United Continental Holdings postpones Boeing jets in RM20 bln savings push
UNITED Continental Holdings will defer delivery of 61 of Boeing’s smallest passenger jets as the airline seeks to close its profit gap with Delta Air Lines and American Airlines.
United plans to convert the order to the larger, newer Boeing 737 Max to be delivered at an undetermined date, slowing near-term capacity growth as recent hires President Scott Kirby and Chief Financial Officer Andrew Levy start to reshape the fleet strategy.
The shift will trim spending by US$ 1.6 billion ( RM7 billion) over the next two years, according to a statement last Tuesday by the Chicago-based carrier.
The fleet changes are part of US$ 4.8 billion in initiatives intended to bolster the airline’s profitability through 2020. Chief Executive Officer Oscar Munoz is looking for ways to elevate profit margins and match Delta, which has led the industry in recent years.
United’s operating profit amounted to 13.6 per cent of sales last year, trailing Delta’s 19 per cent margin and American’s 15.1 per cent.
United climbed 2.8 per cent to US$ 64.71 at 11.51 am in New York, a day after Warren Buffett’s Berkshire Hathaway Inc. said it had invested in the airline and three major rivals.
Berkshire is an “anchor tenant” investor, Munoz said in a meeting with analysts. United’s gain was the second biggest on the Bloomberg US Airlines Index, which rose 1.6 per cent.
United unveiled other efforts to reap greater revenue and savings from its world-wide route network. Improvements in the way the airline forecasts demand and manages seats is expected to generate an extra US$ 900 million annually. Cost- cutting moves will save another US$ 700 million by 2020, compared with last year’s level.
Costs for each seat flown a mile, or unit costs, are expected to grow by 3.5 per cent to 4.5 per cent in 2017, excluding fuel costs, the airline said.
However, unit costs are expected to grow by less than one per cent from 2018 to 2020, after the effect of new labour deals tapers off, the company said.
The airline also joined Delta in rolling out a new Basic Economy fare, which will go on sale in January with discounted tickets that have fewer benefits than traditional Economy tickets.
Customers buying United’s new offering will not be entitled to store a bag in the overhead bin – a departure from the practice of Delta, which already has a low-price fare.
Passengers in Basic Economy will be able to bring a small personal item on-board and store it under the seat. United’s approach will resemble the policy of discount carrier Spirit Airlines Inc., which charges extra for carry- on bags.
Basic Economy will anchor United’s efforts to “segment” its cabins, or create additional fare classes with different amenities and privileges.
The company also is evaluating adding a Premium Economy cabin, which would have wider seats than traditional coach and come with more amenities. United hopes to generate another US$ 1 billion with these new cabin offerings.
The airline is conducting a long-term review of its fleet plan, executives said. Potential moves range from adding more used aircraft to refining its longhaul aircraft amid an uncertain economic climate. — WPBloomberg