For the past year and a half, United Airlines (NASDAQ:UAL) has taken a cautious stance with respect to capacity, because of the COVID-19 pandemic's impact on demand. However, in recent months, United executives have told the media and investors that they expect a huge rebound in demand next year. In fact, CEO Scott Kirby has said that the summer of 2022 could be the busiest season for transatlantic travel in history.
Last week, United Airlines formalized its bet on a big international travel recovery in 2022, announcing numerous new routes that it will launch next year.
New long-haul routes on the way
United's latest international expansion includes adding five new international destinations: Amman, Jordan; Ponta Delgada, Portugal; Bergen, Norway; Palma de Mallorca, Spain; and Tenerife, Spain. It will fly to each of these markets from its New York-area hub at Newark International Airport, with exception of Amman, which it will serve from Washington, D.C.
All five of these routes launch between May and June of 2022. The Ponta Delgada flights will operate daily, but United will fly the other four routes three times a week. United Airlines will be the only U.S. airline flying to any of these exotic destinations.
In addition to opening these new markets, United announced five new routes to existing international markets. The carrier will add service from Denver to Munich, from Chicago to Milan, from Washington, D.C. to Berlin, and from Newark to Dublin and Rome.
Lastly, United Airlines confirmed that next spring, it will start seven routes that were announced before the pandemic but delayed due to the sharp drop in international travel. These include service from Newark, Los Angeles, and Washington, D.C. to Tokyo's Haneda Airport; new routes connecting San Francisco to Bangalore, Newark to Nice, and Chicago to Zurich; and a second daily flight on the airline's existing route from Newark to Frankfurt.
A bet on transatlantic leisure travel
Transatlantic flights account for the vast majority of the 17 long-haul routes that United plans to launch next spring -- and all of the 10 new routes announced last week. Furthermore, the vast majority of the newly announced routes will appeal primarily to leisure travelers.
Indeed, United's management calls the new routes opportunistic. International travel restrictions between the U.S. and Europe have been easing, thanks to largely successful vaccination campaigns. United Airlines is betting that many Americans will be eager to go explore new destinations overseas after being forced to stay home in 2020 and having limited options for international travel in 2021.
Will this bet pay off?
If the COVID-19 infection rate continues to trend downward, United's prediction of a revival in transatlantic leisure travel demand next summer is likely to prove accurate. However, that doesn't guarantee that the airline giant's new routes will generate big profits.
Indeed, just last week, Delta Air Lines warned that surging oil prices will take a bite out of its fourth-quarter earnings. Over the weekend, it cut several long-haul flights from its future schedules. (That might be a coincidence, but not necessarily.)
Of course, fuel prices might ease by next summer, but they could just as easily move even higher. Fuel often represents the No. 1 cost item for a long-haul international flight. Moreover, United plans to use older, less fuel-efficient Boeing 757-200s and 767-300ERs on some of its new routes. That means United Airlines will need to realize high fares there to earn substantial profits. That tends to be more challenging on leisure routes than in business-oriented markets.
Even with all the data airlines have, new route selection remains more of an art than a science. In all likelihood, some of United Airlines' new routes will exceed management's expectations, while others will fall flat. If the airline can turn half of its new routes into sustainable, profitable markets, that would be a solid outcome for shareholders.