The International Air Transport Association says that its forecast that the world’s airlines will loss $4.7 billion this year appears to be much too low. Passenger and freight loads are still well down compared to two years ago. Oil prices are rising much faster than projected.
United Airline (UAUA) is taking the long view and its shareholders better hope that it can afford to. The American carrier has asked Boeing (BA) and Airbus to bid for 150 new aircraft. The total cost of those planes is probably worth well over $10 billion.
United’s plans are different than any other large airlines, at least on the surface. The one advantage to new aircraft is that they are, in almost all cases, more efficient to operation and have engines and wing designs set up to use less fuel than planes built a decade ago.
United is betting that it has a balance sheet that can not only allow it to survive the downturn in traffic and pressure of higher fuel costs but can also take on the leverage to buy an unusually large number of new planes. United could get into significant financial trouble if the sharp drop in air travel continues for a year or two. If fliers come back to airlines next year, the move to create a more efficient cost structure will be seen as brilliant.
Douglas A. McIntyre
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