MIAMI — United Airlines announced several changes to its fleet last week as it reported earnings for the first quarter of 2015, most notably the conversion of 10 Boeing 787-9s on order to the larger Boeing 777-300ER. Beyond the long rumored conversion, United also will shift 10 Boeing 777-200s to domestic operations, extend the life of 11 Boeing 767-300ERs, and lease 10-20 additional used narrowbody aircraft over the next few years. The order for the 777-300ERs has been widely reported for months in the press, and an announcement has been rumored since United’s last earnings release (for full year 2014) in January.

United-B777-200ER (Credits: United)
United-B777-200ER (Credits: United)

The 777-300ER order will be used primarily for up-gauging existing flights that use the Boeing 777-200ER, which will then have a cascading effect throughout United’s fleet and act as a direct driver of the shift towards domestic widebodies. Many, including this author, thought that United would use the 777-300ERs to accelerate retirement of its aging fleet of Boeing 747-400s, as the aircraft are similarly sized. However, United re-iterated that just four 747-400s would leave the fleet over the next two years. For the moment, lower fuel prices appear to have replenished the 747-400s operating economics (as well as their isolation to San Francisco and Chicago O’Hare), though the length of time for which lower fuel prices last is an open question. Even Delta, a veritable connoisseur of holding onto aging aircraft when compared to United, is phasing our its 747-400s, and United has 20 aircraft scheduled to remain on property at the end of 2016. A350-1000 deliveries won’t begin en-masse until 2018, which might not be fast enough for United.

The nice thing, of course, is that Boeing is looking to sell 777-300ERs to bridge the transition to the re-engined 777X. There are still ~50 777 delivery slots available in 2017, and its not inconceivable that United adds incremental 777-300ERs (like American) until the sub-fleet is closer to 20 frames and several of the oldest 747-400s are retired at an accelerating rate. But for the moment, United saw an opportunity to add necessary lift with no additional capital spending and it took it. And for Boeing, it got an opportunity to sell 10 high value slots for the 787-9 (which is sold out for years), raising their net sales price while also helping to fill the 777’s production gap.

The cascade effect starts with United using the 777-300ER to replace 777-200ER flights, in particular out of Newark. Mumbai, Tel Aviv, Hong Kong, and Beijing/Shanghai seem like strong candidates for replacement. Those 777-200ERs can then replace 777-200As, which will flow down to domestic service. The move to re-add domestic widebodies, a staple of pre-merger United’s strategy, will allow United to consolidate, cutting frequencies on hub to hub routes. For example, on the carrier’s quarterly earnings call, CFO John Rainey stated: “Let me give you an example of where we fly high frequencies in our hub to hub and markets, take the example of San Francisco to O’Hare. Within 90 minutes on the late flights of the night, Red Eyes, we fly three narrow body aircraft. This is going to allow us to consolidate frequency to use that 777 in that market.”

Beyond San Francisco-Chicago, United’s hub-to-hub routes actually represent a substantial opportunity to reduce frequency. The table below provides an in-depth overview of United’s hub to hub operations during the summer peak this year (Thursday, July 16, 2015).

Slide1

Between its seven domestic hubs, United operates 218 daily flights, with the vast majority operated by mainline narrowbody aircraft. 175 of 218 flights are on A320 family or 737NG planes, primarily 737-800s and 737-900ERs. The 737-900ERs were mostly added to these routes within the last three to four years as 757-200 replacements. Longer routes from Newark to Los Angeles and San Francisco are the most attractive candidates, but even on shorter stage lengths such as those from Houston and Chicago O’Hare, adding one to two 777 rotations would also free up some narrowbodies. With the aircraft likely to operate hub-to-hub and Hawaii, United will very easily be able to free up 15-20 narrowbodies to use in its network.

United also announced a bunch of other interesting fleet moves (replacing 757s with 767s on trans-Atlantic and adding used narrowbodies), and the widebody decisions are symbolic of a more aggressive and interesting United management team.

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