16 July 2013

A350-1000 order to replace United´s 747 and 787-10 orders to replace 777s.

United’s decision to upgrade its 25 Airbus A350-900 orders to the larger A350-1000 model announced at the Paris Air Show could be interpreted as a Loss for Airbus.

Because United also announced an order for 20 787-10 stretch during the show.

Investors may see this as a win-win situation for Boeing and Airbus; at the end of the week, both had 10 more orders from United than before the show.

Boeing is now poised to dominate the high-volume segments of the widebody market at United, while Airbus is confined to the lower-volume “large widebody” market segment. This probably means that Boeing will get the vast majority of future widebody orders from United…It is therefore not a coincidence that shortly after United agreed to order 20 787-10 airplanes, the company switched its Airbus order from the similarly sized A350-900 to the larger A350-1000. The A350-1000 will primarily replace United’s 23 Boeing 747 jumbo jets. United’s new 787-10 orders suggest that the company intends to use that plane to replace its fleet of 74 Boeing 777s.

While Airbus gained 10 A350 orders from United, this wasn’t really a win for the company. Boeing’s timely decision to stretch the Dreamliner has positioned it to win almost all of United’s widebody replacement business over the next 10-15 years. By contrast, Airbus will primarily provide replacements for the largest jets in United’s fleet: a lower-volume segment.”

Market segmentation

Of all the major U.S. airlines, United has been the most aggressive in updating its widebody fleet. After last week's 787-10 order, United is now slated to receive 65 Dreamliners, of which 6 are already in service. Furthermore, the company's A350 order book now stands at 35 planes.

United has been very clear with investors that the company is investing in its fleet in order to replace older, less-efficient aircraft, not to grow. This means that Boeing and Airbus are fighting for a finite number of orders with United.

Based on the article “One Big Win for Airbus Might Actually Be a Loss” published in The Motley Fool.

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