United Studies Boeing 777x Jets to Blunt Emirates
United Continental Holdings Inc. (UAL) is interested in Boeing Co. (BA)’s new 777 planes to bolster long-range flying as it braces for increased competition from Middle Eastern carriers such as Emirates, said Chief Financial Officer John Rainey.
“We’re going to look at it. We haven’t made a decision,” Rainey said yesterday in an interview at The Year Ahead: 2014, a two-day conference in Chicago hosted by Bloomberg LP.
The three biggest Gulf carriers, including Qatar Airways Ltd. and Etihad Airways PJSC, underscored their ambition to dominate long-haul flying by ordering 225 of Boeing’s 777X jets at this week’s Dubai Airshow. United’s Star Alliance partner Deutsche Lufthansa AG (LHA) is buying another 34 of the jets, the largest twin-engine aircraft designed by Chicago-based Boeing.
United, the largest U.S. operator of Boeing’s 787 Dreamliner, is studying the benefits it would gain with the newest 777, Rainey said. The 777-9X is set to begin flying in 2020, burning 12 percent less fuel than comparable Airbus SAS models and hauling a jumbo-sized payload of 400 or more passengers.
An order isn’t assured as Chicago-based United carefully manages its capital demands given the 292 jets already on order, Rainey said. United has ruled out Airbus’s A380, a double-decker capable of seating more than 500 passengers, as “really too big” for its needs, he said.
United and Lufthansa are strengthening a long-standing partnership to better compete with Emirates, the biggest long-haul carrier in the world, Qatar Airways and Etihad, Rainey said. They are studying ways to lower costs, including sharing catering and maintenance capabilities through their North Atlantic joint venture, he said.
United fell 0.4 percent to $37.11 at the close of trading in New York. The largest global carrier’s shares have risen 59 percent this year, more than double the 26 percent increase of the Standard & Poor’s 500 Index.
Rainey made the comments two days after United unveiled plans to cut spending by $2 billion through 2017. Half the savings will come from a 7 percent cut in fuel consumption as the carrier adds new planes such as Boeing’s 787 Dreamliner.
Since combining with Continental Airlines in 2010, United has struggled to control costs that are growing faster for each seat flown a mile than revenue on the same basis. Profit growth trailed competitors in the last quarter and the carrier is counting on an overhaul of its fleet designed to swap gas-guzzlers with more fuel-efficient models.
Merger integration “has been a tough slog,” Rainey said. “The last three years we basically ran a merger. Now we’re running an airline.”
United’s cost-saving plan, which includes an unspecified return of cash to shareholders in 2015, was outlined to investors Nov. 19 as the airline works to fix operational issues that have snarled flights and alienated customers.
“Some of the company’s cost improvements should also be achieved by delivering a better product to the consumer,” Helane Becker, a New York-based managing director with Cowen & Co., wrote in a Nov. 20 research note. “If United’s reliability in on-time performance improves, the company will save at least $150 million in avoided costs.” She rates United the equivalent of a buy.
United has firm commitments for 292 aircraft from Airbus, Boeing and Embraer SA (EMBR3) through 2025 at a cost of $24 billion, according to an Oct. 24 regulatory filing.
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