Once A Liability, United Is Bullish On Its International Exposure

United Airlines had a rough 2020, as did nearly every other airline around the world. However, looking ahead toward the recovery, the airline is bullish on its large international exposure. According to the airline’s executives, this exposure, which once became a liability, will be an asset for the carrier. It will take time, but the airline is actually expecting its international profits to return stronger and quicker than domestic.

United Boeing 787-9
United Airlines is looking forward to the day it believes its international exposure will be an asset. Photo: Vincenzo Pace | JFKJets.com

United’s large international exposure was once a liability

Back in March, when the world started to shut down, United’s large international long-haul network looked like it would be a huge liability for the carrier. As people could no longer travel, United started canceling flights and issuing refunds, the once-lucrative business class travelers evaporated, and United’s long-haul network came to a halt.

United Boeing 787 and 777
United’s long-haul fleet quickly filled up runways and airports at the start of the crisis when the carrier did not need to fly them. Photo: Vincenzo Pace | JFKJets.com

The carrier began to rebuild its network in the months after that, but it definitely was not earning the margins or revenue that it once did on many of those routes. With several large coastal hubs, the carrier’s large international exposure compared to a domestic network that was not as developed as its peers, United was not well-equipped to capitalize on the domestic recovery.

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The airline thinks it will be an asset moving forward

Andrew Nocella, United’s Executive Vice President and Chief Commercial Officer, stated the following early on in the carrier’s fourth-quarter earnings call:

“We expect international profits will return quicker and stronger than domestic. In the last cycle, domestic margin firmness was clearly above international and we expect domestic margins may be under some pressure at the beginning of this next post-COVID cycle. Given all the data we have analyzed, United clearly was less well-positioned to take advantage of the domestic margin performance in the last cycle, but we are well positioned to take advantage of the expected international opportunity in front of us.”

United Boeing 787
Four of United’s largest hubs are coastal hubs that rely heavily on connecting traffic. Photo: Vincenzo Pace | JFKJets.com

When asked for more color on why it believes this is the case, Mr. Nocella noted the following:

“We are counting the number of 747s and A380s that have been pointed at the United States that are no longer in the flying fleets of many airlines around the globe. Two, we’re lookingt at a significant portion of capacity operated by someone across the Atlantic that has publicaly said they are not going to do it anymore. I just add up all those facts, there are simply fewer widebody aircraft in the fleets around the world. There’s particularly, fewer of the very large ones with very large business class cabins.”

Mr. Nocella is right about the aircraft retirements. Air France immediately moved to retire all of its Airbus A380s, British Airways has waved farewell to its Boeing 747s, Lufthansa’s A380s are unlikely to ever fly again, Air New Zealand has exited its fifth-freedom route from London to Los Angeles, and Qantas’ Airbus A380s are currently in long-term storage.

As for the competitor across the Atlantic no longer flying long-haul, Mr. Nocella is referring to Norwegian, which recently announced it would be ending its long-haul operations, which definitely is a relief for United Airlines.

United Boeing 777
United’s larger widebodies should be more full, and United should be able to earn a little more revenue, given the reduced supply once demand returns. Photo: Vincenzo Pace | JFKJets.com

Altogether, Mr. Nocella believes that United is well-positioned to capture demand because there are fewer planes flying transatlantically, there are fewer airlines flying large planes on transatlantic hops, and United has maintained a large widebody fleet, with only a few retirements of some of the older Boeing 757s.

How these market shifts will impact United

United Airlines has been incredibly cautious with aircraft retirements. Remarkably, the carrier’s fleet has remained pretty steady throughout the crisis. It still has a decent-sized Boeing 767 fleet, a large Boeing 777 fleet, and a sizable Boeing 787 fleet. Though they have not been able to fly a lot of paying customers now, they will be doing a lot of flying over the next few years.

First, United Airlines has some excellent coastal hubs. This includes Newark, Washington-Dulles, San Francisco, and Los Angeles. Though not as great for domestic connections, these hubs are fantastic for long-haul international routes. Los Angeles connects extensively to Oceania, San Francisco is great for Asia flights, and Newark and Dulles are excellent markets for transatlantic routes.

United Boeing 767-300ER
The market shifts could spell good news for the future of United’s premium-heavy Boeing 767s. Photo: Vincenzo Pace | JFKJets.com

Transatlantic travel is one of the most important revenue streams for US airlines, and United is no exception. These market shifts spell out some good news for United’s ultra-premium Boeing 767-300ERS.

The premium Boeing 767s, which have a whopping 46 Polaris seats, will help make up for some of the premium capacity lost as airlines fly smaller planes transatlantically with fewer business class cabins. Previously, these aircraft seemed to be a huge liability. The carrier is also investing in putting its best business class seats onboard its planes.

United Polaris
United Airlines continues to invest in putting Polaris onboard more of its planes. Photo: United Airlines

In addition, United has diversified its international network. The airline is returning to Africa, upped flights to the Middle East and India, and added new destinations in Latin America, which has helped the carrier tap into new revenue streams as traditional revenue streams, such as for demand to the UK, China, Japan, and Australia, remain mostly dry.

United expects this recovery to take some time, and most of the initial demand for long-haul travel will be leisure-based, with business travel coming approximately 18 to 24 months after that. United is expecting the recovery to make a meaningful improvement closer to the second half of the year.

Do you think United Airlines has the right outlook on its international exposure? Let us know in the comments!