Delivery of 61 Boeing jetliners on hold as United looks to save $1.6bn

US carrier in push to catch up with rivals American and Delta while cuttings costs says it will delay the arrival of 61 737s to an undisclosed date.

A United Airlines 787 Dreamliner arrives at O'Hare international Airport in Chicago. The US airline is postponing the delivery of new Boeings. Nam Y Huh / AP

United Continental Holdings (UCH), which owns and operates United Airlines, said it will defer delivery 61 of Boeing passenger jets as the airline seeks to close its profit gap with Delta Air Lines and American Airlines.

United will delay accepting the 737s until an undetermined date in an effort to save US$1.6 billion in capital expenses, the Chicago-based carrier said on Tuesday. The company had ordered 65 of the 737-700 jets in two separate batches earlier this year and was expected to receive them starting next year. United will take delivery of the other four 737s as planned, but convert them to the 737-800 model.

The fleet changes are part of $4.8bn in initiatives intended to improve United’s profitability through 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 per cent of sales last year, trailing Delta’s 19 per cent margin and American’s 15.1 per cent.

United eventually plans to convert the 61 deferred aircraft from 737-700 models into Boeing’s 737 Max line.

The airline also announced other efforts to generate more revenue and savings from its worldwide route network. Improvements in the way it forecasts demand and manages seats is expected to create an extra $900 million. Cost-cutting efforts will save another $700m by 2020, compared with last year’s level.

Among the other initiatives: a new Basic Economy fare, which will go on sale in January with discounted tickets that have fewer benefits than traditional Economy tickets.

Customers buying United’s new offering will not be entitled to store a bag in the overhead bin – a departure from the practice of Delta, which already has a low-price fare. United’s approach will resemble the policy of the discount carrier Spirit Airlines, which charges extra for carry-on bags.

Basic Economy will anchor United’s efforts to “segment” its cabins, or create additional fare classes with different amenities and privileges. The company hopes to generate another $1bn with these new cabin offerings. United also hopes to generate another $600m through new network initiatives.

Offsetting some of the financial improvements, United will acquire 24 of Embraer’s E-175 regional jets that earlier were going to be purchased by Republic Airways. Republic is expected to operate the jets on behalf of United.

* Bloomberg