United Airlines loves to make a scene.
Over the past week, the airline has placed orders with Boeing for 100 widebody 787s with an additional 100 options, and has exercised options on an additional 737 MAX narrowbody jets, while placing a new order for even more MAX jets.
According to United, it was the largest single widebody order ever placed by a US airline and will guide the airline through its fleet renewal and expansion plans over the next decade.
United and Boeing have partnered to host a major event at the planemaker’s Dreamliner assembly plant in Charleston, South Carolina to mark the signing of the order, with Boeing CEO Dave Calhoun, Boeing Commercial Airplanes CEO Stan Deal, the most C-suite — including CEO Scott Kirby — and South Carolina Gov. Henry McMaster.
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But beneath the dignitary-laden splash hides a high-stakes momentum as United chart their strategy through the mid-2030s, a venture with great upside potential but also high risks and costs.
Such events and the use of a grandiose “historic” announcement to outline a business plan have become standard MO at United, largely to its advantage as it has dominated aviation headlines in recent years.
For example, last year, as the airline industry was still struggling to bounce back from the lows of the pandemic, United held a hilarious event at its hub at Newark Liberty International Airport (EWR) to announce its “United Next.” Plan, a roadmap to reconfigure its capacity and fleet, which included an order for 270 narrow-body jets, the largest single order ever by a US airline.
This week’s event did not include the unveiling of a new cabin or product, but saw the airline make it big with a heavy media and marketing push, even chartering one of its own 737 MAX 8 aircraft to support its army of employee influencers – employees – to fly by airline working groups, who use their personal social media accounts to promote the airline, with the tacit guidance of their employer – to Charleston to share pictures and videos. The Charleston assembly line, meanwhile, came to a brief standstill as employees left their stations to don matching blue T-shirts and settle into the planemaker’s massive hangar.
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DAVID SLOTNICK/THE POINTS GUY
While United’s CEO clearly enjoys being viewed as an industry leader and enjoys making headlines – as airline journalist Brian Sumers wrote in a recent newsletter, Kirby is recognized as either “one of the top three most outstanding US airline executives in the modern… remembered” or “one of the losers of all time … for spending billions on planes his airline didn’t need” — and Chief Communications Officer Josh Earnest’s team has an unparalleled ability to capture the news cycle and online virality . There was actually something this time.
Should Sumers’ first scenario hold true, it will be because Kirby has guided the airline through the COVID-19 pandemic and the turmoil of the years that followed with an incredible level of forethought.
When United placed the narrow-body order, travel demand bounced back but was far from recovered. United were still deep in the hole and had no obvious path to cash flow to support short-term capital investments. The idea of retrofitting the existing fleet with a new interior seemed daring.
But 18 months later, the move seems to be going well.
Runway and other infrastructure restrictions at major airports — and what are effectively slot restrictions at the Newark hub — limit the number of flights airlines can operate. Part of United’s strategy is to “upgrade” aircraft on many smaller routes to combine frequencies — in other words, fly a route twice a day on a 100-seat aircraft, for example, rather than four times a day on one aircraft aircraft to be operated with 50 seats, saving two take-off and landing spaces.
DAVID SLOTNICK/THE POINTS GUY
Ongoing supply chain restrictions, meanwhile, appear to be in place for a while across the global economy. With orders in place and delivery dates secured, United has some degree of relative certainty for its new planes, assuming Boeing can stabilize its production rate. It also locks pricing conditions during a period of high inflation.
United believes that the supply chain issues can be resolved in the long term. The cabin interior upgrade project has been slower than expected but is expected to be largely complete by the middle of this decade, Kirby told reporters Tuesday at a contract signing event at Boeing’s Charleston factory.
“Not much has been done so far,” Kirby said. “It’s on track to be if not 100% complete by 2025, but essentially complete by 2025.”
“There were some supply chains [issues]but we mostly wrestled them to the ground.”
Notably, it was the first time United have hinted the project could slip past 2025.
It’s too early to tell if the order will prove to be the right decision in the long run, and it’s far too early to see how the bulk order is holding up.
But at first it seems like a smart move.
International travel demand has recovered, Kirby said, and there’s no reason to expect it to slow down. Long-haul travel also offers United a growth opportunity that it can’t quite replicate in the domestic market. Airlines executives frequently point to their decision in 2020 not to retire any of their widebody fleets to capitalize on recurring demand over the following two years and return to a global route-building initiative.
“It’s really just the next logical step in the journey that United have taken since the pandemic began,” Kirby told reporters at the Charleston event this week. “United has positioned itself on the other side of the pandemic in a completely unique way.”
United CEO Scott Kirby speaks to reporters at a signing event with Boeing. DAVID SLOTNICK/THE POINTS GUY
Kirby also said the airline decided to place such a large order to try to capitalize on the opportunities created by the pandemic – after all, before the pandemic, an order for just 50 widebody jets would have been considered a big deal.
“The reason we’ve grown big is because we’re big,” Kirby told reporters, “and we have a unique position in our international growth hubs, and I think international is going to be really strong in the years to come.” .”
“The structural changes that have taken place during COVID mean it will be a long time before many of our competitors can grow again, even to where they were in 2019,” Kirby added. “We’re starting with a lead and we’re going to run even harder.”
United have grown ambitiously since international borders reopened after lockdowns in 2020, trying new and surprising destinations such as Ghana, Jordan and Malaga, Spain.
Notably, its 787 aircraft per seat average about 25% better fuel efficiency than United’s current international fleet, giving it an added incentive to replace the older jets.
Still, planes are expensive, and United’s commitment to the 100 new widebody aircraft is strong.
At list price, the order would be worth around $30 billion, depending on how many of each variant United decides to buy. While airlines never pay full price for new aircraft, and United got favorable terms — “I smile, that’s all I’ll say about the price,” Kirby laughed when asked by a reporter in Charleston — it’s still a big chunk of money for a company that has already ordered hundreds of aircraft. For reference, United ended the third quarter of this year with a profit of $942 million on revenue of $12.9 billion and $20.4 billion in cash and cash equivalents.
Still, Chief Financial Officer Gerry Laderman said at Tuesday’s event in Charleston that the airline doesn’t expect any problems.
“The planes you build are profit machines,” he said. “We’re going to make so much money on these planes, the more the merrier as far as I’m concerned.”
United CEO Scott Kirby and Boeing Commercial Airplanes CEO Stan Deal sign an order for 100 787 Dreamliners with options for 100 more. DAVID SLOTNICK/THE POINTS GUY
During a briefing ahead of Monday’s event, Laderman indicated the airline expects to use its earnings to pay for the plane, but said it may choose to fund a portion “to the extent that we find capital markets funding attractive.” “.
“We have the luxury of making that choice,” he added.
What ultimately determines United’s success or failure is demand. If Kirby and the airline are right and international demand remains strong, the airline will enter the 2030s with a widebody fleet at least as large as today – with 100 additional aircraft for United to purchase if the “opportunity” presents itself. to expand to new routes or markets emerging, Laderman said at a pre-event briefing Monday.
But if travel demand shrinks or looks different — perhaps a trend towards larger jets or a renewed hub-and-spoke preference for international travel — or if the plan to improve routes and reduce frequencies fails, then United will have to figure out what to do and pay for with 700 incoming planes.