United Airlines scaling way back
Carrier sees 2Q revenue dive 87%, plans steep trims in 3Q
United Airlines Holdings Inc. will reduce its average daily cash burn, or cash use, to $25 million in the third quarter from $40 million in the previous three-month period, as the company braces for a choppy recovery from the coronavirus pandemic.
United, which started the year with 96,000 employees, said Tuesday that 6,000 have volunteered to take severance packages and leave. Last week, the airline warned 36,000 employees that they could be furloughed in October, when federal payroll aid expires at the end of September, although executives said they expect the final job-loss number to be smaller.
The company said it lost $1.63 billion in the second quarter as revenue plunged 87%, from $11.4 billion to less than $1.5 billion, and it will operate at barely over one-third of capacity through September as the coronavirus slams air travel.
Chief Executive Officer Scott Kirby said United cut its cashburn rate below its closest rivals by shrinking its schedule to meet lower demand and cutting costs across the company. In a statement, he said the moves “positioned United to both survive the covid crisis and capitalize on consumer demand when it sustainably returns.”
Investors will have to wait for United to provide more details about the quarter and the outlook today, when executives hold a call with analysts and reporters.
Air travel in the U.S. plunged starting in March, hitting bottom in mid-April at just 5% of the year-ago traffic. The U.S. government stepped in with $25 billion in assistance for airlines.
A slow partial recovery stalled in recent weeks as reported cases of coronavirus surged in many states, particularly in the South and West, and Northeastern states imposed quarantines on visitors from much of the country.
Airline bookings flattened, with United’s hub airport in Newark, N.J., being especially hard hit.
Investors have turned their attention to what airlines are doing to raise more cash and cut spending to make that money last as long as possible.
United said it began this week with $15.2 billion in available cash and expects to boost that to more than $18 billion by the end of the third quarter. The airline has mortgaged its MileagePlus frequent-flier program and agreed to a $4.5 billion secured loan from the Treasury Department, although executives say they might not draw on the government loan. That is on top of $5 billion in taxpayer money to keep workers on the payroll through September.
As a benefit of flying less, United chopped its fuel bill by 90%, saving more than $2 billion. Labor costs were lower by nearly $900 million.
The shares closed up 2.29% at $33.07 Tuesday in New York trading.
Underscoring the crisis, United recorded an adjusted loss of $2.6 billion for the three months ending June 30, which the carrier described as “the most difficult financial quarter in its 94-year history.” A year ago, the company posted a profit of $1.05 billion.
Delta Air Lines Inc. last week reported a record loss in the second quarter. American Airlines Group Inc. and Southwest Airlines Co. report earnings Thursday.