United outlines traffic needed for profit as its losses pile up

Bloomberg

United Airlines Holdings Inc spelled out the travel milestones needed for a return to profitability after posting a bigger-than-expected loss in the first quarter and offering limited insight into its expectations for the summer flying season.
The company sees an end to net losses when business and international traffic recover to 65% of 2019 levels, but it didn’t predict when that would happen or quantify the current decline. Generating adjusted earnings before interest, taxes, depreciation and amortisation, or Ebitda, is on the table when demand in those segments gets back to 30% of pre-pandemic levels, United said.
“We’ve shifted our focus to the next milestone on the horizon and now see a clear path to profitability,” United Chief Executive Officer Scott Kirby said in a statement. He said he was “encouraged by the strong evidence of pent-up demand for air travel.”
The carrier’s guarded optimism echoes a similar tone from Delta Air Lines Inc, which last week posted a worse-than-anticipated quarterly loss but predicted summer gains in passenger loads. While new virus variants are grabbing headlines amid a fresh surge in global Covid-19 infections, expanding US vaccination rates are bolstering airline ticket sales after more than a year in which most Americans stayed close to home.
United fell 2.1% to $53.84 after the close of regular trading in New York. The shares had advanced 27% this year through April 19, in line with the gains of a Standard & Poor’s index of big US airlines. But rising doubts about the travel outlook have spurred nine straight days of declines on the industry stock gauge, the longest streak since 2009.
“While the comments were likely made to show where breakeven can occur during the recovery, investors may be interpreting them as an expectation that it will take longer than anticipated for business and international travel to recover fully,” Helane Becker, an analyst at Cowen & Co, said.
Adding to the uncertain outlook for airlines, the US State Department said it was changing the way it issues travel advisories to reflect the prevalence of the coronavirus — a move it said will result in about 80% of the world’s nations being considered no-go zones.
The company’s adjusted loss — its fifth in a row — worsened to $7.50 a share in the first quarter, trailing the average shortfall of $7.02 that analysts had predicted. Higher fuel costs added to expenses even as the Chicago-based company continued to grapple with a severe lack of demand.
Sales tumbled 60% to $3.22 billion, slightly less than the $3.25 billion expected by Wall Street. The revenue decline since the same period of 2019 was 66%.
United said it ended the first quarter with $21 billion in liquidity, including $7 billion it hasn’t tapped from a US government loan program.
For the second quarter, the carrier forecast an adjusted Ebitda margin of around minus 20%. United airline plans to operate more than half its pre-pandemic capacity in the three-month period, which will be 45% lower than the same period in 2019. First-quarter capacity was 54% below 2019 levels.
United has the largest international network among the three major US legacy carriers, a group that also includes Delta and American. That makes United more vulnerable to the plunge in overseas flying.
International passenger volumes were down 56% from pre-pandemic levels as of last week, according to Airlines for America, a trade group. Flying on lucrative routes to such countries as the U.K. and Japan is severely depressed, even as trips to Mexico are nearing their pre-pandemic level.
United is also highly reliant on corporate traffic, which remains depressed even as leisure trips rebound. Travel agencies’ ticket sales to the corporate sector were down 78% as of last week, according to the Airlines Reporting Corp.