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Air CargoCompany earningsNews

Bigger planes to contain costs at United Airlines, officials say

Story updated at 5:01 p.m. to reflect correction for passenger costs.

United Airlines [NASDAQ: UAL] expects to drive down growth in operating expenses starting next year by replacing smaller aircraft with larger ones, primarily on domestic routes. 

Third quarter cost per available seat mile (CASM), excluding fuel and non-core expenses, increased 2.1% year-over-year to 9.8 cents, the company reported Oct. 15. Two years ago, the airline set a target of flat CASM through 2020 and now expects the compounded three-year growth rate for non-fuel unit costs to be just 0.3%, even with plans to raise employee compensation and invest in products to improve customer experience. 

The cost-management strategy is heavily dependent on getting better economies of scale and the best way to do that is to drive more passengers through United’s hubs with larger planes, President Scott Kirby said on United’s earnings call with analysts the next day.

“We plan to take advantage of increasing gauge,” he said, referring to the width of a plane’s fuselage. “We have large hubs in big cities across the country and because of that we should be the airline with the highest gauge. But at this point we aren’t.”

“In fact, United is  seven to eight years behind our largest competitors on gauge growth, with approximately 13% fewer seats per domestic departure compared to Delta. As our fleet mix shifts to a larger percentage of larger gauge mainline aircraft instead of regional aircraft, we begin closing that gap in earnest, starting next year,” Kirby said.

United expects to have about 3% more seats available per departure by the end of 2020 and continue to swap in larger plans into the middle of the next decade, he added.

Larger planes will also mean more space for cargo customers.

United is scheduled to take delivery of 65 new aircraft next year, including 28 Boeing 737 MAXs, 20 70-seat Embraer 175LLs, and 15 Boeing 787 twin-aisle planes. Wide-body planes typically are used on international routes, but United does operate some 777s and 787s on domestic routes, such as Newark, New Jersey, to Los Angeles.

The 737 MAX deliveries are contingent on the Federal Aviation Administration recertifying the planes for commercial service after Boeing completes software fixes to its flight control system to prevent faulty pilot overrides’ that led to two deadly crashes in the past year.

Next year’s upgauging will mostly take place in the last quarter, Chief Commercial Officer Andrew Nocella said. 

United has hubs in Chicago, Denver, Houston, Newark, San Francisco, Los Angeles and Washington, D.C. When a wide-body plane is put on a domestic route it helps airlines feed, and pull, international cargo at their hubs.

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Eric Kulisch, Air Cargo Market Editor

Eric is the Air Cargo Market Editor at FreightWaves. An award-winning business journalist with extensive experience covering the logistics sector, Eric spent nearly two years as the Washington, D.C., correspondent for Automotive News, where he focused on regulatory and policy issues surrounding autonomous vehicles, mobility, fuel economy and safety. He won a regional Gold Medal from the American Society of Business Publication Editors for government coverage, and was voted best for feature writing and commentary in the Trade/Newsletter category by the D.C. Chapter of the Society of Professional Journalists. As associate editor at American Shipper Magazine for more than a decade, he wrote about trade, freight transportation and supply chains. Eric is based in Portland, Oregon. He can be reached for comments and tips at ekulisch@freightwaves.com
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