United Airlines Took Industry-Leading Steps to Manage Historic Impact of COVID-19 in Q2

Rhea-AI Summary

United Airlines (UAL) reported second quarter 2020 results, marking its toughest financial quarter with a net loss of $1.6 billion and an adjusted net loss of $2.6 billion. Revenues plummeted 87.1% year-over-year, reflecting an 87.8% decrease in capacity. As of July 20, liquidity stood at $15.2 billion, projected to surpass $18 billion by the end of Q3. Daily cash burn averaged $40 million in Q2, expected to reduce to $25 million in Q3. The airline has raised a total of $16.1 billion in liquidity since the crisis began and initiated various health measures to ensure safety.

Positive

• Raised total liquidity of $16.1 billion through various financing activities.
• Increased cargo revenue by 36.3% by optimizing aircraft capacity.
• Reduced total operating costs by 69% compared to Q2 2019.

Negative

• Net loss of $1.6 billion and adjusted net loss of $2.6 billion in Q2.
• Total operating revenues fell by 87.1% year-over-year.

CHICAGO, July 21, 2020 /PRNewswire/ -- United Airlines (UAL) today announced second quarter 2020 financial results, the most difficult financial quarter in its 94-year history, with a net loss of $1.6 billion, and an adjusted net loss¹ of $2.6 billion. Total operating revenues were down 87.1% year-over-year, on an 87.8 percent decrease in capacity year-over-year. The company's total liquidity as of the close of business on Monday, July 20, 2020 was approximately $15.2 billion. United now expects liquidity at the end of the third quarter to be over $18 billion.

Cash burn² during the second quarter averaged $40 million a day, including $3 million of principal payments and severance expenses. The company currently is forecasting average daily cash burn to be approximately $25 million during the third quarter of 2020 including $6 million of principal repayments and severance expenses.

United believes it did the best job of matching actual capacity to demand among its largest network peers. The company also expects to finish the quarter with the lowest average daily cash burn among large network carriers.  

"I am grateful for the professionalism and dedication of our United team members who persevered through an historic and challenging period to deliver for our customers," said CEO Scott Kirby. "While this unprecedented crisis has been difficult for our team, we expect United produced fewer losses and lower cash burn in the second quarter than any of our large network competitors. We accomplished this by quickly and accurately forecasting the impact that COVID would have on passenger and cargo demand, accurately matching our schedule to that reduced demand, completing the largest debt financing deal in aviation history, and cutting expenses across our business. We believe this quick and aggressive action has positioned United to both survive the COVID crisis and capitalize on consumer demand when it sustainably returns."

Q2 Financial Actions to Mitigate COVID-19 Impact

The company continued to take aggressive action to mitigate the impact of the COVID-19 pandemic by raising liquidity and reducing cash burn. The company is focused on remaining flexible to position the airline to bounce back when demand recovers.

• Since the start of the crisis the company has raised a total of $16.1 billion through debt offerings, stock issuances and the CARES Act Payroll Support Program grant and loan, among other items.
• As of July 2, raised $6.8 billion in financings secured against MileagePlus Holdings in the form of a $3.8 billion bond and a $3.0 billion term loan, with interest rates of 6.5% and LIBOR plus 5.25%, respectively.
• Entered into an equity distribution agreement for the issuance and sale from time to time of up to 28 million shares of UAL common stock in "at-the-market" offerings. Utilized the at-the-market program to raise $22 million through the sale of approximately 532,000 shares in the second quarter.
• The company entered into an agreement with a subsidiary of BOC Aviation Limited to finance through a sale leaseback transaction six Boeing 787-9 and 16 Boeing 737 MAX 9 aircraft that are currently subject to purchase agreements between United and The Boeing Company and are scheduled to deliver in 2020.
• Raised $250 million in a secured term loan facility.
• Increased cargo revenue by 36.3% by serving strategic international cargo-only missions and optimizing aircraft capacity with low passenger demand.
• Reduced total operating costs by 69% versus the second quarter of 2019; excluding special charges³, reduced operating costs by 54%.
• Full-year 2020 adjusted capital expenditures⁴ are now expected to be approximately $3.7 billion.
• In third quarter 2020 the company expects consolidated system capacity to be down 65% versus third quarter 2019. The company will continue to proactively evaluate and cancel flights on a rolling 60-day basis until it sees signs of a recovery in demand, and expects demand to remain suppressed until the availability of a widely accepted treatment and/or vaccine for COVID-19.
• Offered employees comprehensive voluntary separation packages including flight benefits and continuous pay through Nov. 30, 2020 with more than 6,000 employees opting to participate.

United CleanPlus: Keeping Our Customers and Employees Safe

• Launched United CleanPlus, to reinforce the company's commitment to putting health and safety at the forefront of the entire customer experience, with the goal of delivering an industry-leading standard of cleanliness by partnering with Clorox and experts from the Cleveland Clinic.
• Require all United flight attendants and passengers to wear face coverings.
• Among first U.S. airlines to enforce policy that bans customers for refusing to follow mask requirements.
• This week, the company announced it will now maximize air flow volume for all mainline aircraft high-efficiency particulate air (HEPA) filtration systems during the entire boarding and deplaning process, helping further reduce the spread of COVID-19.
• First major U.S. airline to ask all passengers to complete a health self-assessment during their check-in process based on recommendations from the Cleveland Clinic.
• As of July 1, all U.S. airports are electrostatic spraying aircraft interiors.
• Expanded touchless check-in capabilities to kiosks at more than 215 airports.
• The company offers free COVID-19 testing to all employees, and checks their temperatures before they begin work at all U.S. airports.
• In May, started providing individually wrapped hand wipes and snack bag with pretzels, Stroopwafel, water, and a hand sanitizer wipe as customers board to reduce touchpoints.

More Space and Flexibility to Build Our Customers' Confidence

• First airline to contact customers when flights are more than 70% full to give them the opportunity to change their plans for free.
• Upgauged more than 4,000 flights in May and June to give customers more space on-board. Seat factor⁵ in May was 38.0% and in June was 57.8%.
• United doubled the size of its schedule from June to July - meaning more flights, more seats, and more space onboard for our customers. Our schedule will expand again in August.
• Expecting a July load factor of 45%, with less than 15% of flights with more than 70% of seats filled.
• Waiving change fees for tickets bought through July 31, 2020.

 Doing Our Part to Help Fight COVID-19 Since Crisis Began

• Booked over 2,900 in-kind flights for medical professionals to support COVID-19 response in New Jersey/New York and California.
• More than 19.2 million miles donated by MileagePlus members and 7.6 million miles matched from United to help organizations providing relief during COVID-19.
• Donated more than 500,000 pounds of food from United Polaris lounges, United Clubs and catering kitchens to local food banks and charities.
• Over 7,500 face masks were made from upcycled unused ramp uniforms.
• More than 800 gallons of hand sanitizer produced by United employees in San Francisco for use by United employees.
• Donated 15,000 pillows, 2,800 amenity kits and 5,000 self-care products to charities and homeless shelters.
• More than 2.2 million pounds of food and household goods were processed by United employees at the Houston Food Bank.
• Flew over 78.6 million pounds of medical equipment and personal protective equipment and 2 million pounds of supplies to support military troops.
• Operated over 3,800 cargo-only flights to bring 204,000,000 pounds of cargo to communities in need.
• More than 2,300 United employees worldwide have volunteered, with over 30,800 hours served.

 

1 Excludes special charges, nonoperating special termination benefits and settlement losses and unrealized gains and losses on investments. Reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are included in the tables accompanying this release.

2 Cash burn is defined as: Net cash from operations, less investing and financing activities. Proceeds from the issuance of new debt (excluding expected aircraft financing), government grants associated with the Payroll Support Program of the CARES Act, issuance of new stock, net proceeds from sale of short-term and other investments and changes in restricted cash balances are not included in this figure.

3 Reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are included in the tables accompanying this release.

4 Non-cash capital expenditures are not determinable at this time. Accordingly, the Company is not providing capital expenditure guidance on a GAAP basis.

5 Seat factor is defined as total number of seats filled divided by total number of seats. This number includes both revenue and non-revenue customers.

Earnings Call

UAL will hold a conference call to discuss second-quarter 2020 financial results as well as its financial and operational outlook for the third quarter and full year 2020, on Wednesday, July 22, at 9:30 a.m. CT/10:30 a.m. ET. A live, listen-only webcast of the conference call will be available at ir.united.com.

The webcast will be available for replay within 24 hours of the conference call and then archived on the website for three months.

About United

United's shared purpose is "Connecting People. Uniting the World." For more information, visit united.com, follow @United on Twitter and Instagram or connect on Facebook. The common stock of United's parent, United Airlines Holdings, Inc., is traded on the Nasdaq under the symbol "UAL".

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: Certain statements in this release are forward-looking and thus reflect our current expectations and beliefs with respect to certain current and future events and anticipated financial and operating performance. Such forward-looking statements are and will be subject to many risks and uncertainties relating to our operations and business environment that may cause actual results to differ materially from any future results expressed or implied in such forward-looking statements. Words such as "expects," "will," "plans," "anticipates," "indicates," "remains," "believes," "estimates," "forecast," "guidance," "outlook," "goals," "targets" and similar expressions are intended to identify forward-looking statements. Additionally, forward-looking statements include statements that do not relate solely to historical facts, such as statements which identify uncertainties or trends, discuss the possible future effects of current known trends or uncertainties, or which indicate that the future effects of known trends or uncertainties cannot be predicted, guaranteed or assured. All forward-looking statements in this release are based upon information available to us on the date of this release. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changed circumstances or otherwise, except as required by applicable law. Our actual results could differ materially from these forward-looking statements due to numerous factors including, without limitation, the following: the duration and spread of the ongoing global COVID-19 pandemic and the outbreak of any other disease or similar public health threat and the impact on our business, results of operations and financial condition; the lenders' ability to accelerate the MileagePlus indebtedness, foreclose upon the collateral securing the MileagePlus indebtedness or exercise other remedies if we are not able to comply with the covenants in the MileagePlus financing agreement;; the final terms of borrowing pursuant to the Loan Program under the CARES Act, if any, and the effects of the grant and promissory note through the Payroll Support Program under the CARES Act; the costs and availability of financing; our significant amount of financial leverage from fixed obligations and ability to seek additional liquidity and maintain adequate liquidity; our ability to comply with the terms of our various financing arrangements; the material disruption of our strategic operating plan as a result of the COVID-19 pandemic, and our ability to execute our strategic operating plans in the long term; general economic conditions (including interest rates, foreign currency exchange rates, investment or credit market conditions, crude oil prices, costs of aircraft fuel and energy refining capacity in relevant markets); risks of doing business globally, including instability and political developments that may impact our operations in certain countries; demand for travel and the impact that global economic and political conditions have on customer travel patterns; our capacity decisions and the capacity decisions of our competitors; competitive pressures on pricing and on demand; changes in aircraft fuel prices; disruptions in our supply of aircraft fuel; our ability to cost-effectively hedge against increases in the price of aircraft fuel, if we decide to do so; the effects of any technology failures or cybersecurity or significant data breaches; disruptions to services provided by third-party service providers; potential reputational or other impact from adverse events involving our aircraft or operations, the aircraft or operations of our regional carriers or our code share partners or the aircraft or operations of another airline; our ability to attract and retain customers; the effects of any terrorist attacks, international hostilities or other security events, or the fear of such events; the mandatory grounding of aircraft in our fleet; disruptions to our regional network, as a result of the COVID-19 pandemic or otherwise; the impact of regulatory, investigative and legal proceedings and legal compliance risks; the success of our investments in other airlines, including in other parts of the world, which involve significant challenges and risks, particularly given the impact of the COVID-19 pandemic; industry consolidation or changes in airline alliances; the ability of other air carriers with whom we have alliances or partnerships to provide the services contemplated by the respective arrangements with such carriers; costs associated with any modification or termination of our aircraft orders; disruptions in the availability of aircraft, parts or support from our suppliers; our ability to maintain satisfactory labor relations and the results of any collective bargaining agreement process with our union groups; any disruptions to operations due to any potential actions by our labor groups; labor costs; the impact of any management changes; extended interruptions or disruptions in service at major airports where we operate; U.S. or foreign governmental legislation, regulation and other actions (including Open Skies agreements, environmental regulations and the United Kingdom's withdrawal from the European Union); the seasonality of the airline industry; weather conditions; the costs and availability of aviation and other insurance; our ability to realize the full value of our intangible assets and long-lived assets; any impact to our reputation or brand image; and other risks and uncertainties set forth under Part I, Item 1A., "Risk Factors," of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, as updated by our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 and the Company's Current Report on Form 8-K filed June 15, 2020, as well as other risks and uncertainties set forth from time to time in the reports we file with the U.S. Securities and Exchange Commission.

-tables attached-

 

UNITED AIRLINES HOLDINGS, INC
STATEMENTS OF CONSOLIDATED OPERATIONS (UNAUDITED)
		Three Months Ended June 30,		% Increase/ (Decrease)			Six Months Ended June 30,		% Increase/ (Decrease)
(In millions, except per share data)		2020		2019				2020		2019
Operating revenue:
Passenger		$	681			$	10,486			(93.5)				$	7,746			$	19,211			(59.7)
Cargo		402			295			36.3				666			581			14.6
Other operating revenue		392			621			(36.9)				1,042			1,199			(13.1)
Total operating revenue		1,475			11,402			(87.1)				9,454			20,991			(55.0)
Operating expense:
Salaries and related costs		2,170			3,057			(29.0)				5,125			5,930			(13.6)
Aircraft fuel		240			2,385			(89.9)				1,966			4,408			(55.4)
Regional capacity purchase		388			715			(45.7)				1,125			1,403			(19.8)
Landing fees and other rent		429			660			(35.0)				1,052			1,248			(15.7)
Depreciation and amortization		618			560			10.4				1,233			1,107			11.4
Aircraft maintenance materials and outside repairs		110			421			(73.9)				544			829			(34.4)
Distribution expenses		31			442			(93.0)				326			802			(59.4)
Aircraft rent		47			73			(35.6)				97			154			(37.0)
Special charges (credits) (B)		(1,449)			71			NM				(1,386)			89			NM
Other operating expenses		528			1,546			(65.8)				1,981			3,054			(35.1)
Total operating expense		3,112			9,930			(68.7)				12,063			19,024			(36.6)
Operating income (loss)		(1,637)			1,472			NM				(2,609)			1,967			NM
Operating margin		(111.0)	%		12.9	%		NM				(27.6)	%		9.4	%		NM
Nonoperating income (expense):
Interest expense		(196)			(191)			2.6				(367)			(379)			(3.2)
Interest capitalized		17			21			(19.0)				38			43			(11.6)
Interest income		11			38			(71.1)				37			67			(44.8)
Unrealized gains (losses) on investments, net (B)		9			34			NM				(310)			51			NM
Miscellaneous, net (B)		(207)			(20)			NM				(906)			(28)			NM
Total nonoperating expense		(366)			(118)			210.2				(1,508)			(246)			NM
Income (loss) before income taxes		(2,003)			1,354			NM				(4,117)			1,721			NM
Pre-tax margin

FAQ

What were United Airlines' financial results for Q2 2020?

United Airlines reported a net loss of $1.6 billion and an adjusted net loss of $2.6 billion for Q2 2020.

What is the liquidity status of United Airlines as of July 2020?

As of July 20, 2020, United Airlines had total liquidity of approximately $15.2 billion, expected to exceed $18 billion by the end of Q3.

How much did United Airlines' revenues decrease in Q2 2020?

Total operating revenues decreased by 87.1% year-over-year in Q2 2020.

What was United Airlines' average daily cash burn in Q2 2020?

The average daily cash burn for United Airlines during Q2 2020 was $40 million.

How much liquidity has United Airlines raised since the start of the COVID-19 crisis?

United Airlines has raised a total of $16.1 billion through debt offerings, stock issuances, and other means since the onset of the COVID-19 crisis.