United Airlines CEO Makes Conflicting Financial Projections
United Airlines, a Chicago based carrier, announces some network changes. Recently, the airlines CEO Scott Kirby announced that the airline will be cutting up to 5% of its services due to a rise in fuel/oil costs. The Iranian tensions have caused a surge in oil costs. Following this, he, in contrast, made announcements of over 200 aircraft on order. In addition to this, United is announcing a new configuration for some of its aircraft and a new product where 3 coach seats make a bed. What is incredibly clear is he is betting on expensive fares to offset his costs, and the high fuel costs will not last long.
On March 20th, Kirby publicly warned that “our plans assume oil goes to $175/barrel and doesn't get back down to $100/barrel until the end of 2027,” and “If prices stayed at this level, it would mean an extra $11B in annual expense just for jet fuel. For perspective, in United’s best year ever, we made less than $5B.” (United Newsroom). United announced a 5% schedule cut. Although he is predicting financial problems, Kirby doesn't seem concerned. In the letter, he claims that this is an opportunity for long-term focus, focus on investment opportunities, nimbly manage schedule, and capitalize competitive dynamics.
Following Kirby’s schedule reduction, United announced the order of 250+ mainline aircraft, new premium products, and the reconfiguration of aircraft. On March 24th, United held a press conference in Los Angeles, showcasing its new premium heavy 787-9, and announcing: “Coastliner” A321NEO, A321XLR, and CRJ 450 aircrafts. United has its premium configuration 787-9 launching April 22nd out of San Francisco. This contains its new suites, and the most premium configuration used on a 787 from any airline. The aircraft will fly to Singapore and temporarily Houston for crew familiarity. Following this, United announced that they will now have “"Coastliner" Airbus A321neo will fly between West Coast hubs in Los Angeles and San Francisco and Newark/New York starting later this summer – includes all-aisle access lie-flat United Polaris® business class seat and United Polaris lounge access, a first for United's domestic travelers.” This came without surprise given that competitors American and Delta already offer lie-flat seats and lounge access to travelers on coast-to-coast routes, and United will do anything to compete in a business travel-heavy route for premium customers. New York and Los Angeles are the two biggest markets in the United States. To replace the aging Boeing 757, United announced the new Airbus A321XLR. This will be seen on South America and shorter European routes. It features a lot of premium seats for a small plane, 20 business class seats and 12 premium economy to be exact. United announced its CRJ 450 aircraft to come into place as well. These will replace its older Bombardier aircraft, with a reduction in seats of only 41 from a standard 50, but will also feature a 9-seat first class cabin. Though the seat reduction is because they are adding luggage lockers in the front of the plane instead of overhead bins to promote comfort. Finally, United announces a new “Relax Row” feature onboard its long-haul 787/777 aircraft. Launching in 2027, they will take 3 dedicated rows and make them transformable to a bed. “This new, dedicated row of three seats is outfitted with individually adjustable leg rests that fold up at a 90-degree angle to create a more room to sleep, stretch out or watch a movie. The United Relax Row is ideal for families traveling with small children, solo travelers and couples who want the value of United Economy but with a little extra comfort. Customers traveling in United Relax Row will receive additional amenities for their flight including a custom-fitted mattress pad, a specially sized plush blanket, two additional pillows, as well as a plush toy and Children's Travel Kit for families.” (United Newsroom). Following Air New Zealand’s successful launch of this product, United is clearly making an attempt to fill its empty spaces with at least partial revenue.
United has made some highly conflicting statements, and there is not much of a clear direction. It conflicts because they are talking about reducing operations, but buying more aircraft and expanding. My interpretation of this is that United is going to have some heavy losses due to fuel, but they are optimistic that following a return to normal fuel costs, travel demand(particularly premium demand) will continue stronger than ever before, and with its new aircraft, there will be better revenue produced.