“Demand to Remain Suppressed” till Vaccine/Treatment Widely Available: United Airlines. May Not Happen till Late 2021 “or Even Later”: Health Care Leaders

“Demand to Remain Suppressed” till Vaccine/Treatment Widely Available: United Airlines. May Not Happen till Late 2021 “or Even Later”: Health Care Leaders

Flattened-out fish-hook-shaped recovery of demand?

By Wolf Richter for WOLF STREET.

Passenger revenues collapsed by 94% to just $681 million, United Airlines disclosed in its Q2 earnings report today. Other operating revenues plunged by 37% to $392 million, but cargo was hot, rising 36% to $402 million “by serving strategic international cargo-only missions and optimizing aircraft capacity with low passenger demand.” All combined, revenues collapsed by 87%.

This has now become the serenade by airlines to investors. United follows Delta in it: Revenues have totally collapsed, and we’re in an existential crisis, and we’re cutting costs and capacity like maniacs, and we need to shed tens of thousands of employees, to reduce our cash burn, but we’ve raised many billions of dollars from you all (thank you) and from taxpayers, and we will duly burn this cash during this crisis.

United burned $40 million a day in Q2. It expects to reduce this cash burn to $25 million a day in Q3 – about $2.3 billion in the quarter – and reduce it further in Q4.

United said today it has slashed operating costs by 54%” compared to Q2 last year; this includes expenses for fuel, which were down 90%, aircraft maintenance down 74%, landing fees down 35%, and its largest line item, salaries down 29%.

Those are huge cuts. Earlier in July, in a dreary assessment of the airline industry and traffic, including a renewed decline in ticket sales starting in late June, United announced 36,000 “involuntary furloughs” on or after October 1 if it can’t entice those employees to leave voluntarily beforehand.

Despite the cost cuts, United lost $2 billion in the quarter.

And it said that it expects its system capacity in Q3 to still be down by 65% compared to Q3 last year. And it will cancel flights and adjust capacity “until it sees signs of a recovery in demand.”

United is also noted to be among the US airlines that have so far refused to block the middle seat to reservations, and that will pack passengers like sardines into its planes if it can find enough passengers.

But passengers are still hard to find. United expects a load factor in July of only 45%. And it expects that less than 15% of its flights in July to have over 70% of the seats filled.

United said that it has raised $16 billion since the beginning of the crisis – edging past Delta which said that it had raised $15 billion – “through debt offerings, stock issuances and the CARES Act Payroll Support Program grant and loan, among other items.”

These “other items” of raising funds include sale-lease-back transactions with BOC Aviation, the state-owned aircraft leasing giant headquartered in Singapore. The aircraft subject to these sale-leaseback transactions are six Boeing 787-9 and 16 Boeing 737 MAX scheduled to deliver in 2020 – if and when Boeing resumes delivery of the 737 MAX.

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Wolf Richter

In his cynical, tongue-in-cheek manner, he muses on WOLF STREET about economic, business, and financial issues, Wall Street shenanigans, complex entanglements, and other things, debacles, and opportunities that catch his eye in the US, Europe, Japan, and occasionally China. WOLF STREET is the successor to his first platform… TP-Title-7-small-200px …whose ghastly name he finally abandoned in July 2014. Here’s the story on that. Wolf lives in San Francisco. He has over twenty years of C-level operations experience, including turnarounds and a VC-funded startup. He earned his BA and MBA in Texas and his MA in Oklahoma, worked in both states for years, including a decade as General Manager and COO of a large Ford dealership and its subsidiaries. But one day, he quit and went to France for seven weeks to open himself up to new possibilities, which degenerated into a life-altering three-year journey across 100 countries on all continents, much of it overland. And it almost swallowed him up.