Northwest Arkansas Democrat-Gazette
United shares drop after weak forecast
United Airlines officials said Thursday that travel will recover from the pandemic, but they just don’t know when, and investors appeared to punish the airline for that doubt and a cautious outlook for early 2021.
The comments came one day after United reported a $1.9 billion loss in the fourth quarter, slightly worse than expected. United also gave a slightly more pessimistic first-quarter outlook than rival Delta Air Lines did just last week.
The January-through-March period is a slow time for air travel even in normal years, but United said firstquarter revenue will be down 65% to 70% from a year ago.
That prediction was five percentage points worse than Delta forecast and implied no real improvement over United’s fourth quarter.
United lost $7.1 billion in 2020, an amount exceeded only in 2005, when bankruptcy-related costs pushed the company to a $21 billion loss. Including debt and severance payments, the airline burned through $33 million in cash per day.
Revenue plunged 69% in the fourth quarter compared with a year earlier. United predicted a similar decrease — between 65% and 70% — in the first quarter of this year, a slightly more pessimistic view than the one expressed by Delta Air Lines last week.
Delta said it will reach break-even in the second quarter. Both airlines are cutting costs while waiting for widespread vaccinations against covid-19 to make people feel safer about flying.
United Chief Executive Officer Scott Kirby downplayed the importance of short-term predictions about travel demand.
“I know we have created a fair bit of angst among investors by not being willing to say that we think the inflection point on demand is right around the corner, 60 days away,” Kirby told analysts. “The turning point is coming, and while our base case is that the turning point is coming a little bit later than maybe some others think, that turning point is coming, and it’s going to come at the same time for all airlines.”
Shares of Chicago-based United Airlines Holdings Inc. fell 5.73% to close at $42.59 in New York, while Delta and other major U.S. airline stocks were down between 2% and 3%.
Rising rates of new virus cases, the slow pace of vaccinations, and the discovery of new variants of the virus have halted a recovery in air travel that started in May and lasted into the fall. Except for around Thanksgiving and Christmas, U.S. air travel has stubbornly remained down more than 60% from a year earlier.
Kirby said travel won’t really recover until “a critical mass” of Americans get vaccinated and medical experts conclude that the shots will protect people from transmitting the virus. When those things happen, he said, “it could be a very rapid increase in demand.”
Cowen analyst Helane Becker said United’s weaker outlook compared with Delta should be expected because several of United’s key markets — San Francisco, Chicago and the New York City area — have been hit harder by travel restrictions. She said United is also more dependent on international travel, which has been particularly depressed.