Andrew Nocella
Executive Vice President and Chief Commercial Officer at United Airlines
Hi, Jamie. I'll try to give that a try. I mean, rank order and then -- maybe, a little difficult, but let's see what we can do. I do think your question is really one of the most important questions that anyone could ask today, because there such a difference in current versus the past. And clearly, what I think I would start off is, there is a large range of business models today that didn't exist in years past in this business. And these models are clearly creating winners and losers in a way many of us did not anticipate during the pandemic.
I recall telling all of you on the Q1 2022 call, that industry domestic margins will be challenging post pandemic. Clearly, the thinking at the time was, for most at least, was that all airlines will be pressured equally, at best, are the legacy carriers even more so, right. It was widely assume that lower-margin, higher-cost legacy carriers would shrink, rebalancing supply and demand, an outcome that has happened so many times in the past. So, why not again? The number of times I heard that the airline with the lowest-cost wins the race, I can't even begin to count.
So, that kind of sets of what about the business models has shifted so much to cause this paradigm change we're seeing today? Why are these low-cost airlines so unprofitable? Why does United have top-tier results? And first, I just want to be really clear, United's domestic network is profitable. So, it's not simply our great global network that's creating this outcome for us. The first issue, of course, Mike talked about, it is costs. Every airline has to manage higher inflationary cost pressures. But the low cost carriers' cost structure, relative to the legacy carriers, are clearly convergent. The shrinking cost gap is just a fundamental shift. After United and our industry and, I guess, I would rank that Number 1.
We've said it's impossible to run your airlines like its 2019. High utilization was a critical ingredient for success of certain models, and that's simply not possible where we are today. And also, having a large labor cost differentials are not possible. Low-cost carriers also tend to operate at very high gauge already. It will be much more difficult for them to drive costs materially lower with larger gauge plans, like United. United has increased domestic gauge more than any airlines since 2019, and our plan is to push that even further in the years to come.
Another issue that, I think, we should talk about is, it's difficult for many to grasp is, not every ASM is created equal. It's easy to mistake, made often in the middle of really large spreadsheets that everyone uses to evaluate our outlooks, right. At United, we proved this point early in 2018 and 2019 with our growth and revenue performance and we just did it again in Q3. Market saturation of the low-cost business model in certain regions is creating very low marginal RASMs for some of our competitors.
In fact, many of our competitors have marginal revenue percentages that are negative. There are only so many seats to Florida, Cancun, or Vegas can support in such a short period of time. Also, low cost carriers generally must operate a very large scale gauge equipment to have low costs without the connectivity benefit of the hub-and-spoke business model. Expansion of the low-cost model into smaller and medium-sized markets with these very large jets lacking connectivity just creates low marginal RASMs. Market saturation and the mismatch gauge and other connectivity continues to play certain business models. Expansion opportunities with this type of business model are not endless in our view.
But in response to that short coming, many of our domestic competitors have doubled down, with plans for even more growth in 2024. 2024 marginal growth in markets will absolutely be no better than 2023. No airline network team would say, let's add the bad markets in 2023, so we can save the good ones for 2024.
The other factor is the percentage of ASMs that these airlines have in new markets. Very fast growth rate simply create a high percentage of new capacity which, by its nature, in the best of times, is below average. The fourth quarter -- this fourth quarter, United has less than 1% of our ASMs in new markets versus '19. This is an absolute difference maker. And capacity growth is designed as a strategy to maintain low costs. Without revenue accretive markets to add, the entire business model can break. And that is what we think is happening right now. United's domestic capacity growth has always been about correcting the gauge mismatch created by the overuse of high-cost passenger and friendly single class regional jets.
In '19, we have this diversity of revenue streams that provide us long-term stability in earnings that one -- a one-dimensional plan will never achieve. We have a range of products including array of premium seating options that's increasingly popular with our travelers. We fly as much capacity in global markets as we do domestically, we fly to big cities and small. We have a great hub-and-spoke business model. United has significant margin accretive growth and we've proven that time-and-time again. United's business model can support dramatically higher gauge, and once added, we spill less and less to traffic others. United's higher gauge will create more and more cost convergence between now and 2027.
The complexity of United's product offering is not a disadvantage. In fact, it's a structural advantage that generates revenues more than the cost it creates by the complexity and just cannot be replicated. In the past, United and other legacy carriers that have emerged from the crisis smaller, creating excess planes and other resources for others to grow. This time, that will not happen. This time around, it is not United with a low margins. We will not adjust our plans.
United's focus on global markets is clearly won the day in Q3. And you can see that in the results. Our focus on domestic gauge is absolutely the right one, with no longer spill as much revenue to others as we've done in the past. Our focus on basic fare means we'll be able to be even more competitive. United will moderate our domestic growth plans, as I said earlier, for the first-half of 2024, because we're focused on building our Asia-Pacific line, where we see the strongest short-term results. But I have to say, maybe, in our plan, there maybe after a few other -- the timing maybe off, Jamie, but the quarters are coming, and there's a lot of other variables. And I just really confident that sooner or later, the industry will rebalance, like it has done in the past, and that United and few others with similar diversified revenue streams are going to come out on top.
I know that was a long answer, I didn't rank exactly the way you wanted.
