Despite posting a record $1.8 billion third-quarter loss, executives at United Airlines declared victory Thursday over their closest “legacy” competitors – Delta and American airlines – in what they spoke of as the competition to win the “recovery” from the Covid-19 pandemic that has devastated the global travel industry.
CEO Scott Kirby and other senior United executives took great pains to emphasize in in a phone conference with analysts and reporters their belief that United is “outperforming” its rivals in that its staggering losses are less staggering than those of Delta and American, that its daily cash burn rates going forward will be smaller, too, and that its return to cash-flow break even will be quicker.
Declaring that United has taken the critical steps necessary to be “positioned… to bounce back strongly and on an moment’s notice,” Kirby said, “At United we’ve done what it takes to get us to the other side. Increasingly the light of at the end of the tunnel is visible. We’re now able to turn the page from merely surviving to preparing for the rebound” in travel demand, and especially that of business travel demand.
Kirby added, forcefully, that he expects United to gain business travel market share not only from its domestic rivals but also from its global competitors.
“We’re going to emerge as the world’s No. 1 business traffic airline,” he said.
Kirby and his management team made those and additional provocative and aggressive claims impossible to ignore during the call, and in the company’s third quarter results news release, which was issued late Wednesday. In fact, the release did not get around to mentioning that the Chicago-based airline had a record net quarterly loss of $1.8 billion until the 25th paragraph of the quarterly “earnings” release. It didn’t mention at all, except in the accompanying tabular material that also had a record quarterly pre-tax loss of $2 billion. Nor did United’s leaders – or their earnings release – note that both of those figures are records, or that the performance was worse than analysts had expected. United had been expected to lose about $7.53 a share on an adjusted basis, according to Zacks Investment research, but it’s reported per share loss on that basis was $8.15, a noticeably large 8.4% overshoot.
United’s claims that its quarterly performance numbers were better than those of Delta, which reported on Tuesday, and will be better than American’s number, which will be released Oct. 22, are also debatable. Yes, United’s $1.8 billion loss was somewhat smaller than Delta’s $2.1 billion third quarter loss. But Delta is a slightly larger carrier, and while both continue to have large percentages of their fleet parked and out of service, United’s third quarter capacity was down about 70% from the same period last year while Delta’s capacity was down only around 63%. Those differences and many other disparities in how the carriers deployed their planes and seats, how much revenue they were able to generate, how much maintenance and other costs they chose to defer in the third quarters, and how and when they are choosing to report various special charges related to dramatic reductions in employment and aircraft in their make such comparisons very difficult.
United’s efforts to portray itself as having managed its business better, and to have better positioned itself for an eventual recovery of demand than either Delta or America also conveniently ignores the presence of Southwest Airlines in the competitive equation. Though Southwest, which has a different, much lower cost structure and lacks first class sections and other conventional airline services aimed at business travelers, it is positioning itself to attract more business travelers. Southwest also happens to offer more available seats and flies more available seat miles in the U.S. domestic market than any of the three big conventional carriers against which it competes more furiously.
Most notably, Southwest recently announced plans to launch service at Chicago’s O’Hare Airport and to return to Houston’s Bush Intercontinental Airport. Southwest currently dominates service at Chicago’s Midway airport, closer to downtown Chicago, but always before has avoided serving O’Hare, the nation’s third-busiest airport and a hub to both United and American. And though it years ago had modest service at Bush Intercontinental, a United hub, Southwest always has focused its Houston service on close-in Hobby Airport. Now, by adding service at O’Hare and Bush Intercontinental, and launching that service at both airports on high-value business travel routes, Southwest is serving notice that it plans to steal market share from its conventional rivals, and most especially from United.
During today’s call United officials said their carrier will operate through the end of this year at around 55% of the capacity at which they operated in the same period last year. And though they expect to see slow improvement in demand through the fourth quarter and much of next year, they do not expect a significant increase in the rate of demand growth until a Covid-19 vaccine is available and widely distributed. Kirby said he expects business travel demand mostly to recover during 2022.
“Today is not a shift from pessimism to optimism but confidence about recovery,” he said, emphasizing that he does not expect demand recovery data to grow in a straight line. “We’ve got 12 to 15 months of pain, sacrifice and difficulty ahead. We’ve got a long way to go but I think people will look back and see this as a turning point.”
He added that United’s focus is not shifting from “merely surviving to maximizing the long-term enterprise value of United.”
United officials said they believe their cash burn rate – the daily rate at which they are losing money because revenue falls short of operating costs – will slow considerably in 2021 and that United will be the first of the legacy carriers to return to break-even on a cash basis sometime next year. They added that they no longer are focused as they were earlier this year on their cash burn rate because of the cost and schedule adjustments they’ve made and because of the $16.1 billion in additional liquidity raised so far this year through debt offerings, the sale of stock, and government grants and loans. The company currently has about $19.4 billion in cash on hand and other types of liquidity.
United also said that beginning today it is offering rapid Covid-19 screening tests to passengers departing San Francisco on its flights to Hawaii. If they pass, those tested passengers will be excused from the 14-day quarantine that the state of Hawaii imposes on all travelers arriving in the state. United officials said they are hopeful that over the coming months that type of testing will be expanded and that other states, cities and nations that have similar quarantines or other significant health-related barriers to travel there will adopt Hawaii’s new willingness to reduce or remove travel barriers for those who pass such screenings.