Despite Huge Fourth Quarter And 2020 Losses, United Airlines Tries Talking Positively. That’s A Tough Sell

United Airlines said late Wednesday that it lost $1.9 billion in the fourth quarter and $7.1 billion for all of pandemic-plagued 2020. But it softened that blow by adding that it now foresees the company topping its pre-pandemic profit performance of 9.94 % in terms of adjusted EBITA (Earnings Before Interest, Taxes and Amortization).

Unfortunately, United won’t meet even that rather ho-hum earnings goal at least until the end of 2023 – nearly three years from now. And it’ll do that only if the big airline’s expectations of a recovery slow-building recover are met. Between now and then, United expects to continue seeing weak demand through at least the first half of this year, with passenger demand rebuilding slowly throughout the rest of 2021 and all of 2022.

United is the second big U.S. airlines report its fourth quarter and year-end 2020 financial results. Atlanta-based Delta reported last week that it lost $755 million in the quarter and $12.3 billion for the full year.  The pair of big carriers based in North Texas – American (Fort Worth) and Southwest (Dallas) are to report on Nov. 28^th along with Seattle-based Alaska Airlines, the nation’s fifth-largest carrier.

Chicago-based United saw its fourth quarter revenue shrink by 69% from the fourth quarter of 2019 to just $3.4 billion while its full year revenue declined 64.5% to only $15.4 billion. Its capacity, measured in available seat miles fell 56.8% in the fourth quarter from 2019’s fourth quarter capacity, and its full year 2020 capacity was down 56.9% from its full year capacity in 2019. But while that decline, mean to reduce costs in light of the extraordinarily drop in travel demand once the pandemic began last spring, still failed to keep up with the drop in demand. Passenger miles flown in the fourth quarter were down a staggering 70.9%, while full year passenger traffic was off 69.1% event though traffic didn’t begin dropping in response to the coronavirus until March 2020.

The fourth quarter loss, equal to $6.39 a share, was about 8.3% worse than analysts had been expecting, on average. But in the current, unprecedented industry circumstances carriers’ per share performance vs. analysts’ published expectations is less important than in normal circumstances. Still, United shares fell about $1.50 in after hours trading in response to the announced results. The direction of the stock today could hinge on what CEO Kirby and other top United officers say when they meet this morning with analysts and reporters via conference.

In Wednesday’s announcement Kirby tried to sound several positive notes.

• United reduced what it calls its fourth quarter “core” cash burn to “only” $19 million a day vs. about $25 million a day in the third quarter. It’s actual cash burn per Generally Accepted Accounting Practices fell to $23 million a day. But that does not count another $10 million in cash per day it spent in the fourth quarter to cover its principle payments on its debt, and to cover its worker severance in the fourth quarter. The company ended 2020 with $19.7 billion in available liquidity after taking on more than $26 billion in debt and new equity in 2020. It also ended the year with 21,500 fewer people on its payroll than it began the year with.
• United has identified $1.4 billion of annual cost savings over the preceding nine months, savings that it expects to be permanent. The company also says it “has a path to achieve” an additional $600 million in permanent structural cost reductions, taking the total in structural cost savings in response to Covid-19 to $2 billion annually.
• The airline has resumed performing heavy aircraft maintenance and engine overhauls, work it had put largely on hold in response to the pandemic and resulting collapse of passenger demand. The company said resuming such work is essential if United is going to be ready to capitalize on the demand recovery it expects to begin slowly building in the second half of this year.

Still, United now expects to see first quarter revenues to be down between 65% and 70% vs. the first quarter of 2020 when only one month, March, was impacted by the pandemic. First quarter capacity will be down at least 51 percent this year, the company added. Capacity and demand comparisons should get a lot easier in the second quarter and thereafter. Yet comparisons against 2019, the last full year not impacted by the pandemic will remain extremely difficult through at least the first year. Like other carriers, United is hoping to see some modest signs of improved demand by summer. But unlike Delta, which last week repeated expectations that it’ll turn cash flow positive by the beginning of summer, and that it has a shot at being profitable in the third quarter and second half of the year, United officials have not been that optimistic publicly.  

Yet, the smidgen of optimism expressed by United and, last week, by Delta leaders is somewhat at odds with what some of the more esoteric numbers tracked by carriers. In United’s case, while its passenger revenue was down 69% in the fourth quarter, it’s yield was off 16.6%. That means that not only is demand way, way down, but also that those who are flying are paying considerably less – 16.6% on average – to do so. That’s likely the result of two factors. One is a severe lack of demand among business travelers, whose willingness to pay higher prices for better seats, more services and greater flexibility (buying fully refundable tickets closer to their travel dates vs. the non-refundable tickets bought days or weeks in advance of travel that leisure travelers typically buy. The second is significantly lower prices paid for those non-refundable advanced purchase tickets favored by leisure travelers.

Those circumstances leave United and most other conventional carriers very vulnerable to losses until demand among business travelers picks up substantially. And analysts suggest that until nations lower or remove their restrictions on international border crossings, big businesses begin bringing their employees back into their offices instead of having them work from home, and hotels, restaurants and other services used by business travelers reopen a real a real recovery in passenger revenue will not begin. Hopes are that with widespread distribution of Covid-19 vaccines those things will begin happening. But the open questions are how soon will that happen and how much of the lost business travel will return to the market? Estimates of the amount of business travel that will be very slow in returning that will never return because businesses have failed or learned how to succeed with left travel spending have ranged from as low as 15% to as high as 40% of business travel not returning over the next five to 10 years.