United Airlines loses ‘just’ $1.6B thanks to steep second-quarter cost cuts

Jul 22, 2020

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United Airlines was among the first to slash flights and warn of a deep downturn for airlines when the coronavirus pandemic took hold in the U.S. in March.

Those early moves, which were matched within weeks by other carriers, appear to have paid off in cutting the Chicago-based carrier’s losses during the three months ending in June. United lost $1.6 billion in the second quarter before special items. That’s not an insignificant amount, but it’s $4 billion better than competitor Delta Air Lines — the only other U.S. airline to report earnings so far.

The notable difference was United’s ability to reduce costs as travellers stayed home en masse to avoid COVID-19. United slashed operating expenses by 69% year-over-year to $3.1 billion. That compares to Delta, which only cut them by 40% to $6.3 billion. Even after taking out Delta’s $2.5 billion in one-time expenses related to the retirement of four aircraft types from its fleet, United still slashed $700 million more from its business.

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“We expect United produced fewer losses and lower cash burn in the second quarter than any of our large network competitors”, United CEO Scott Kirby said in a statement. “We believe [our] quick and aggressive action has positioned United to both survive the COVID crisis and capitalize on consumer demand when it sustainably returns”.

Still, as a whole, the U.S. airlines are expected to wrack up billions of dollars of losses in the second quarter, which many hope will prove to be the worst of the pandemic for travel. The industry flew only about a third of what it flew in the U.S. during the same three-month period in 2019, according to Cirium schedules. Many of those flights were less than half full.

Reducing expenses — or shrinking the business — to fit travellers’ current willingness to buy tickets and fly is the name of the game. United lost an average of $40 million a day in the second quarter and aims to reduce that to $25 million a day in the third quarter.

Related: Delta retires more jets amid shaky outlook, nearly $6B quarterly loss

One bright spot was cargo. United saw cargo revenues jump 36% year-over-year to $402 million during the three months ending in June. Cargo amounted for more than a quarter of the airline’s revenue compared to just 2% a year ago.

While United appears to have lost less than its peers, more cuts are coming. The airline has advised investors that it plans to stop adding back flights in August and hold schedules roughly level through the end of the year. In addition, it has notified some 36,000 staff members — nearly half of its U.S. workforce — of possible furloughs beginning in October.

And despite the conservative forecast, United has not unveiled plans for permanent changes to its fleet. The airline has only confirmed plans to put its premium Boeing 757-200s — those with 28 business-class seats — and its Boeing 767-400ERs in long-term storage.

In a report Tuesday, Cowen analyst Helane Becker said United’s results were better than consensus, but added that the airline must address its “bloated fleet, where aircraft retirements are a necessity”.

Any aircraft retirements will come with added one-time expenses for United, or the same as Delta recorded in the second quarter.

United will present additional details on its second-quarter performance and forecast for the rest of the year on 22 July.

Featured image by Robert Alexander/Getty Images.

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