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Published: Wed, November 16, 2016
Economy | By Melissa Porter

American Expected To Follow United's Quest For Budget Travelers

American Expected To Follow United's Quest For Budget Travelers

The Chicago-based airline is changing its orders for 65 Boeing jets from all 737-700s to four 737-800s and 61 737 Maxes.

The new airfare is part of a strategy the company outlined Tuesday to investors to boost its earnings by $4.8 billion by 2020. The chief executive Oscar Munoz is looking for ways to elevate profit margins and match Delta, which has led the industry in recent years. United's operating profit amounted to 13.6 percent of sales a year ago, trailing Delta's 19 percent margin and American's 15.1 percent. The airline will debut its new Polaris business class next month and is also considering the introduction of premium economy cabins on both worldwide and domestic flights, Haywood said.

United said it will grow flight capacity between 1 percent and 2 percent in 2017 from a year earlier. Improvements in the way it forecasts demand and manages seats is expected to create an extra $900 million. Cost-cutting moves will save another US$700 million by 2020, compared with last year's level.

"Now it looks like 737 output will not grow as planned", he said.

United, the No. 3 USA airline by passengers, said it will convert orders for 61 Boeing 737-700 planes due to be delivered in the next two years into the newer 737 MAX model, but that it was still deciding on which size MAX planes to order and when they would be delivered, creating uncertainty for Boeing investors.

To further meet customers' needs and provide more options to price-sensitive travelers, the company announced the introduction of Basic Economy fares. It puts United much closer to the ultra-discount airlines it is increasingly competing with, like Spirit.

With the new fares and limits, United become the first major U.S. airline to limit buyers of its cheapest tickets to a carry-on piece of luggage that must fit under the seat. Prices will be comparable to low fares it now charges for the economy cabin, but with more restrictions.

United is rolling out a new tier of economy ticket: Misery Class.

The company also announced its plans to fully optimize its network potential by continuing to leverage its leading global position while strengthening its domestic network, including improving the bank structures at key hubs in Chicago, Houston, and Newark/New York, and further improving both schedules and product in top business markets.

In addition, United said it would defer 61 Boeing Co 737-700 planes originally due in the next two years to a date to be determined, reducing capital spending by US$1.6 billion through 2018. These aircraft will be leased to third party carriers operating as United Express. United will now acquire 24 of Embraer SA's E-175 regional jets that earlier were going to be purchased by Republic Airways Holdings Inc.

Some analysts said United's decision would only reduce the number of oversold jets, with no impact on output.

United Airlines will convert the bulk of two orders for Boeing's best-selling narrowbody jetliner to the planemaker's newest variant.

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