Over the past couple of weeks some major US airlines have reported their first quarter results, including American Airlines, Delta Air Lines, and Southwest Airlines.
While we got a hint of what United Airlines’ first quarter results would look like last week, the airline has now revealed their full first quarter results.
In this post:
United Airlines reports $1.7 billion loss
United Airlines has announced a net loss of $1.7 billion for the first quarter, with an adjusted net loss of $630 million. This compares rather unfavorably to the ~$300 million profit that the airline recorded over the same period last year.
As you can see, about $1 billion of the losses were special charges, which included the following:
- A reserve on a loan United made to Avianca as part of a larger Latin American alliance
- United wrote down the value of investments in Brazil’s Azul
- United took a $50 million impairment charge for routes to China
United Airlines lost about $100 million in revenue per day in the last two weeks of March compared to the previous year. That’s significant, though with the number of flights they cancelled, at least their costs are down somewhat as well (though not nearly proportional to the losses in revenue).
How does that adjusted $630 million loss compare to other airlines?
- American had a $1.1 billion loss
- Delta had a $326 million loss
- Southwest had a $77 million loss
Not surprisingly, it was a tough quarter for airlines
United improves liquidity, expects to burn through cash
The bad news is that United is expecting to burn through an average of $40-45 million per day throughout the second quarter of 2020. At least that’s less than they were burning through in the past (on a per day basis), but chances are this could last for a while.
The good news is that the airline has greatly improved liquidity. United has about $9.6 billion in liquidity, including $2 billion under an undrawn revolving credit facility.
Expect the second quarter to be much worse
If you think the first quarter results are bad, expect the second quarter to be much worse. The reality is that it’s only the tail end of the first quarter where demand really plummeted.
The first quarter ended on March 31, and data shows that passenger traffic in the US really only started decreasing materially as of early March (this is based on the number of travelers passing through TSA checkpoints):
- On March 1, passenger traffic was roughly comparable to last year (within 1%)
- On March 16, passenger traffic was less than half compared to the same day last year
- On March 26, passenger traffic was less than 10% compared to the same day last year
- On April 5, passenger traffic was less than 5% compared to the same day last year
Signs so far for the second quarter aren’t looking good:
- United saw a 97% drop in passenger traffic in the first two weeks of April; last year they had over six million travelers during that period, while this year they had under 200,000 travelers
- United is reducing capacity by 90% in May and June
- United expects to fly fewer people in all of May 2020 than they flew in one day in May 2019
Expect the second quarter to be much worse
Bottom line
United Airlines is reporting a $1.7 billion loss for the first quarter of 2020, though about $1 billion of that is special charges. Only the last third of the quarter was truly destroyed operationally, so I can only imagine how bad United’s second quarter is going to be.
Corporations do not exist to make customers happy; that is a possible byproduct of their efforts to make profits, and unless society determines that a service is a necessary public good, even operating at a loss, anything worth doing is worth doing for profit. Stock buybacks are tax-efficient returns of capital to shareholders. Would you rather see a return regulated fares with expensive tickets? Then you'd probably be crying that airlines were elitist. Force fares...
Corporations do not exist to make customers happy; that is a possible byproduct of their efforts to make profits, and unless society determines that a service is a necessary public good, even operating at a loss, anything worth doing is worth doing for profit. Stock buybacks are tax-efficient returns of capital to shareholders. Would you rather see a return regulated fares with expensive tickets? Then you'd probably be crying that airlines were elitist. Force fares to be lower and you will see a commensurate decline in quality of service. We most definitely do not have a capitalist system, but don't hate the player; hate the game. As for the pandemic being a black swan no one could have foreseen or planned for, why did Bush 43 work so hard to prepare the US for an influenza pandemic? Were SARS, H1N1 and MERS not warning enough? Now is not the time to mete out punishment for irresponsible behavior, however. If socializing losses ends up costing less than letting businesses fail, it might be the better path to take, as unfair as that might seem. Citizens have demonstrated repeatedly that they don't want to pay the full price to get what they want, be it with airlines or Social Security. Nothing is free and everyone's life has a price. What do you think a wage or salary is? Let governors open up their states as they see fit and allow people to make their own decisions about the potential risks (which have been vastly overstated by the media). People are already allowed to kill themselves slowly though poor life choices (which, incidentally, increase the risks of death from COVID-19). If you are afraid of getting sick, you are free to stay at home. Don't force your timidity upon others.
I’m just one of those employees making one dollar at a time...
What’s the difference between the airlines the hotels the movie industry the sports industry ever get taken at the doctors office?? Well we could go on your arguments are pointless.
@Eric: I have to disagree. I don’t read this blog to travel for cheap. Maybe you find that your reason. I find the reviews on service, food, seats, etc much more enlightening. As far as the “flying cheap” I have only once jumped on a low priced fare communicated here and once used fewer miles on an award ticket that was highlighted. But for me, and probably many others, the reviews and analysis on credit card spend is of more value than highlighting cheap flights.
Never fly United again, now that they have shown their true faces.
Screwing their customers during a crisis will certainly not get them repeat business in the future.
Hope United sees the same fate as TWA and Pan Am. Time for you bastards to go bankrupt.
@Ben
Your figure for Delta’s adjusted net loss is not correct. It should be $326m, not $534m. Delta’s $534m loss is the GAAP net loss which is the equivalent of UA’s $1.7B number.
@Jason - The whole point of this blog is to travel for cheap. If you want to pay, why are you here? And the fortunes of United are tied to their leadership and this unfolding crisis. No one wants to see anyone lose their job, but United as a company has brought this hatred on themselves.
I’m sorry- if you honestly think you should be spending less than $600 to fly roubdtrip cross country then you honestly don’t understand economics.
And seriously- 100,000 people work for united airlines. It’s disgusting to see how awful and heartless people- gleeful I’m seeing that 100,000 people are seeing their livelihoods disappear. Gross
"because we wanted to continue buying tickets at historically low prices"
Maybe you're right but it doesn't match my experience. Not that long ago you could fly from DC to the west coast for $250 - $350 RT. My wife met me once in FRA, RT $400.
The last two - three years west coast trips started at $650 even if purchased well in advance. It wasn't unusual to pay that same amount...
"because we wanted to continue buying tickets at historically low prices"
Maybe you're right but it doesn't match my experience. Not that long ago you could fly from DC to the west coast for $250 - $350 RT. My wife met me once in FRA, RT $400.
The last two - three years west coast trips started at $650 even if purchased well in advance. It wasn't unusual to pay that same amount to MKE. FRA was anywhere from $800 - $1,600, all in the comfort of 10 across Y. The planes were almost always full. The airlines could name their price.
It looks like United needs to get people back on its planes ASAP. I bet they're trying to think of ways to show the most likely group to show up - their frequent fliers - some ways to express their appreciation and gratitude, and encourage them to fly again with great customer service and a solid loyalty program.
Oh wait...
A bit sad on its face - but when they pull this BS on partner PQPs this week along with pulling award charts and an immediate 10% mileage raise, and have the gall to mail 1Ks today acting like they care...I'm now actually happy!
Karma is a b!tch.
God some people are heartless on this forum
Hope Dr. Dao, the man that was dragged off a UA flight took the all cash settlement option vs. payments for many years as I think we may have several US airlines about ready to declare bankruptcy around November or December, things are not going to return to normal for years!
@MS: How is this in any way karma? Even if the airlines didn't use the tax cuts for stock buybacks, they still would be in financial trouble from a crisis they in absolutely no way caused. They are victims just like everyone else on the planet. None of the airlines could have a rainy day fund large enough to make it though this nightmare, especially when there is no end in sight. If it was...
@MS: How is this in any way karma? Even if the airlines didn't use the tax cuts for stock buybacks, they still would be in financial trouble from a crisis they in absolutely no way caused. They are victims just like everyone else on the planet. None of the airlines could have a rainy day fund large enough to make it though this nightmare, especially when there is no end in sight. If it was a situation they were involved in, yes it would be karma. But none of this is their fault.
How much is / will be counted in losses for planes that are retired early?
Will the smaller UAL be more efficient because the old planes are written off now, cheap fuel for the next few quarters?
Karma my friends, Karma
Also, when you burn $100MM/day, as has been stated by UA before, and you don't have much incoming $$$, you can do the math as to how long that lasts
@Jason
Cash on hand doesn't mean a healthy balance sheet, which is a combination of many things.
The issue airlines face right now is liquidity, where an extra billion might make a difference. It's not how much cash on hand but how much you go through those cash.
This isn't a complex finance issue but business 101.
Think of it this way, it doesn't matter how much you owe the credit card company...
@Jason
Cash on hand doesn't mean a healthy balance sheet, which is a combination of many things.
The issue airlines face right now is liquidity, where an extra billion might make a difference. It's not how much cash on hand but how much you go through those cash.
This isn't a complex finance issue but business 101.
Think of it this way, it doesn't matter how much you owe the credit card company as long as you pay your bills on time. If you maxed out, you can't put more charge in it. If you don't pay, they come and seize your stuff. If you have nothing left for them to collect, you go bankrupt.
Same thing with airlines.
@Michael
"looks like they took the opportunity to push through some other write-offs that have a non-cash impact"
Where is your source?
As of yours and mine posting time, UAL didn't officially release any of their financials yet.
@Jeff:
"United Airlines Holdings Inc cash on hand for the quarter ending December 31, 2019 was $4.944B, a 25.16% increase year-over-year."
I'm far from a finance guy but that sounds like a healthy balance sheet. Would another billion in cash have made a difference? I'm being honest when I say that I don't know the answer.
No doubt they lost a lot. Did they add more losses in by accelerating some expenses to make it look worse to make a bigger case for federal money and for overall sympathy and support. It also legitimizes other cutbacks.
I am far more disheartened by the toll this pandemic is taking on the world, in deaths and illnesses, financial wipe-outs for small business who can not get a PPP bailout. UA, nor AA, WN or the rest of the travel industry saw this coming. Corona is not a learning exercise in misery as revenge for bag fees, tight seat pitch, et.al. it's a damn virus taking its toll on us all. I feel for...
I am far more disheartened by the toll this pandemic is taking on the world, in deaths and illnesses, financial wipe-outs for small business who can not get a PPP bailout. UA, nor AA, WN or the rest of the travel industry saw this coming. Corona is not a learning exercise in misery as revenge for bag fees, tight seat pitch, et.al. it's a damn virus taking its toll on us all. I feel for @Mike as a UA employee and for my fellow shareholders as well. I even feel for those of us looking forward to a great holiday which is not to be or traveling to their next meeting which might have had great potential. Maybe it's time to show some empathy for those who have a lot more to worry about than a Damn bag fee which could have been avoided with a credit card application.
I hate to defend a bunch of overpaid oligarchs, but all the corner-cutting, fees, etc. were because we wanted to continue buying tickets at historically low prices. The airlines are in a high fixed cost business, which also has high operating costs - so razor thin margins which drives the nickel and diming. Perhaps they should have held more cash from the good years, but the global collapse of air travel was a pretty unforeseeable event.
"No bail out, in my opinion. Let them go through reorg under Chapter 11 and hope that they will learn a lesson or two."
And what lessons are those?
What decisions could they have made to stop a global pandemic from literally grounding every airline in THE WORLD?
how will DL write down the investment?
As an accountant, it looks like they took the opportunity to push through some other write-offs that have a non-cash impact and knew they could not be punished by the market given everything else that is going on.
This is most unfortunate for those of us who work for United. I am so fearful of what's coming for our jobs.
The sad part is 1st quarter EBIT will be the highest of the year.
Now lies the problem.
Estimates of UA Q1 loss isn't even near $2.1B. That means what ever bailout airlines got, will likely not be enough (depending on cash too). So expect even more bailout until Trump gets re-elected.
... toilets ( lavatories ) so tiny the average sized person can't maneuver around to have a BM properly and wash hands properly ... water and urine all over the floor ... all in the name of squeezing more seats in. What a shame --
No bail out, in my opinion. Let them go through reorg under Chapter 11 and hope that they will learn a lesson or two.
I feel so sorry for these poor bastards, I guess extra charges for everything a passenger needs was not enough. Hard to have sympothy for these greedy money grubbers who screw customers over at every chance they can. Let them go under for all I care. It's Karma and they deserve it but the CEO will still make his 29 million bucks this year I bet
The "what goes around, comes around" for wonderboy Scott Kirby??
Wow, this is unfortunate, but not wholly surprising. If this was UAL's loss, I cannot imagine what AAL's loss will be, the most highly leveraged airline out there.
It will certainly be interesting as usual to see how UAL, AAL, LUV and DAL fair accordingly. I expect LUV and DAL to fair somewhat 'better' and AAL to be the worst performers.