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United Sets Tone For Increased Profits, Network Optimizations, Passenger Experience

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United Sets Tone For Increased Profits, Network Optimizations, Passenger Experience

United Sets Tone For Increased Profits, Network Optimizations, Passenger Experience
November 19
10:43 2013

MIAMI — At its Investor Day conference in New York City, United Airlines (UA) announced plans to improve their financial performance, a significant reshuffling of some major services across their global network, and an update on their technology and passenger experience.

On the financial end, United plans to reduce costs by a dramatic $2 billion annually, which is no easy feat. To achieve this goal, United will reduce fuel consumption by about $1 billion with the help of new aircraft and winglets, increase productivity by about $500 million, reducing sourcing costs by about $150 million, improving maintenance processes and inventory procedures by about $100 million, and optimizing distribution methods by about $100 million.

Ancillary revenues have proved to be a a major source of profit for airlines in recent years, and United is aiming to better leverage this source moving forward. With an increase in ancillary revenue by approximately $700 million, United set a goal of generating more than $3.5 billion in ancillary revenue by 2017. United will achieve this growth by “giving customers new options, optimizing pricing on existing products, and expanding availability of ancillary products through additional distribution channels,” said United via press release.

(Credits: via Commons)

(Credits: via Commons)

On the network end, United is shuffling their a bit of their fleet around, while adding and eliminating a handful of trans-Pacific services. To start, United will redeploy certain widebody aircraft, including beginning a second daily Houston-Tokyo service, but at the same time, eliminating the Seattle-Tokyo route. “Seattle’s not a hub for us [and] the competition has grown,” a United spokesperson said during the investor call. United will also eliminate Tokyo-Bangkok Boeing 747 service, down-gauge Tokyo-Seoul flights, while reallocating those long-haul aircraft to more profitable routes. United will be relying on ANA, United’s trans-Pacific joint venture partner, to provide an adequate amount of beyond-Tokyo connectivity for trans-Pacific flights.

The Boeing 787 has opened new markets for the airline, and “changed the network for us,” said James Compton, Vice Chairman and Chief Revenue Officer at United. Denver-Tokyo has been a profitable route since launching, mostly due to the efficiencies the787 brings to the table. Compton also noted that this route would not have been possible with a larger aircraft such as the Boeing 777.

The airline will utilize the aircraft pulled off Asian routes to introduce new and up-gauged trans-Atlantic routes, with new service from Houston to Munich and new seasonal routes from Washington/Dulles to Madrid and Chicago to Edinburgh. During the summer months, United will also be up-gauging all flights on the Newark – London Heathrow route to widebody aircraft, doubling the number of flat-bed seats on each upgraded flight. United previously operated a select number of flights on this route with the Boeing 757.

The airline also provided an update on their passenger experience and technology initiatives. Consistency among the fleet was a big point in the presentation. “We want a product that customers enjoy,” said Jeff Foland, Executive Vice President Marketing, Technology & Strategy. “That includes lounges… We’ve enhanced the boarding layout with quite good results from a customer satisfaction standpoints. We’re adding considerable more power in gate areas. Altogether, the product standards are starting to take shape.”

Just days after launching a new iOS mobile app, the airline provided a quick look at what the new homepage will look like. Launching early next year, the new site will offer “customized shopping and booking experiences, expanding opportunities for ancillary product and service sales and increasing ticket penetration through direct digital channels.”

While  UA currently lags among domestic carriers in WiFi availability, the airline is currently rolling out one new aircraft with satellite WiFi every day. United now has 130 aircraft with WiFi, and anticipates about 170 by the end of the year. “What we’re trying to do… is to make sure that the investment we’re making on the aircraft…is the right investment in the long term,” said Foland. The satellite system United has opted for provides more bandwidth than traditional “air-to-ground” networks, and has the added advantage of functionality on trans-Atlantic flights.

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United A320 Exit From Service. (Credits: Author)

The airlinewill also introduce streaming entertainment on their Airbus fleet, along with slimline seats and larger overhead bins. This investment in the existing Airbus A319/A320 fleet will enable United to drastically reduce the number of A320 family aircraft exiting the fleet, in turn reducing capital expenditure.

Aircraft replacement accounts for approximately 65% of all capital expenditure. The airline plans to keep their total mainline fleet count at roughly 700 aircraft, but take an average of 25 deliveries per year through 2017; 63 737s and 36 787s from 2014 forward. The Boeing 757 is the primary aircraft leaving the fleet, in favor of the Boeing 737-900ER.

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