United Airlines (UAL) Posts Q3 Loss, Suffers Weak Load Factor
United Airlines incurred a loss (excluding $1.83 from non-recurring items) of $8.16 per share, comparing unfavorably with the Zacks Consensus Estimate of a loss of $7.63. Results were hurt by the coronavirus-induced weakness in air-travel demand.
Moreover, operating revenues of $2,489 million slumped 78.1% year over year and also lagged the Zacks Consensus Estimate of $2,570.1 million. This year-over-year plunge was due to the 84.3% drop in passenger revenues to $1,649 million. However, the carrier’s move to operate cargo-only flights in the face of declining passenger revenues paid off as revenues from the same surged 49.6% year over year to $422 million. Meanwhile revenues from other sources declined 32.3% in the September quarter to $418 million.
Per the carrier’s CEO Scott Kirby, "Even though the negative impact of COVID-19 will persist in the near term, we are now focused on positioning the airline for a strong recovery."
United Airlines Holdings Inc Price, Consensus and EPS Surprise
Consolidated passenger revenue per available seat mile (PRASM: a key measure of unit revenues) decreased 46.8% year over year to 7.42 cents. Total revenue per available seat mile fell 26.1%% to 11.21 cents. On a consolidated basis, average yield per revenue passenger mile dipped 4.2% from the year-ago quarter.
During the quarter under review, consolidated airline traffic, measured in revenue passenger miles, tumbled 83.6% year over year. Capacity (measured in available seat miles) contracted 70.4%. Consolidated load factor (percentage of seat occupancy) deteriorated 38.3 points year over year to 47.8% as traffic decline was more than capacity contraction. Meanwhile, average fuel price per gallon fell 35.1% year over year to $1.31. With most of the fleet remaining grounded/under-utilized, fuel gallons consumed were down 65.9% to 387 million.
Owing to its cost-reduction initiatives, the Chicago-based carrier was able to bring down the operating costs (excluding special charges) by 48% on a year-over-year basis. Consolidated unit cost or cost per available seat mile (CASM) excluding fuel, third-party business expenses, profit-sharing and special charges escalated in excess of 100%, mainly due to the capacity cuts.
United Airlines exited the third quarter with cash and cash equivalents of $13,150 million compared with $2,762 million at 2019 end. Long-term debt at the end of the reported quarter was $22,297 million compared with $13,145 million at 2019 end.
During the September quarter, cash burn averaged $25 million a day including $4 million of principal payments and severance expenses. The reading compared favorably with $40 million (including $3 million of principal payments and severance expenses) recorded in second-quarter 2020. This presently Zacks Rank #4 (Sell) carrier exited the quarter with total available liquidity of approximately $19.4 billion.
Soft Air-Travel Demand: A Bane for the Entire Industry
The coronavirus-led bleak air-travel demand is likely to weigh on the results of all airline players. Delta and United Airlines apart, other airline players like American Airlines AAL and Southwest Airlines LUV are expected to have taken a hit from waning air-travel demand in the September quarter. Both American Airlines and Southwest Airlines will release third-quarter results on Oct 22.
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