Last week, United Continental (NASDAQ:UAL) announced another move to build up its San Francisco hub.
In June, United will begin nonstop service from San Francisco to Singapore on the new Boeing (NYSE:BA) 787-9 Dreamliner. This will become the longest nonstop flight operated by any U.S. carrier, edging out Delta Air Lines' (NYSE:DAL) Atlanta-Johannesburg flights by a few miles.
This new flight is a very sensible addition to United's route network and should benefit from strong business traffic. But it's a route that only became feasible because of the long range and superior fuel efficiency of Boeing's 787-9.
Solid demand for nonstop Singapore flights
Singapore is a major business center, so there are plenty of high-fare business travelers looking to fly between the U.S. and Singapore. However, it's more than 8,000 miles from even the closest major U.S. metropolitan areas. Only a handful of aircraft models have enough range to cover that distance.
In 2004, Singapore Airlines began nonstop service from Singapore to Los Angeles and Newark. These were the two longest airline routes in the world. Singapore Airlines operated both flights using a special fleet of A340-500s in an all-business class configuration with 100 seats.
However, the airline canceled both routes in 2013. Demand was solid, with load factors typically around 75%, but the costs of operating the fuel-guzzling A340 were simply too high, given the cost of fuel at the time.
Cheaper fuel and a better plane
The sharp drop in oil prices since June 2014 undoubtedly encouraged United to start its new route to Singapore. However, the superior capabilities of the Boeing 787-9 were also a major factor.
Virgin Atlantic has stated that its 787-9s use 27% less fuel than the A340s they are replacing. Fuel efficiency is especially important on extremely long routes, for which fuel expense tends to represent a higher proportion of total costs. The 787-9's fuel efficiency should allow United to make money on this route even when oil prices rise.
Singapore Airlines also plans to restart its nonstop flights to the U.S. with an ultra-long range variant of the A350-900. Like Boeing's 787, this aircraft model will be much more fuel efficient than the A340. However, Singapore Airlines won't receive its first one until 2018, giving United Continental a two-year head start.
A big competitive advantage
Numerous airlines operate one-stop service between the U.S. and Singapore today. However, United noted that its nonstop flights will cut travel time by as much as four hours. Given that even the nonstop flights will take about 16 hours, many passengers -- especially business travelers -- would likely pay a premium to avoid spending even more time in transit.
The new Singapore flight thus allows United to rebuild its advantage over Delta Air Lines for U.S.-Asia travel. Delta has been investing heavily in the past few years to build up a new hub in Seattle for flights to Asia. This has allowed it to de-emphasize Tokyo as a connecting hub for flights to the rest of Asia.
Delta now has nonstop service from Seattle to the top five Asian business destinations: Tokyo, Seoul, Beijing, Shanghai, and Hong Kong. United is responding by adding nonstop flights to Chengdu and Xi'an (secondary cities in China) and now Singapore to ensure that San Francisco remains the premier hub for flights from the U.S. to Asia.
It will be interesting to see if Delta strikes back by adding Seattle-Singapore flights within the next few years. It has one advantage: Seattle is nearly 400 miles closer to Singapore than San Francisco. That gives it more options for which plane to use, although Boeing's Dreamliner -- which Delta won't receive until at least 2020 -- is almost certainly the best option.
As long as United Continental remains the only one of its peers with nonstop flights from the U.S. to Singapore, it will have an important trump card in the competition for lucrative corporate contracts.