United Prepares For Massive Growth in More Ways Than One With Big Aircraft Order

The long-rumored new aircraft order is now official, and on the surface it may not seem very surprising. This order, however, is a milestone in the airline’s several-year shift away from a long-favored strategy. United is now all about growth, not only in the number of airplanes but also in the number of seats on each flight.

For years before the merger, United’s senior management deemed shrinking as the best way to manage the airline. They fell in love with regional jets and expanded their use as much as possible. The fewer seats they had, the more prices could theoretically rise. The problem was that other airlines gladly moved in to eat the airline’s lunch, and travelers were turned off by all the small jets.

Current CEO Scott Kirby has been trying to fix that problem ever since he left American to become United’s president. He knew that the airline had to grow domestically. Sure, it had a world-class international network to Europe and Asia, but it still was weak within the US market. Much has been done to fix that problem, but the airline is still behind the curve.

So now, United is growing with a massive new order for 270 new narrowbody airplanes. This is on top of the 228 already on order. That’s 498 narrowbody airplanes coming in the next 6 years. Gulp.

Here’s how the narrowbody order book currently stands:

With this order, United is preparing to go big. The 737 MAX 8 has 16 First Class, 54 Economy Plus, and 96 coach seats. With 166 total seats, this is the smallest narrowbody United has on order, and it is not small. The MAX 10 will have 20 First Class, 64 Economy Plus, and 105 in coach. The A321neo will likely be a bit bigger, just a handful of seats.

Tangent time: If you’re wondering why United would order both A321neos and 737 MAX 10s when they have the same basic capacity, you’re not alone. When the question was asked, the response was that the neo is a little bigger, and United is so constrained in Newark and San Francisco that it wants the neo to get those extra couple seats. I don’t buy it. I first figured that was how United was going to get out of those 45 A350s it still has on order, but no. That order still stands. So this must really just be about keeping Boeing in check and making sure they sweat a little. Or maybe it has something to do with delivery slots. But I digress….

What will United do with all these airplanes? On a media briefing yesterday, United said it will use about 200 of these to replace single-class CRJ-200/ERJ-145 regional jets. Another 100 or so will replace aging mainline aircraft. The remaining 200 will be growth. That is a lot of growth, but how exactly will this play out?

We know for certain that the previously-ordered 50 A321XLRs will replace the 40 757-200s still in the fleet. These will have flat beds, and they will primarily fly thin routes over the Atlantic plus domestic trunk routes that need beds. We also know that the 757-300 will keep soldiering on. During the call yesterday, it was made clear that those will be replaced with a future order some day.

If we focus on the domestic/short-haul fleet that’s under 200 seats, this is what it looked like at the end of 2020.

Now, let’s think about how this will play out. The 96-strong A320 fleet desperately needs replacing. Sixty five of those airplanes are more than 20 years old with some approaching their 30th birthday. The A319 fleet is younger with only 32 of the 85 over 20 years old, but by next year, every single one will be at least 15. Why am I confident these will all go away?

United said as part of today’s announcement that in the next 5 years, it will install all new interiors on all aircraft. That means fast wifi, big overhead bins, LED lighting, and yes, long-rumored seatback screens at every seat. None of the A319/A320s have seatback screens installed, and there is no way United can justify spending that kind of money on these old airplanes.

I’ll also argue that the 49 737-700s are primed for retirement. They were all delivered in the 1990s. Finally, I’d throw in the 12 737-900s that are not ERs. Those are old too, and there’s no reason to keep them around.

Those four fleets together account for 242 aircraft using the year-end 2020 numbers. If you assume 100 of these new orders are meant to replace a subset of those, that leaves 142 to be replaced under the existing MAX orders which amount to 178. There are probably another 30 to 40 older 737-800s that will need to be replaced sooner rather than later, and there you have your new fleet plan.

If this plays out this way, United will have completely remade its fleet as you can see in this chart.

What we see here is that the number of 50-seaters will plummet, and that’s no surprise. United has talked about that for years, and American and Delta have both done the same. I asked Chief Commercial Officer Andrew Nocella about this yesterday on the call, and he said that they do see an important place for about 100 of these, but only in small markets, unlike today where these go in larger markets where they should not be operating. He gave Denver as a prime example of where there is a need for these airplanes to serve some nearby mountain markets.

The other thing to note here is that there is now going to be a gaping hole in between 76-seaters and 166 seaters. The A319/A320/737-700 fleets are the only aircraft that fall in that range, and now they’re likely to be gone. I asked if there was going to be a need to fill in that hole, and Andrew gave an emphatic “no.”

On the call, United CEO Scott Kirby clearly explained that he sees United as being in a unique position by having hubs in the largest metro areas. With a large international fleet and hubs in big cities, Scott thinks dramatically upgauging with much larger airplanes is the right move.

This is a big bet with a lot of big, expensive metal. The impact on United will be staggering. Unit costs excluding fuel will drop 8 percent just from having bigger aircraft. Fifty-seaters account for about a third of domestic departures today, but that will drop to under 10 percent. Because of that, average seats per domestic departure will rise by 30 percent and average premium seats by domestic departure will rise by 70 percent. The hubs in the middle of the country will see over 100 new daily flights each as the coastal hubs grow with more seats, especially those that don’t have room for more departures.

United believes these changes combined with the onboard product improvements will create a wildly-successful airline that travelers love. I can’t say I’m as confident as the management team seems to be. Huge gauge increase and fast growth always makes me nervous, but it’ll be one wild ride to watch.