United Bets Big On Business Travel’s Return

United Airlines has announced the latest expansion of its fleet — its largest-ever order for aircraft. It represents a big bet on travel’s return across the board as the pandemic passed into history and people are willing to fly the friendly skies again. And United’s stated goal is to capture as many of those returning travelers as possible, particularly in and around hub destinations like San Francisco and Newark, New Jersey. Further hub expansion is also planned for Denver and Chicago as United pushes to grow systemwide by 4 to 6 percent over the next several years.

It’s growth that United forecasts will be fueled by the airline’s proposed plans to upgrade its planes, according to reports, and beef up its staffing. The airline is currently on a 25,000-employee hiring spree including pilots, flight attendants and mechanics.

The airline’s optimism is driven by positive trends it has seen in the market as the pandemic has started to ease off, announcing earlier this week that it expects to post positive, adjusted pre-tax income next month for the first time since January 2020.

Those early encouraging signs were apparently enough to motivate United forward with a big bet on recovery — particularly among high-value business and international travelers whose business virtually evaporated during the pandemic.

Great Expectations 

United CEO Scott Kirby noted the airline’s big order of big planes is about both replacing some older models going out of service and expanding and upgrading the fleet. All in, the carrier now has about 500 narrow-body aircraft arriving starting next year. While 200 of those planes will go toward expanding the fleet, 300 will go to replace older jets such as its Boeing 757-200 planes, which are being retired.

The list price on that purchase is estimated at $30 billion, though United almost certainly received a sizable discount on such a large order, and most estimates for the deal are around $15 billion.

More than growing the fleet, with the new planes the airline will also seek to capture a larger share of higher-paying first-class and business-class travelers. The increase of larger mainline jets in the fleet means United will be able to add more first-class and economy-plus seats, or coach seats with more leg room.

Those duel big bets on staffing and the fleet are both premised on United’s firm belief that travel in general, and premium-priced business travel in specific, will return — and soon. United CEO Kirby told reporters that he expects business and international travel demand to recover “100%” in fairly short order, though he does concede business travel demand is still down 60 percent from pre-pandemic levels.

And there are signs that business travel is returning. Strong consumer sentiment in both the international and business travel segments could indicate strong pent-up demand that will make itself felt in the back-half of 2021.

A Big Uncertain Bet 

But for the time being, business travel remains slower than its leisure counterpart — and there are reasons to think that recovery may be slower than optimists at United are projecting. In fact, United’s competitors are making exactly that bet.

American Airlines, for example, will fly 90 percent of its summer seat capacity by increasing short-haul international capacity to 120 percent — but long-haul business travel will remain at 40 percent of the 2019 number. Delta, which pre-pandemic was known for very aggressively pursuing the business travel market, has demonstrated more tempered hopes, with its CEO projecting that business travel will be back to 70 percent of its pre-pandemic level by 2023 and that it might take far longer to recoup that other 30 percent.

The world, he noted, is a different place now, and one where the definition of necessary business travel has changed, now that the definition of “necessary travel” has been changed by things like virtual conferencing technology that means people don’t always have to physically be present to show up.

Analysts align more closely with Delta than United, forecasting unit passenger revenues to stay below pre-pandemic levels well beyond 2023, created largely by a slowdown in business travelers.

For now, it seems, given the dearth of data, the only thing left to do is wait and see if United’s big bet pays off and allows it to move more firmly into a market where it has lagged — or if the airline just spent several billion to attract a class of consumers that isn’t coming back anytime soon.

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