United Upbeat on 2021 Despite $1.8 Billion Q3 Loss

 - October 15, 2020, 12:43 PM
A United Airlines Boeing 737-800 arrives at San Francisco International Airport from Seattle. United began offering Covid testing at SFO on October 15 for passengers flying to Hawaii. (Photo: Flickr: Creative Commons (BY-SA) by InSapphoWeTrust)

United Airlines struck a comparatively positive tone Thursday in characterizing its progress toward recovery from Covid-19, even while reporting a net loss of $1.8 billion during the third quarter. Speaking during the company’s third-quarter earnings call, United CEO Scott Kirby claimed UAL has responded better than any airline in the world to the crisis, noting its expectation of returning to positive cash flow “when the demand environment recovers” and before any network carrier. Carrying $19.4 billion in liquidity at the end of the quarter, the airline does not expect to retire any aircraft in the near future and, according to Kirby, has turned its focus from simple survival to recovery mode.

“As difficult as this crisis has been, at United we’ve done what it takes to get through the initial phase that will get us to the other side,” said Kirby. “As Churchill once said, this is the end of the beginning.”

Kirby’s optimism stems from what he called a successful execution of three “pillars” of recovery identified in March—raising and maintaining liquidity, reducing cash burn, and adjusting the airline’s cost structure to cope with a collapse in revenues.

“We were hoping we’d be wrong about the severity of the crisis,” added Kirby. “But our fact-based, objective approach equipped us to be more realistic and nimble in our response to the virus. We’ll stay flexible, but increasingly the light at the end of the tunnel is now visible.”

Kirby said he has set his sights toward a return to a form of normalcy by around the end of next year, when health experts expect a vaccine to become widely available. Until then, United expects demand to plateau at about 50 percent, following an expected 10 percent improvement during this year’s fourth quarter.

Perhaps the most visible effect of United’s efforts related to its cost structure took the form of a reduction in headcount by more than 40,000, much of that achieved through early retirements and voluntary leaves of absence. Last month the airline’s pilots averted the planned furlough of 2,850 aviators until next summer even as a $25 billion aid package given to U.S. airlines as Covid-19 relief neared its September 30 expiration date. The pilots agreed to work fewer hours and get paid less while remaining in their existing fleet types and ranks, while the airline agreed to an amendment to scope clause limitations for its regional partners that required the removal of six seats from its 76-seat jets and lowered the number of block hours allowed for regional jet flying.

Meanwhile, the October 1 expiration of the federal Coronavirus Aid, Relief and Economic Security (CARES) Act triggered the involuntary furlough of 13,000 other United employees. Also participating in the earnings call, UAL president Brett Hart said despite the expected 10 percent increase in demand this quarter, the airline will maintain a capacity level of 55 percent below that of the same period in 2019, leaving little chance of a callback unless Congress passes an extension of the CARES Act’s Payroll Support Program (PSP).

“We diligently continue to work in close coordination with our union partners to get Congress to extend the CARES Act Payroll Support Program,” noted Hart. “This extension would allow us to bring back U.S. team members we had to furlough upon expiration of the CARES Act’s support on September 30.”