United Airlines has mostly phased out use of jets for dedicated cargo service, returning them to full-time passenger operation as long-haul travel demand rapidly snaps back from the COVID plunge, Chief Commercial Officer Andrew Nocella said Wednesday.
The temporary freighters were a big reason that United’s cargo revenue shot up 105% in the second quarter to $606 million and 89% in the first half of 2021. The flights made money even though the widebody aircraft deployed have less than half the heavy-freight capacity of a pure freighter because an overall supply shortage pushed rates much higher than normal.
“We are not going to be able to do more cargo-only flights. We’re obviously disappointed by that, given where yields currently stand. The reason for that is the aircraft can be better deployed in passenger markets,” Nocella said during a conference call to discuss the company’s quarterly results.
A very limited number of passenger-freighter flights remain and they will wind down in the next few weeks, he indicated.
United (NASDAQ: UAL) was one of the most aggressive airlines in adjusting its network to accommodate dedicated cargo customers since the start of the pandemic last March. It has flown more than 13,400 auxiliary freighter flights during the past 15 months, spokesperson Rachael Rivas said. But the number has begun to taper in recent weeks, after finishing March with more than 11,200 such flights.
It remains to be seen whether United can maintain its cargo momentum from the past year with the traditional model of sharing assets with passengers and baggage. United Cargo chief Jan Krems last year said the division was being given greater input on determining destinations and flight schedules because of cargo’s impact on margins.
But Nocella said many of the passenger markets widebody planes will be allocated to “are not exactly optimal cargo markets.”
A contributing factor behind the disbanding of cargo-only operations is the grounding of 52 777-200s since February, Nocella added.
In February, United pulled two dozen Boeing 777-200 passenger jets from service after an uncontained engine failure rained debris over the Denver area. Boeing (NYSE: BA) urged airlines to stop flying the 777 aircraft with Pratt & Whitney 4000-112 engines, while the Federal Aviation Administration ordered immediate stepped-up inspections of aircraft with those power plants.
United eventually plans to return the aircraft to service but is still working with Boeing, Pratt & Whitney and the FAA on potential solutions, spokesman Charles Hobart said.
“If those aircraft are flying, we clearly would continue our program missions because we’d have the ability to do both,” Nocella said, adding that he remains optimistic about future cargo growth because more planes overall will be flying in the rehabilitated network.
The “capacity available to fly is still really significant as we put all these passenger planes back in the air, and we think we’ve got this properly accounted for in our forecasts and we think we’re going to have another great cargo quarter in Q3 and it’s already gotten off to a really good start,” the top sales executive said.
“Hopefully we can do a little better on cargo than we are currently planning. But there is a marked change in our cargo footprint starting today — really starting a few weeks ago and we’ll see where it goes. But we’re feeling very bullish on cargo for the remaining half of this year.”
Last month, Austrian Airlines discontinued use of two Boeing 777s as passenger freighters, or “preighters” and is reinstalling seats that were removed to add capacity for light boxes in the main cabin.
Flying toward profit
Meanwhile, United executives expressed confidence that the company had turned the corner and would produce pretax profits in the third and fourth quarters on improved load factors and yields. CEO Scott Kirby downplayed concerns that the Delta variant would slow the airline’s revenue growth, with domestic leisure travel back to 2019 levels and business and international bookings higher than expected.
Premium business travel jumped up sharply in June and is currently down about 60% versus pre-pandemic levels. Business demand is projected to improve another 15 to 20 points by the end of the third quarter, executives said, pointing to internal surveys that show more than 90% of business customers plan to return to the skies in the second half.
“With the robust demand trends that we see in our return to profitability, we don’t just see the light at the end of the tunnel. We’re exiting the tunnel,” Kirby said. “There’s still a steep hill to climb to get back to, and then exceed, our pre-COVID margins.”
United officials say new initiatives to upgrade the onboard customer experience and plans to upgauge from regional aircraft to Boeing 737 MAXs and Airbus A321s with more seats will enable revenue growth and reduce unit costs. The airline recently placed orders with Boeing (NYSE: BA) and Airbus for 270 narrowbody aircraft.
United expects it will take until the spring of 2022 to resume a normal schedule to Europe because of ongoing travel restrictions there, but that by next summer “the Atlantic has the potential to be our best season ever, with pent-up demand and easing border restrictions,” Kirby said.
Asia continues to lag and is expected to return to pre-pandemic levels in 2023 at the earliest. The lack of Asia capacity is being offset with more deployment to India and Africa.
Helping to capture that pent-up demand and boost financial performance, Kirby said, are two built-in advantages: coastal hubs such as Newark, New Jersey, San Francisco and Washington Dulles Airport, which are big international gateways that suffered passenger declines during the pandemic but are now poised to meet demand, and the fact that United didn’t retire twin-aisle aircraft as many competitors did.
Management also said United will have 30 more widebody jets available to schedule in the summer of 2022 compared to 2019, which is one reason the recent aircraft order was focused on narrowbody aircraft.
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