United warns travel demand will languish until COVID-19 vaccine

FILE PHOTO: A United Airlines passenger jet takes off with New York City as a backdrop, at Newark Liberty International Airport, New Jersey, U.S. December 6, 2019.

CHICAGO: United Airlines Holdings Inc warned on Tuesday that travel demand will remain suppressed until there is a widely accepted treatment or vaccine for COVID-19, which plunged the carrier to a deep quarterly loss on Tuesday.

Coronavirus infections are surging in the United States, causing some states to scale back reopening plans and reinstate quarantines in a fresh blow to airlines.

United, which is not blocking middle seats, plans to fly about 35 per cent of its 2019 summer schedule in the third quarter and is forecasting a load factor of about 45 per cent in July. Its planes flew about one-third full in the second quarter.

The setback does not bode well for airline jobs in the fall, when a US government stimulus package expires. To avoid furloughs, airlines have rolled out a number of packages to encourage employees to leave voluntarily.

Chicago-based United said more than 6,000 employees had opted for such packages. But after sending 36,000 notices of potential furloughs earlier this month, that relatively low take-up suggests United might have to furlough a significant number of workers.

Airline unions have urged lawmakers to pass another round of aid through March, but airlines say they are not counting on fresh funds.

Delta Air Lines and Southwest Airlines , which offered cash buyouts, have reported strong employee response for voluntary departures, meaning they could have a less costly workforce on the other side of the crisis since union contracts force airlines to furlough junior workers first.

While early data from trials of three potential COVID-19 vaccines released on Monday was encouraging, it is still far from clear whether the efforts will result in a vaccine capable of ending the global pandemic that has claimed more than 600,000 lives.

With the timing of a recovery uncertain, investor focus has turned to airlines’ cash on hand and their ability to pick up demand once it returns.

United had US$15.2 billion in liquidity as of Jul 20 and reiterated its forecast for liquidity to top US$18 billion at the end of September as it taps additional capital.

The airline burned through about US$40 million per day in the second quarter but sees that amount slowing to roughly US$25 million in the third quarter as it matches its flight schedule to demand.

The airline, which is more exposed than peers to harder-hit international travel, reported an adjusted net loss of US$2.6 billion for the June quarter, or a US$9.31 per-share loss, versus a US$4.21 per-share profit a year ago, as revenue dropped 87 per cent to US$1.475 billion.

Analysts on average expected a loss of US$9.02 per share and revenue of US$1.321 billion, according to data from Refinitiv.

Still, United Chief Executive Scott Kirby said in a statement he believed the quarterly losses and cash burn were lower than large network competitors.

Delta said last week it was burning about US$27 million a day in June and July. American Airlines and Southwest report on Thursday.

Shares of United, which will hold a conference call at 10.30am on Wednesday, were flat after the bell.

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