United’s Costly A350 Delay
Written by JT on July 28, 2015
In January, Qatar Airways became the first airline to put the Airbus A350 “mini-jumbo” jet into commercial service, whisking passengers more than 2,800 miles from Doha to Frankfurt, Germany. By 2017, Delta Air Lines and American Airlines will be flying the new aircraft, as will more than a dozen other carriers including Finnair, Air China, Cathay Pacific, Lufthansa, Air France-KLM and Singapore Airlines.
And United Airlines? It won’t get its first delivery until 2018.
As airlines around the world deploy the French aircraft maker’s newest and fanciest airplane, United’s older international fleet is losing some of its luster. Wait several years, though, and the last will be first—or almost. United has ordered 35 A350-1000s, more than any other airline except Qatar, which has signed for 37.
The A350 is pricy. The model United is buying lists for $351.9 million, though the company likely is getting a discount. But United and its rivals need the planes. Travelers pay four-figure fares for first- or business-class seats on transoceanic flights, making them among the most profitable for airlines. And these fliers demand amenities that only the latest jets can provide.
“It’s easy to calculate,” says Kurt Jensen, a suburban Milwaukee-based vice president at consultancy Air Transport Business Development. “Go up in first class, look at the real estate and you can see how the first class is configured. You can take a guess at how many coach seats would occupy that.”
United’s management also likes the new Airbus planes because they burn less fuel, reducing its biggest expense.
The A350-1000 seats up to 440 and can fly almost 8,000 miles. At United, they likely will replace Boeing 747s shuttling back and forth to Asia and are reaching the end of their usable lives. The airline, a subsidiary of Chicago-based United Continental Holdings, hasn’t decided yet how many premium seats each of the Airbus jets will offer, but management makes it clear it wants plenty of them.
“If you take a businessperson traveling to Asia, their company may allow them to book in the front cabin,” United CFO John Rainey says. “We certainly want to provide the amount of real estate in the front cabin to match the demand that is there.”
Rainey says United isn’t worried about competitors putting A350s into service before it can, noting that in North America it was the first to launch the 787, Boeing’s most advanced aircraft. The company currently flies 18 787s, to places as far away as Melbourne, Australia, and Shanghai, and has 37 more on order. And because jet fuel prices are low, United isn’t under as much pressure to put more fuel-efficient planes in the air.
“We’ve been very proactive in addressing our fleet needs and replacing out fleet in a methodical fashion,” Rainey says. “We’re using that to our advantage right now as we focus on cities that are perhaps secondary cities in China, like Chengdu, where we’re flying today, and we believe that’s giving us an advantage that our competitors are not able to avail themselves to right now.”
There isn’t a standard definition for the long-haul trips United’s A350-1000s will fly, though some analysts peg the length at 3,000 miles at minimum. United logged 77,375 voyages of at least that distance last year, up slightly from 2013, federal transportation data show. The airline derived more than 42 percent of its $38.90 billion in revenue last year from international flights.
The A350s could help United in the competition between the U.S. and China in particular and Asia in general. U.S.-China traffic will grow almost three times faster over the coming two decades than flights within the U.S., according to an Airbus forecast.
With their newer fleets and growing networks, Persian Gulf carriers such as Qatar Airways could pose a larger threat to United’s long-haul business. In addition to having the biggest A350-1000 order, Qatar Airways is buying 43 slightly smaller A350-900 jets. Etihad, based in nearby Abu Dhabi, plans to purchase 62 of the Airbus planes.
Although the Persian Gulf carriers and United’s route networks don’t have a lot of overlap now, Adam Pilarski, senior vice president at Avitas, an aviation consultancy in suburban Washington, D.C., says, “You can fly to Europe or India from here, through Dubai, Abu Dhabi and Qatar. . . .And people do it. There’s a danger United sees.”
Bob McAdoo, an aviation analyst at Los Angeles-based Imperial Capital, says the A350 could help United fly more people to Asia from Newark, N.J., one of United’s hubs, which serves metro New York and other East Coast cities.
United and other domestic airlines say the Persian Gulf airlines are distorting aviation markets by relying on billions of dollars in subsidies from their home governments. The world’s business elite probably don’t care, however. They demand the newest and best. On these super-long routes, United won’t have that for years.