United Airlines Launches Initiatives to Cut Costs $2 Billion Annually
At its annual investor conference today, United Airlines announced plans to reduce its costs by $2 billion annually and increase its revenue by $700 million, all while achieving the goal of a 10% return on invested capital.
"Today we are announcing plans to significantly improve our efficiency, profitability and capital structure, making United a stronger, more investable business," said United Airlines chief financial officer and executive vice president John Rainey.
United Airlines highlighted that it will meet these goals by reducing the costs of fuel consumption through the use of more efficient planes, like the Boeing 787 Dreamliner. In addition, it will strive to increase productivity, reduce sourcing costs, improve maintenance and inventory processes, and optimize its distribution methods.
Through these actions, United said that it will aim to increase its pre-tax earnings between two to four times their current levels over the next four years. In addition, it hopes these measures will generate enough cash to begin distributions to shareholders by 2015. It did not provide any guidance as to whether this would be in the form of dividends, share buybacks, or other measures.
In addition to the cost-cutting measures, United also announced it planned to increase its ancillary revenue to $3.5 billion annually by 2017, which would be an increase of approximately $700 million. (In the airline industry, ancillary revenue refers to non-ticket sources such as baggage fees and on-board food and services.) The airline noted that the company would provide customers new options on services and products, "optimize" prices, and expand the availability of its existing products.
United also announced it would be updating its route network by eliminating certain flights, such as the Seattle to Tokyo route, while redeploying the aircraft used in those flights to more profitable ones. For example, the company added that it will begin a second daily flight from Houston to Tokyo. United also announced it would build its trans-Atlantic routes, and it would add new service from Houston to Munich as well as seasonal routes from Washington/Dulles to Madrid and Chicago to Edinburgh.
Finally, the company announced it would continue to expand its e-commerce efforts and strategy, which would include a redesign of its website in addition to its new mobile app which launched last week. These efforts are designed to provide for clear and customizable experiences for customers, while also expanding opportunities to provide ancillary product and service sales.
"We are working together to build on United's core strengths and deliver excellent long-term results for our investors," said Jeff Smisek, United Airlines chairman, president and chief executive officer, in a press release. "We are committed to achieving sufficient and sustainable profitability that will benefit all of our stakeholders."
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