United's big order reveals two major insights about the airline and the aviation industry as airlines look beyond the pandemic

United Airlines announced an order on Tuesday for 270 airplanes, a company record. It was the culmination of more than a year of planning and strategizing about the future of the airline, according to CEO Scott Kirby.

Along with the order, United announced that it will introduce a new cabin interior for the new aircraft, and retrofit the entire fleet. Among the biggest features of the cabin: inflight entertainment screens at every seat, and larger overhead bins that can allow every passenger to bring a full-size carry-on.

The order marked a major shift both for United and for the entire aviation industry as the rebound from the worst of the COVID-19 pandemic appears to have taken hold — at least, for the United States and its airlines.

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The purchase — which consists of 50 Boeing 737 MAX 8s, 50 737 MAX 10s (the largest variant of the MAX family) and 70 Airbus A321neos — reveals some big insights about United Airlines and the broader aviation industry.

What the order shows about United Airlines

Analyst Henry Harteveldt of Atmosphere Research put it succinctly: "We are seeing the first few sentences in the first chapter of the new book that United Airlines wants to write about itself," he said.

"So that by the time they start to get a critical mass of these aircraft delivered and have a critical mass of their existing narrow-body fleet upgraded," Harteveldt added, "they're ready to credibly claim the premium airline moniker, ready to be viewed as a legitimately premium airline."

It represents a major turnaround for the airline over the last decade.

First look: United’s new narrow-body cabins

A few short years ago, United Airlines was the butt of jokes.

CEO Jeff Smisek had hastily resigned amid a federal corruption probe, the airline was under fire after video surfaced of airport police in Chicago forcibly removing a passenger from an oversold flight, and the operation was a mess.

United ranked last in J.D. Power lists, the splashy Polaris soft product it rolled out was trimmed back (R.I.P. to the wine flights and bloody mary cart) and the airline's Wi-Fi lagged behind what was offered by most of its competitors.

Meanwhile, it underperformed in the domestic U.S. market, relying heavily on small regional jets, failing to compete on certain routes, surrendering crucial markets and losing corporate contracts.

Even with Smisek out and Oscar Munoz in, the airline's course remained uneven. As if to encapsulate the situation, Munoz suffered a heart attack in October 2015, just over a month into the job, and underwent a heart transplant several months later.

In 2016, Munoz poached Scott Kirby, the No. 2 at American Airlines, to be United's president. United's trajectory finally seemed to stabilize under Munoz and Kirby, even as things like the Polaris cabin rollout lagged and dragged.

In keeping with what was likely the plan when Kirby joined the airline, he succeeded Munoz as CEO in 2020.

Although Kirby came to United with a reputation for being a strictly numbers man —often at the expense of customer service and the bigger picture — that was at least partly undeserved, Harteveldt said.

America West, where Kirby started in the airline business, "was a value airline, and certainly led with low prices," Harteveldt said, "but with a product and service that were tailored to a value-focused customer base."

"Following the merger [of US Airways, which merged with America West in 2006] with American Airlines, I believe Scott began to wake up to the importance of brand and the passenger experience," Harteveldt said. "And I believe that he saw that through conversations not only with American employees, but importantly with key corporate American Airlines customers and with American's high-value travelers."

As TPG previously reported, Kirby and American Airlines CEO Doug Parker "have widely been credited for bringing a lower-cost ethos to American, in both good and bad ways. There is a general sense among long-time flyers of the airline that the product has been cheapened since the 2013 merger."

"And remember: Scott wasn't running the airline," Harteveldt added. "Doug Parker was, and still is."

More: United unveils massive aircraft order, announces new narrow-body cabin interiors and retrofit program

After several years at United expanding the midcontinental hubs, growing the airline's network and working to distance it from the "old" United of the Dr. David Dao days, Kirby is ready to turn United into a premium airline.

But can he?

"It's going to take them a couple of years to get to that point, and that's OK," Harteveldt said. "What consumers and corporate travel managers want to see is steady, incremental progress. Reliability improvements, on-time performance improvements, fewer complaints about customer service."

The motivation is certainly there.

Business travel is expected to be smaller when it returns, and airlines like United will have to fight for what's left.

"If the pie is going to shrink, as a business you've got two choices," Harteveldt said. "You sigh and you say 'OK,' or you dig in and you say, 'We're gonna fight like hell for as much of this smaller pie as we can get.' And it's clear that's what United Airlines is choosing to do."

What the order reveals is that Kirby now firmly believes that premium is the way, at least in his current situation, and United is willing to invest to take on Delta. Whether the airline commits firmly and stays the course, or wavers and cuts back, remains to be seen.

Kirby thinks that the airline has what it takes.

"There are some other competitors that do a good job that are focused on customer service," Kirby told TPG at Tuesday's media event. "We have the winning hand; we just have to play it right."

The finance world, for what it's worth, thinks the numbers work out.

United could have waited a little while longer before spending this money. The carrier (along with pretty much every other airline) is carrying significant debt and, thanks to the cash accumulated during the pandemic survival crunch, has an excess of liquidity which throws off the balance sheet.

Still, wrote Morgan Stanley analyst Ravi Shanker, it might as well come now.

"While there is likely never going to be a 'good' time for an airline to spend ~$40 [billion] on [capital expenditures] to buy 270 planes (20% of total current fleet) over a 5 year period, we believe now is probably the best time to do it," he wrote in a research note on Wednesday. "We believe it may have been too late to start catching up to peers on the aging fleet if UAL waited until the balance sheet was normalized 3-4 years from now."

To be clear, there certainly is a numbers argument in line with Kirby's classic management style. United is likely getting a stellar deal on the planes, considering the pandemic-era global market, and, as Shanker pointed out, the new planes, which are more fuel-efficient, will consequently lower operational expenses.

Still, this is a deliberate focus on passenger experience, which Shanker said "the company hopes will translate into better pricing." Notably, this is a model that Delta has found success with.

What the order shows about the airline industry

Good things. Mostly.

Travel is not going away. United's commitment may seem exceptionally bullish, considering that the pandemic is far from over.

But it nevertheless reflects a broader optimism about the future of travel among the airline industry.

That said, a few things stand out.

First of all, although United has positioned itself over the past years to make a premium turn, the airline easily could have gone the other direction and moved toward a more low-cost-adjacent model, particularly if it saw business travel as not returning significantly enough to support the premium style.

"Investors should also be glad that a Legacy is going up toward a premium product instead of initiating an industry race to the bottom on price," Shanker wrote.

Second, the Boeing 737 MAX is back. Despite anxieties over whether passengers would avoid the plane or even choose different airlines following the plane's ungrounding after nearly 20 months of examinations and redesigns, that has not occurred in a meaningful way — and United sees a low enough liability to comfortably order 200 of the aircraft, on top of existing orders.

This is good news for the airlines, and for Boeing. Pilots who have spoken with TPG on background or on condition of anonymity have affirmed their belief that the 737 MAX is a good passenger plane for pilots, passengers and airlines. And airlines — and analysts — that are familiar with the previous 737 platform are compelled by its improved fuel efficiency and operating parameters.

Third, however, is a bit of bad news for Boeing. The airline may well have missed out on the chance to design a new midsized aircraft, or NMA, to replace the aged 757.

In addition to the 200 MAX aircraft, United placed an order for 70 Airbus A321neos, on top of an existing order for 50 of the A321XLR model. The A321neo and XLR are widely seen as occupying a similar market niche to the 757, longer-range narrow-body missions. United said it plans to retire its 757-200 fleet as the MAX 10 and A321neo deliveries are made, while it said it has not finalized plans to retire the 757-300 fleet.

Boeing, emerging from the dual 737 MAX and COVID-19 crises, has not publicly shared plans to replace the 757. United, however, is a major, influential customer, and its impatience is notable.

However, there's still a chance that the airline will purchase whatever replacement Boeing eventually puts forward. The new order “is not intended to replace our 757-300 aircraft,” chief commercial officer Andrew Nocella said on Monday during an embargoed media briefing. “We’ll make the decision as to what the optimal replacement for that jet is at a later date.”

Bottom line

United's aircraft order is the first big moment of growth we've seen in the airline industry since the pandemic began, and it reasonably has lots of people excited.

Despite United's splashy events for media, employees and investors, and the pomp surrounding the airline's branding efforts and the order, the airline industry is still very much in recovery mode. United hopes to make its first profit since February 2020 this month, and despite a sooner-than-expected nascent return of business travel, long-haul international travel — crucial to United's business model — remains a long way off.

Still, this week's news may be the first sign of what we can expect as the world shrugs off the pandemic and begins to move again.