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United and American Make Opposite Fleet Moves

In the last few days, both United and American have made domestic fleet moves. United announced it would likely cancel its outstanding order for planes while American stepped up its order. Why are the two airlines announcing such different plans?

For United, it's a tough decision. The airline has decided to just completely retire 1/3 of its domestic narrowbody fleet; all the 737s it owns. That leaves the 757s for longer and denser missions and the Airbus narrowbodies for everything else that isn't to be flown by United Express. The Airbus aircraft are relatively new and don't need replacing anytime soon. The decision to shrink the fleet so drastically means that there isn't really much need for the 42 Airbus narrowbodies that it's supposed to take. Seems like a good move, so why is this a hard decision?

Canceling this deal means forfeiting a $91 million deposit. Yeah, that complicates things a bit. But that money is already out the door, so they've decided to ignore sunk costs (rightfully so, I'd say), and just walk away. I'm sure there will be some negotiating to ensure that Airbus stays in their good graces for future orders, so we'll see what the final number looks like. The point is, their narrowbody fleet is new enough that they don't need a replacement now. Instead, they'll wait until Boeing and Airbus come out with next generation aircraft in 10 years or so, I'd bet.

Meanwhile, American has a very different story. Sure, they have 75+ new 737s, but they also have nearly 300 MD-80s. Those fuel-gulpers make up well over half the narrowbody fleet, and with the cost of fuel where it is, they are pretty expensive to operate. So, American has decided to speed up its 737 deliveries from Boeing.

See, American can't just retire more than half its narrowbody fleet (even United wouldn't try that one), so it does need more aircraft to bring them up to where they need to be capacity-wise. This announcement was for an additional six 737s to be delivered in the next couple of years. By the end of 2010, American will have effectively doubled its 737 fleet size. The planes may be more expensive, but if fuel stays where it is, American is apparently realizing that the cost of new aircraft makes it a worthwhile investment.

I'm sure American would rather be in United's position in this instance. I mean, if you can avoid spending money right now on aircraft that are likely to be surpassed within 10 years, you would do it. Instead, American will have plenty of newer aircraft that won't need replacement for 20+ years. United, however, can just wait until the next cycle of new planes comes out and start replacing them as their old aircraft reach the end of their life cycle.