we’re experimenting with the art of the possible for the future to run the airline better. Essentially, our network operating center, the brains of the airline, I think almost everything we do in there, AI can do it better than humans can do it, because we can look at — we have massive data sets, it’s pretty easy to define the objective function of what it can do, and it’ll be really good.

But I will put myself in the distinct minority of people on the broader level about AI and the gradient descent models that are driving AI, that I do not think we’re going to get to artificial general intelligence with that, and I think there’s a whole class of problems that they are terrible at that they’re being used for.

On the consumer AI use, I’ll give you two things that I dislike about it. They’re good at selling you stuff that they want you to buy, and the emperor has no clothes, telling you what you want to hear. My simple example, go to AI and ask it, “Where can I watch Landman? Which streaming service can I watch Landman, or any other show, for free?”, you cannot find it. It’s maybe a hundred pages down, I haven’t gone far enough, it’s all advertising. And then, the second one, I’m telling you what you want to hear. It’s designed, that’s the feedback it gets, to tell you what you want to hear. My mom recently broke a bone in her back and she’s laid up, and on the 12th day, things weren’t getting better and it was getting worse, so she was using ChatGPT, and she asked it, “I was really doing good and this is my 12th day and it’s really bad”, and it gave her this detailed, “You used to be acute, now you’re subacute”, all these terms, and said, “But this is normal on the 12th day”. That’s BS, that’s not right. So I got on a different device and said, “On my 12th day, I felt remarkably better”, and the same system told me, “That’s normal, on the 12th day, you get remarkably better”, it is designed to tell you what you want to hear, not what you need to hear.

So my caution to people with AI is I think brain power is still really important and the ability to think independently. AI can be used for some things, but you need to still use your brain.

Why did you make the jump to Starlink? Obviously, Hawaiian had been there and I used it on JSX years ago. You’re the first big airline. Now, Air France is on, Lufthansa just announced today, what made you take the leap?

SK: I knew for a long time that we were going to go, for a while, that we were going to go. It’s a step function improvement in technology, no one else can get there and others are going to try to launch Low Earth orbit satellites, but good grief, they’re light years behind, they’re not going to get there. So Starlink was going to be the answer.

It took time to negotiate, because we wanted to own the consumer data, and at the beginning, Starlink did, so that was hard, and then, the other thing was I wanted to let my big competitors in the United States finish their deals with other providers and get locked in so that we would — eventually, everyone’s going to have Starlink.

That’s my question.

SK: But it’s going to take them time. They don’t know it yet, but it’s going to take time, they don’t know it yet. And every day that they don’t put it on their airplanes, it is one more day of advantage for us.

That’s my view, Starlink is going to be a monopoly in the long run. Are you worried about that or are you just like, “Yeah, you’ll have to pay for it eventually”, but for now, you get differentiation for the next however long?

SK: We’re going to be way ahead, and then we’re going to come up with the next great thing. They’re going to always be behind us.

How important is advertising to this deal, to having all the seat-back devices? The main thing to use it, you have to be a MileagePlus member, that gives an identifier, you know who they are.

SK: Yeah. I think the advertising piece is the icing on the cake. It’s not the cake, but it’s icing on the cake.

So it’s not going to be a material driver, or maybe it will be someday?

SK: No, I think it’ll be a big financial issue. But I really am focused on winning customer loyalty, we’ll get some bigger payoff for that.

Is the real payoff credit cards? Are you actually a credit card company?

SK: No, we really aren’t, that’s a bit of a misnomer. We’re a loyalty company and credit cards are part of it, but the credit card doesn’t exist unless you can take the cool, exotic vacation to Tahiti or Cape Town or wherever you want to go.

I just want to board early, that’s all I care about, and I want to be greeted by name. That’s the thing is the higher you get, the less the perks matter.

I have three quick things, I know we have like three minutes left, my own personal beefs. Number one, one underrated thing about United is you have the best bedding in the industry. Two blankets, two pillows, good for me as a warm sleeper. Please, don’t change this, don’t cheap out on this.

SK: Okay. By the way, I’ve never used the bedding either, because I go to sleep as soon as the plane takes off the runway.

You never put your seat down, yeah. Well, that little gel pillow is amazing. You have a shop online that lets you buy United onboard items, it does not have the gel pillow, I need a way to buy this pillow, so that’s number one.

Number two, SFO. As an American, I appreciate the egalitarian nature of baggage carousels in US airports, which means that your status has zero impact on when your bags come out, unlike in Asia, the status bags always come out first. However, after waiting for one hour for bags last week and almost missing my connecting flight, I need to pull my elitist card and ask you to fix that.

SK: Okay. Here’s two things. One, that obviously implies, that you were waiting on a connection, that you were coming in international. My number one ask to change something with this administration, and I think we’ve got a chance at getting it done, is it is ridiculous that you have to collect and recheck your bag.

It’s absurd.

SK: It’s a hangover from the Lockerbie disaster when all the systems and technology and security protocols were different. It’s a perfect example of government inertia. There are tens of thousands of government employees who are working on that, millions of hours of lost time for you and other customers, and it is totally unnecessary.

It’s pointless.

SK: Totally unnecessary. I’m working to get that changed.

No one checks it anyway, I just walk in and drop it right back in. All right, thank you. Good, that’s even better.

SK: You shouldn’t need to touch it. If you fly domestically, you don’t have to touch it. We’ve already scanned your bag for security somewhere else in the world, we know it’s safe. Why, because it’s international, do we have to touch it? It makes no sense at all.

Well, that’d help your business too. You could do more connections international-international.

SK: Yeah.

Number three, I know the build up of Denver means this isn’t going to happen, but you had a Madison-San Francisco flight that died during COVID. Please, I want you to bring it back.

SK: No, no, no, that flight did well. The issue with San Francisco right now is the runway construction this year, and so we have fewer flights than normal because the runway construction’s been going on this year.

So you’re saying there’s a chance?

SK: I’m telling you there’s a chance, one of the best lines in the history of movies, you’re telling me there’s a chance. I love that line.

Scott Kirby, thank you very much.

SK: Thanks, Ben.

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