United is taking more chances than the typical risk-averse airline. That should help it boost revenue. But will it all be too complicated for the airline's operational teams?
Many airlines are on a simplicity kick, arguing they can save money and operate more efficiently by flying only a few types of airplanes, all built by the same manufacturer and with similar engines, and by standardizing seat counts on each plane type.
But United Airlines is bucking the trend, calculating it can reduce capital expenditures and boost revenue by chasing all opportunities, even if they complicate operations. And a couple of them were apparent Wednesday on the carrier’s second quarter earnings call.
Take the fleet. In the second quarter, executives said they not only had recently reached an agreement to buy 19 used Boeing 737-700 airplanes over the next two years from an unknown seller, but also had taken delivery of two more used Airbus A319 aircraft. The airplanes have similar performance characteristics and seating plans – the 737s have 126 seats, while the A319s have 128 — and often airlines prefer one or the other, for simplicity’s sake.
But United got a solid deal on both, and executives said the airline will continue to add used Airbus and Boeing airplanes. “Opportunistic purchases of used aircraft will remain a key part of our fleet strategy,” United Chief Financial Officer Gerry Laderman said, adding the 737 purchase was a “attractive transaction” that saved “hundreds of millions of dollars” over the cost of new airplanes. (Interestingly, in 2016, before Scott Kirby joined United as president, Laderman was an evangelist for factory-fresh airplanes, saying in a release that new 737s were “ideal for our fleet,” but United later reversed that approach.)
United has been more innovative with how it puts seats on airplanes. Other carriers, including American Airlines, prefer to have the same number of seats in each aircraft type, for efficiency. It allows American to fly the substitute aircraft wherever it wants in its system, without affecting its operation.
United is taking a different approach. Earlier this year, United began flying a special Boeing 767 with 46 seats in business class, 22 in premium economy, and 99 in economy. By the end of the year, executives said, all flights from Chicago and Newark to London will feature the new configuration. Next year, United will add Switzerland.
The configuration allows United to better capture demand in those markets, where there are more business class customers and fewer economy class customers. Some airlines, like Lufthansa and British Airways, have similar sub-fleets, but many others do not, because it can be an operational nightmare. If a plane breaks, and United must substitute its standard 767 with 30 business class seats, many customers will be disappointed.
United Chief Commercial Officer Andrew Nocella took time on the call to give a “shout out” to the operational team, “who worked with the commercial team to develop this unique product while also permitting approximately half of our remaining 767s to operate in a typical configuration to destinations not needing as many Polaris seats.”
New Regional Jets
United is going with a more complicated strategy soon with some regional jets.
It plans to launch an airplane it calls the Bombardier CRJ550, taking an airframe that usually fits 70 passengers and installing only 50 seats. The unique airplane will have 10 seats in first class, 20 seats with extra legroom and 20 seats in regular economy
Part of the strategy appears to be to get around labor agreements with the airline’s pilots. Under its pilot contract, United cannot add more 70-seat or 76-seat regional jets operated by contractors unless it orders a new plane for its mainline operation with roughly 100 seats. (Nocella said Wednesday “the 100 seater is not the right aircraft for United at this time.”)
United Express can operate 50-seaters, but its normal 50-seat jets don’t have first class or an extra legroom section and management wanted it on these planes, so it could get the same “revenue premium” American and Delta Air Lines get from those products on regional jets.
Under those parameters, the CRJ550 made the most sense, executives said.
“There is a premium to be had,” Nocella said. “Many of our competitors get it more often than we do. And starting later this year or next year, we will get it as well.”
Nocella said United putting more two-class regional jets in smaller communities will make United more relevant in those markets. Under previous management, the airline mostly stuck to international markets and big domestic business markets, ignoring smaller ones. But Kirby repeatedly has said there’s big money to be made outside big U.S. cities.
“Getting our structural disadvantage in smaller communities fixed is a priority,” Nocella said.
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Photo credit: United Airlines is adding more used Boeing 737-700s. 212302