United Expects Revenue To Plateau At 50% Before A Vaccine Improves Demand

United Airlines has provided some guidance as to when it thinks that revenue could significantly return. The carrier, currently focused on preserving liquidity and bringing down its average daily cash burn, is looking to the future and charting out what it believes revenue will look like over the next year. Today, on United’s second-quarter earnings call, the carrier outlined that it anticipates revenue to plateau at 50% of 2019’s levels before meaningfully improving once a vaccine is available.

United Airlines
United Airlines believes that revenue will start to recover beyond 50% of 2019’s levels after a vaccine is made widely available. Photo: Getty Images

No significant revenue increases until vaccines are developed

United Airlines is gearing up for a choppy recovery, with no real recovery on the horizon until after there are significant medical advances. In particular, Executive Vice President and Chief Commercial Officer of United Airlines, Andrew Nocella, stated the following on the airline’s second quarter earnings call:

“We do expect that demand recovery, which stalled in recent weeks, will begin to recover again when new cases start to fall, quarantines are lifted, and borders are reopened. However, we continue to believe a full recovery is contingent upon effective therapuetics and a vaccine. Our best guess is demand, as measured by revenue, will recover over time to be down approximately 50% and then plateau at that level until a vaccine is widely distributed.”

United Airlines furlough
United, well regarded for its extensive international network, still believes that its coastal hubs and global presence will be a boon for the carrier. Photo: Getty Images

Currently, United has a lot of room to grow before reaching that 50%. One of the biggest goals is to continue to reduce costs and daily cash burn. Unfortunately, this will lead the airline to become smaller– which could spell bad news for plenty of its employees come October 1st. Nevertheless, the carrier indicated it is still working as hard as it can with its unions and employees to reduce involuntary labor reductions as much as possible.

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When will United see revenues increase beyond 50%?

As for when this will happen, there’s plenty of work left to do. The airline’s new CEO, Scott Kirby, has indicated that there is no clear cut timeline on this. He has outlined the need for vaccine testing, development, and widespread distribution before the airline starts to see revenue grow above 50%. The carrier, however, is planning that would happen at around late next year– although, United remains optimistic that it could happen before that.

United 777
With international demand lagging compared to domestic demand, United is banking on a vaccine to help support its global network. Photo: Getty Images

There are a lot of variables leading up to that. First off, there are no vaccines for the current virus that have entered mass development. Everything is still being tested. Moreover, bringing vaccines to market around the world will likely require more than one successful vaccine– which will also take time. Still, United, and the rest of the world, is hoping that such a development can occur before the end of 2021.

What the airline is looking at now

In the second quarter of 2020, United posted a net loss of about $1.6 billion. There is still plenty of work for the airline to complete going forward. The carrier has to continue to reduce its average daily cash burn while managing reduced passenger demand and stalled growth. Recent developments have led the airline to cut back its schedules for August amid a 45% expected July load factor.

United Airlines Fleet
United has thus far maintained its extensive hubs. Photo: Getty Images

Mr. Nocella stated that United is still working on its September schedule and that passenger revenue in the third quarter will fall approximately 83% versus the second quarter. Before the case spikes, United expected third-quarter revenues to fall by less than 80%. With the end of federal funding coming up soon, United is also planning on becoming quite conservative with capacity growth in the fall.

What do you make of United’s projections? Let us know in the comments!

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