United Airlines is setting expectations low for its shareholders as it plans for no net passenger revenue for the rest of 2020 and into 2021. The remarks were made by the airline’s president Scott Kirby during an earnings call this morning.
At the forefront of sounding the alarm
The previous day, the US carrier released its first-quarter 2020 financial results. The picture was grim yet to be expected. Reported was a net loss of $1.7 billion. This was adjusted net to $639 million when excluding special charges, nonoperating credit losses, and unrealized gains and losses on investments.
We have been at the forefront of warning how deep of an impact we expect this crisis could have and how long we expect it could last. We’ve also led the industry in taking decisive steps to mitigate the operational and financial impacts of COVID-19 — making deep schedule reductions, drastically reducing spending and aggressively raising liquidity,” -Oscar Munoz, Chief Executive Officer
The company also reports that it is expecting its daily cash burn to average between $40 million and $45 million during this second quarter of 2020. Currently, the rate of cash burn per day is $50 million, but View From The Wing reports that the airline will bring it down by doing the following:
- Stopping 200 real estate projects, and have fewer than five remaining.
- Ceasing all United Club investment at Chicago O’Hare, Washington Dulles, and Newark.
- Simplifying their onboard product (food and beverage), saving $30 million.
- Saving $45 million on airport vendors by reducing hours and having United employees take on the work.
- Reducing promotional spending by $60 million.
- Putting a stop to 300 technology initiatives.
Everything is on the table
According to the airline’s president, Scott Kirby, “everything is on the table, while we do not have plans to close hubs when we say everything is on the table [and] we mean everything, there are no sacred cows.”
Through United’s previous public statements, yesterday’s financial results, and this morning’s earnings call, it really sounds like the company is preparing its shareholders and the public for absolutely anything. This makes absolute sense as so much uncertainty looms for the entire industry, not just for the next few months but for the next few years. Many airlines predict that pre-pandemic levels of travel won’t be seen until 2023.
However, these sentiments can’t even be taken as guarantees as new treatments, or a vaccine release could expedite widespread recovery. On the flip side, subsequent waves of outbreaks could slow things even further.
What United is fighting for
In a word, United is fighting for its very survival. In better times, it might make decisions to appease customers or satisfy shareholders. However, at this time, slashing all non-essential costs is paramount to making sure there is still an airline left to serve passengers when the crisis ends – which is something shareholders can also appreciate.
“While we are still in the midst of this crisis, we will not hesitate to make difficult decisions we believe will ensure the long term success of our company. When demand returns, we believe we’ll be positioned to bounce back strongly and quickly because of our early and aggressive efforts to fight the worst financial crisis in aviation history.” -Chief Executive Officer, Oscar Munoz
This may lead to disappointment for the few travelers still in the air these days as they will have a far more basic flight experience than they are used to. From a halt to United Club investment to the simplification of their onboard product, United passengers should expect a lot less. Hopefully, this will be for a shorter time than expected, but it’s anyone’s guess at this point.
Do you think United will recover faster than it expects? Let us know your thoughts in the comments.