A few days ago Delta Air Lines reported its third quarter results, which were rough. Well, now United Airlines has reported its third quarter results, and they’re… well, bad as you’d expect given circumstances, but not as bad as they could be.
In this post:
United claims it outperformed American & Delta
Let’s start with an interesting claim from United — United expects that its third quarter revenue performance will be the best among its large network competitors, even though not all results are in yet.
The claim is that by almost any revenue measure, United had stronger third quarter result than competitors, based on a year-over-year comparison. United cites the following aspects of its performance, suggesting that other airlines did even worse:
- Total unit revenue was down 26% year-over-year
- Passenger unit revenue was down 47% year-over-year
- Cargo revenue was up 50% year-over-year
- Loyalty revenue was down 45% year-over-year
I suppose that’s a smart way to start reporting financial results at a time like this — “hey, we might have had our worst quarter ever, but at least we did better than the other guys.” Fair enough.
United claims it performed better than American and Delta
United’s third quarter in numbers
More concretely, how did United do in the third quarter? Here are some of the most interesting stats:
- The airline reported a net loss of $1.8 billion, and an adjusted net loss of $2.4 billion
- The company ended the third quarter with $19.4 billion in liquidity; the company improved liquidity in the third quarter through leveraging the MileagePlus program for a loan, a sale leaseback transaction on some planes, and more
- In the third quarter United was down to $21 million in daily cash burn plus $4 million of debt principal payments and severance payments per day, compared to $37 million and $3 million in the second quarter, respectively
- Operating expenses were reduced by 59% compared to the same period last year, and excluding special charges they were reduced by 48%
- Passenger revenue was down 84% year-over-year
- Total operating revenue was down 78% year-over-year, on a 70% decrease in capacity
- United had an average load factor of 47.8%, including 54.4% on domestic flights and 34.7% on international flights
United’s average load factor in the third quarter was just under 50%
Bottom line
All US airlines are going to be reporting huge losses for the third quarter, which is expected. Admittedly United wants us to believe its results are significantly better than those of competitors, and it’s what United leads with in the press release about third quarter earnings.
By many metrics that’s actually the case, though. Like it or not, United’s management started planning for the worst from day one of the pandemic. Unlike Delta, United didn’t block middle seats and wasn’t concerned about optics. Unlike American, United didn’t try to capacity dump, which was a strategy that was quickly aborted.
I’m not surprised to see United doing a bit better by some metrics than competitors. That being said, I’m not sure United is actually positioned that well long term. Historically where United has really stood out among the “big three” is with its international long haul route network. With border restrictions and business travel being greatly reduced, the airline has a tough road ahead…
What do you make of United’s third quarter results?
It’s all about opening up intercontinental travel. Both the USA and Europe have opened travel internally. In both areas infection figures are high, but there is no evidence that this is due to air traffic. Actually, I’m only aware of one superspreader event on a plane (a charter flight from Greece to the UK), but there is a long list daily of private parties, bars, churches etc. Apparently the measures taken by the airlines are...
It’s all about opening up intercontinental travel. Both the USA and Europe have opened travel internally. In both areas infection figures are high, but there is no evidence that this is due to air traffic. Actually, I’m only aware of one superspreader event on a plane (a charter flight from Greece to the UK), but there is a long list daily of private parties, bars, churches etc. Apparently the measures taken by the airlines are successful, so the ban should be reviewed and revised.
If the load factors don't improve by the first quarter of 2021 -- more layoffs unfortunately and more streamlining will be on the menu
@Tim, great summary. I was also perplexed by UA's approach to their loss announcement. 1st place in the contest of quarterly losses isn't really much to be bragging about.
If I were a stockholder, I'd be more interested in how the company is re-structuring to come out on the other side of this storm, better positioned to compete and win. And what are they doing to endear their brand with customers? What are they...
@Tim, great summary. I was also perplexed by UA's approach to their loss announcement. 1st place in the contest of quarterly losses isn't really much to be bragging about.
If I were a stockholder, I'd be more interested in how the company is re-structuring to come out on the other side of this storm, better positioned to compete and win. And what are they doing to endear their brand with customers? What are they doing to endear their company with their employees? Those are the things I'd want the chief bragging about, not how much better the crappy (quarterly loss) meal tastes versus the competition's crappy meals. :-)
Been saying since day 1 consumers care about prices and convenience way more than the theater of a blocked middle seat...
@Brian and @Roberto,
DAL's operating revenue even absent its refinery was higher; all UAL did was give up passenger revenue and carry it as cargo. DAL's "other revenue" was more than twice UAL's and likely included a larger amount of revenue from its maintenance contracts.
In reality, any airline that tries to brag about fractional differences of negative is beyond childish given the current industry worst situation.
What does appear to matter is...
@Brian and @Roberto,
DAL's operating revenue even absent its refinery was higher; all UAL did was give up passenger revenue and carry it as cargo. DAL's "other revenue" was more than twice UAL's and likely included a larger amount of revenue from its maintenance contracts.
In reality, any airline that tries to brag about fractional differences of negative is beyond childish given the current industry worst situation.
What does appear to matter is that Delta said it is carrying 33% of industry corporate revenue, the highest it has ever carried.
It is good news (and not a surprise) that air travel is not a source of covid spread and science is beginning to confirm that.
However, no one wants to take any more chance than they need to and DL and WN's seat blocking policies add a level of space for reasons that extend just beyond covid. Still, Delta said its corporate clients said that the number one criteria for flight selection right now is seat blocking.
Neither DL or UA (the only two carriers that have reported) are coming anywhere near close to filling the amount of seats they are willing to sell. DL and WN are using low load factors to provide extra space that is attractive for lots of reasons.
Because of seat blocking, Delta and Southwest are able to operate more flights on larger aircraft, creating a larger network.
United's strategy of selling every seat has resulted in fewer flights and a smaller network proportionately than they have had competitive with Delta and Southwest.
Competition is flooding into United's markets - but that is not happening with Southwest or Delta.
United might gain a very short-term statistical advantage now but at a much higher price long-term.
Giving credit where credit is due, UA kicked DL & AA’s ass on cargo flights.
Did anyone actually pay attention to cargo revenue? Filling middle seats is pocket change compare to how well United has deployed their 787/777’s for cargo.
@endre per a DARPA/DoD/United study middle seat blocking isn't necessary. With masks, cabin airflow, and HEPA filters there is only a 0.003% chance of a particle (virus) going from one person to another, even in a long haul flight.
https://twitter.com/united/status/1316725636199784449
https://www.ustranscom.mil/cmd/docs/TRANSCOM%20Report%20Final.pdf
Curious if you've seen various influencers sharing the results of a recent United/Dept of Defense study claiming masked passengers would need ~54 consecutive hours on a flight to potentially get an infectious dose.
Looking forward to reading the more detailed study findings, but surprised I haven't seen other airlines/travel accounts promoting the seemingly favorable findings so far.
@George Delta is blocking through January 6th at minimum.
Scott Kirby is still trying to compensate for a string of strategic misfires against Delta that Kirby and United have suffered.
- Kirby while at USAirways himself orchestrated the Delta/USAirways DCA/LGA slot swap that, net-net, gave Delta 1/4 of the slots at LGA for $60 million since the DOJ required AA-US to divest approximately as many DCA slots as part of the AA-US merger that it gained from DL as part of the slot...
Scott Kirby is still trying to compensate for a string of strategic misfires against Delta that Kirby and United have suffered.
- Kirby while at USAirways himself orchestrated the Delta/USAirways DCA/LGA slot swap that, net-net, gave Delta 1/4 of the slots at LGA for $60 million since the DOJ required AA-US to divest approximately as many DCA slots as part of the AA-US merger that it gained from DL as part of the slot swap.
- When UA decided it wanted to leave JFK, it entered into a slot swap with Delta. The DOJ blocked the United/EWR slot gains but Delta was able to go ahead with its side of the transaction involving gaining JFK slots. The FAA later dropped slot restrictions at EWR which led to a flood of new competition including, most recently, B6' massive buildup that includes EWR-LAX and -SFO. Kirby is now pushing a return to JFK which will undoubtedly involve JFK to LAX and SFO in a move that will almost certainly lead to Delta adding EWR to the west coast. Delta will still serve EWR to its hub markets, a move United can't duplicate at JFK.
- In Asia, United pushed with ANA to reopen HND just enough to let US carriers increase their access to the close-in airport but not enough to allow DL to move its hub from Narita. DL ended up with the most slots at Haneda of any foreign airline, most of which are not being used for any airline right now. UA/NH and AA/JL are trying to push a dual Tokyo hub strategy which will be even more difficult to make work in the covid recovery world. DL doesn't have to worry about NRT and has the best access on its own metal to HND.
- Delta shifted its Asia connecting capacity to Seoul with Korean where both already had more flights to the US from Korea and Japan than UA/NH and AA/JL. That was true before covid and is true right now.
- UA had an advantage over Delta to China but the Chinese government's covid restrictions have resulted in UA and DL having the same number of flights right now.
and despite UA's attempts to make itself look good compared to DL (no one believes the comparison really involves AA), it is B6 and WN that are engaging in a full-scale assault of UA's EWR, ORD, IAH and DEN hubs with new service which will most certainly result in UA being forced to add flights to protect its turf, resulting in lower revenue comparisons, or UA can cede market share to WN and B6 - and lose market share and pricing power which will probably happen regardless of what UA does.
Kirby at best is focused on fractional advantages of very bad in a single quarter's worth of revenue statistics when UA didn't even outperform DL on other metrics including total operating revenue, debt service expense, and passenger yield change. More importantly, it is carriers other than Delta, for now, that will pose a far bigger medium and long-term threat to UA's finances than Delta.
Probably most of the gain is coming from UA packing planes to the gills. I think you will soon see DL and WN reversing course of blocking middle seats. They aren't going to get a revenue premium for doing so.
The middle seat blocking has been proven to be mostly theater; in other words, perhaps more effective than doing absolutely nothing at all, but not meaningfully safer. I'm sure certain people "feel" better about it, but not in a way that is impacting consumer habits.
United sees an opportunity to recapture some of the domestic share it ceded early in the last business cycle in favor of cost-cutting (in preparation for a merger) and chasing...
The middle seat blocking has been proven to be mostly theater; in other words, perhaps more effective than doing absolutely nothing at all, but not meaningfully safer. I'm sure certain people "feel" better about it, but not in a way that is impacting consumer habits.
United sees an opportunity to recapture some of the domestic share it ceded early in the last business cycle in favor of cost-cutting (in preparation for a merger) and chasing international. There will be an opportunity to leapfrog competitors if the company is managed effectively. Time will tell...
So it's not just their passengers they are beating now.
>>>Unlike Delta, United didn’t block middle seats wow, I would be proud of money over health too. Does middle seat blocking helps to prevent the spread of this crap? I don't know, but looks like that clearly they didn't give a sh*t about it.