United’s capital expenditure and fleet management strategies

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Capital expenditure

United’s capital expenditure was $493 million in 3Q14 and $1,345 million in the nine months ending September 30, 2014. For 4Q14, management estimates its capital expenditure to be $1 billion, as it plans to take delivery of five 737-900ERs, one 787-8 Dreamliner, one 787-9 Dreamliner, and 11 Embraer 175s. Return on invested capital over the last 12 months was 12.3%, the highest in the last three years.

Part11_Fleet plan 4Q14

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Fleet management strategies

  • United entered into an agreement with Boeing to convert seven 787-8 aircraft into larger and more efficient 787-10s for delivery in 2022.
  • United will also retain 11 767-300ER (extended range) aircraft, originally slated for retirement, as it plans to extend the useful life of these aircraft by investing in new interiors, winglets, and other modifications.
  • United is undertaking a variety of flight restructuring initiatives to improve its operational efficiency.

With 76 seats, the newly added Embraer 175 aircraft are more fuel efficient and spacious than the less fuel-efficient 50-seat regional jets they will replace. By 2015, United expects to have 85 E175s in its fleet. For each 50-seat aircraft that it replaces, United expects its profitability to improve by $1 million.

Trimming capital expenditure

United will also explore the used aircraft market in order to limit its capital expenditure. United’s competitor Delta Airlines already taps the used aircraft market to optimize its returns on invested capital. For more details on how capital expenditures affect costs, refer to Delta’s capacity: Current size and future purchase commitments).

The SPDR S&P Transportation ETF (XTN) has holdings in all top airline stocks, including United (UAL), Delta (DAL), American (AAL), Southwest (LUV), and JetBlue (JBLU).

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