After revealing some rough earnings on Tuesday night, United is trying to weather the storm of the pandemic. But executives said it's going to be hard — really hard until a vaccine is widely available.
United Airlines executives said they expect an uneven recovery for demand as the United States continues to navigate the coronavirus pandemic. But they said they expect about half the demand for air travel will not return without a widely available vaccine.
Those thoughts were expressed on Wednesday in a call with reporters and analysts, a day after the company announced earnings for what it called “the most difficult financial quarter in its 94-year-history.”
“We expect the recovery in demand to be jagged,” United Chief Commercial Officer Andrew Nocella said. “Everyone has a view of what the recovery will look like, but we’ll not pretend to be able to predict the path of the virus.”
United executives would prefer a full recovery, of course. But they said they are just as focused on returning to an environment of 50 percent demand, a considerable improvement over the current situation. In the third quarter, which began July 1, United is expected to reduce capacity by 65 percent, year-over-year, and even then, it will fly at historically low load factors. This month, it is projecting a 45 percent load factor.
It expects to break even and not burn cash if it can reach a point where demand and capacity are down around 50 percent. In the second quarter, the cash burn for the quarter averaged $40 million a day.
United CEO Scott Kirby said that to get back to that 50 percent level, he thinks airlines are “going to have to get people understanding that flying somewhere, instead of getting in a car and driving 13 hours, you’re safer actually flying.”
What About Real Normal?
Without a vaccine, the airline expects that some business travel will come back, but most of it will not be back for some time.
“Business demand, I think, will start to come back,” Kirby said. “The small kind of group stuff will start to come back, but we’re not going to have 180,000 people show up at Consumer Electronics (convention) in Las Vegas this January like they did last January. Those kind of meetings just aren’t going to happen. Companies are not going to have their top 500 salespeople come in every year at the end of the year for a big party and a celebration until we’re past the pandemic and there’s a widely available vaccine.”
Kirby said the airline is planning for a scenario in which a vaccine won’t be widely available until late in 2021. But he said he hopes it is sooner than that.
“Look, I’m not an expert on when a vaccine is going to be available and widely distributed,” Kirby said. “But I’ve been reading a lot about it. It seems pretty clear, it’s going to also require multiple vaccines. And when we talk about a vaccine, it needs to be a vaccine that’s been tested, found to be effective, manufactured, distributed and given to a wide percentage of the population. So I think that’s probably longer than what is in some of the media.”
“I certainly hope it’s sooner, but we’ll let you go to other experts to find what it is. At United though, we’re at least planning as a scenario that it takes until late next year before that really happens, and we hope it’s better than that.”
For the second quarter, the company reported a net loss of $1.6 billion, and an adjusted net loss of $2.6 billion. Now, it needs to conserve cash as it waits for a recovery, executives said.
One area that was positive for the airline was its cargo revenue, which increased over 36 percent in the quarter year-over-year.
Photo credit: A United Airlines Boeing 787-9 Dreamliner. The company says that the company will only reach half demand until a vaccine comes. Bill Abbott / Flickr