With Boeing’s request, United unveils and doubles down on its plan for the next decade – The Points Guy
United Airlines loves to make a scene.
Last week, the airline placed an order with Boeing for 100 wide-body 787s with 100 more options, and exercised options for additional narrowbody 737 MAXs while placing a new order for more MAXs.
United said this was the largest single order for wide-body aircraft ever placed by a US airline, and the company will continue its fleet renewal and expansion plans over the next decade.
United and Boeing have teamed up to stage a large event at the aircraft maker’s Dreamliner assembly plant in Charleston, SC, to celebrate the order signing, with appearances by Boeing CEO Dave Calhoun, CEO of Boeing Commercial Airplanes, Stan Deal, and most C-s at United. . suite — including CEO Scott Kirby — and South Carolina Governor Henry McMaster.
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But beneath this heady tidbit lies a high-stakes dynamic as United charts its strategy into the mid-2030s, a gamble with huge upside potential, but also one with high risks and costs.
Such events, and the use of a huge “historic” advertisement to illustrate a business plan, have become the norm at United, largely in their favor as they have dominated flying headlines in recent years.
Last year, for example, even as the airline industry was still struggling to claw its way to profitability from the lows of the pandemic, United held a raucous event at the Newark Liberty International Airport (EWR) hub to announce its “UnitedNext” plan, a roadmap to reconfigure its capacity and fleet, which included an order for 270 narrow-body aircraft, the largest single order ever by a US airline.
This week’s event didn’t feature a new cabin or product reveal, but still saw the airline going strong with heavy media and marketing, even chartering one of its private 737 Max 8s to fly its army of influencers and staff. From workgroups across the airline who use their personal social media accounts to promote the airline—with tacit guidance from their employer—to Charleston to share photos and videos. Meanwhile, the Charleston assembly line came to a brief halt as employees left their stations to don matching blue shirts and take a seat in the aircraft maker’s giant hangar.
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While United’s CEO clearly enjoys being seen as an industry leader and enjoys making headlines — as airline journalist Brian Somers wrote in a recent newsletter, Kirby will either be remembered as “one of America’s three most valued airline executives.” Outstanding in recent memory” or “one of the all-time failures…to spend billions on planes his airline didn’t need”–and CMO Josh Earnest’s team with an unparalleled ability to capture the news cycle and go online, there was Something really is there this time.
If Somers’ first scenario comes true, it will be because Kirby has led the airline through the COVID-19 pandemic and the turmoil of the following years with an incredible degree of prescience.
When United introduced their tight bid, travel demand was easing but was still far from recovery. United was still deep in the hole and had no clear cash flow path to support any capital investment in the near term. The idea of retrofitting its existing fleet with new interiors seemed wild.
But 18 months later, the move looks good.
Runway and other infrastructure constraints at major airports — and what effective slot restrictions are at their hub in Newark — put a limit on the number of flights airlines can operate. Part of United’s strategy is to “upgrade” planes on many of the smaller routes to combine frequencies—in other words, for example, to fly a route twice a day with a 100-seat aircraft instead of four times a day with a 50-seat. aircraft, providing two slots for take-off and landing.
Meanwhile, persistent supply chain constraints seem likely to last longer across the global economy. With orders in place and delivery times secured, United has a degree of relative certainty about its new aircraft, assuming Boeing can stabilize its production rate. It also maintains pricing conditions during a period of high inflation.
United believes supply chain issues are something that will work in the long run. Its project to retrofit its cabin interiors has progressed more slowly than expected, but is still expected to be largely completed by the middle of this decade, Kirby told reporters Tuesday at a deal-signing event at Boeing’s plant in Charleston.
“Not much has been done yet,” Kirby said. “It is on track to be, if not 100% complete by 2025, then actually complete by 2025.”
“There was some supply chain [issues]But we mostly knocked those who wrestled to the ground.”
Notably, this is the first time United has suggested the project could go beyond 2025.
It’s too early to say whether it will prove to be the right choice in the long run, and too soon to see how the broad system holds up.
But at first, it seems like a smart move.
Kirby said demand for international travel has rebounded, and there’s no reason to expect it to decline. Long-haul travel also provides United with a growth opportunity it cannot fully replicate in the home market. Airline executives frequently point to their 2020 decision not to retire any of its wide-body fleet because it allows it to capture returning demand in the next two years, returning to a global route-building initiative.
“It’s really just the next logical step in the journey United have taken since the start of the pandemic,” Kirby told reporters at the event in Charleston this week. “United have been positioned on the other side of the pandemic in a completely unique way.”
Kirby also said that the airline chose to place such a large order to try to seize the opportunities created by the pandemic — after all, before the pandemic, ordering just 50 wide-body jets was considered a big deal.
“The reason we’ve been so successful is because we’re big, we’ve got a unique position in our centers of international growth, and I think the world is going to be really strong in the years to come,” Kirby told reporters.
“The structural changes that have occurred during COVID mean that it will take a long time before many of our competitors can return to growth, even back to where they were in 2019,” Kirby added. “We start with a head start, and we’ll work even harder.”
United has grown ambitiously since international borders began reopening after lockdowns in 2020, to experience new and amazing destinations such as Ghana, Jordan and Malaga, Spain.
Notably, the 787s average 25% better fuel efficiency per seat than United’s existing international fleet, providing an additional incentive to replace aging aircraft.
However, the planes are expensive, and United’s commitment to 100 new wide-body structures is significant.
At the list price, the order value would be around $30 billion, depending on how many of each variant United settles on. While the airlines never paid full price for the new planes and United got favorable terms — “I’m smiling, that’s all I’ll say about the price,” Kirby laughed in response to a reporter’s question in Charleston — yet it’s a lot of money for a company that already has hundreds of planes. Demand. For reference, United finished the third quarter of this year with $942 million in profit on $12.9 billion in revenue, with $20.4 billion in liquid assets.
However, Chief Financial Officer Jerry Laderman, speaking at Tuesday’s event in Charleston, said the airline doesn’t expect any issues.
“The planes you build are profit machines,” he said. “We’re going to make a lot of money with these planes, the more the merrier, as far as I’m concerned.”
During a briefing before the event on Monday, Laderman specified that the airline expects to pay for the aircraft from its incoming revenue, but said it could choose to fund some “to the extent we find capital market financing attractive.”
“We have the luxury of choosing,” he added.
What will ultimately make or break United is demand. If Kirby and the airline are correct and international demand remains strong, the airline will approach 2030 with a wide-body fleet at least the size of today — with an additional 100 planes that United could choose to buy if the “opportunity” to expand into new routes or markets arises, as it arises. Laderman said during a press conference ahead of the event on Monday.
But if the decades of travel demand look different — perhaps a renewed trend toward larger planes or a preference for hub-and-spoke for international travel — or if a plan to upgrade routes and reduce frequencies ends in failure, United is stuck figuring out what to do with the next 700 planes and how to pay for them.
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