United to restrict low-fare flyers to one carry-on bag

[November 15, 2016]  By Jeffrey Dastin

(Reuters) - United Continental Holdings Inc will become the first major U.S. airline to limit low-fare customers to one carry-on bag that fits under a seat, and it will defer dozens of aircraft deliveries from Boeing Co in an array of initiatives to boost profit, the company said on Tuesday.

The announcement may frustrate flyers who already feel burdened with travel restrictions and fees from airlines.

United said customers who buy its cheapest fares will not be assigned seats until the day of departure, meaning people on the same ticket may be split apart. United will also prohibit these travelers from carrying on bags that can only fit in overhead bins, and they will not accrue miles toward elite status.

The company expects the new moves will add $4.8 billion to its operating income per year by 2020, though the figure does not include rising wages. Fare initiatives like "Basic Economy" will account for $1 billion of this, as more customers pay to check bags or select higher fares that give them two free carry-ons.

It was unclear if the move by United - No.3 in the United States by passenger traffic - would prompt similar bag limits from rivals. However, airlines have frequently copied each other in the past, like when they added fees for checked luggage.

"Customers have told us that they want more choice and Basic Economy delivers just that," said Julia Haywood, United's chief commercial officer, in a news release.

The boarding process will also be faster because fewer customers will be searching for overhead bin space, United said.

The announcement follows a move by Delta Air Lines Inc to sell cheap tickets that prohibit itinerary changes and seat selection.

Delta and United hope to lure customers with cheap fares and upsell them once they reveal the conditions of the ticket. It is a practice they are using to compete with low-cost carriers Spirit Airlines Inc and Frontier Airlines, which charge for add-ons including carry-on bags.

Frontier was lowest for customer satisfaction in J.D. Power's North American airline survey in 2016. Spirit was not included in the survey.

Customers of United wait in line to check in at Newark International airport in New Jersey, November 15, 2012. REUTERS/Eduardo Munoz

United said it will begin selling the no-frills fares in the first quarter of 2017, for travel starting in the second quarter. Prices will be comparable to low fares it charges today for the economy cabin, but with more restrictions.

The initiative is part of United's long-promised plan to rival Delta, which is more profitable and cancels fewer flights.

In addition, United said it will defer 61 Boeing Co 737-700 planes that were originally due in the next two years to a date yet to be determined, reducing capital expenditures by $1.6 billion through 2018. It will convert the orders to an unspecified number of newer 737 MAX planes.

The company also said it agreed to buy 24 E175 aircraft from Embraer SA, instead of leasing the planes as previously planned.

United said it will grow flight capacity between 1 percent and 2 percent in 2017 from a year earlier.

(Reporting by Jeffrey Dastin in New York; Editing by Lisa Shumaker)

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