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UA's Viability / Financial Future due to the COVID-19 Era [Consolidated]

Old Mar 20, 2020, 10:29 pm
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In recent days a number of threads have started touching on the impacts on UA as a business going forward due to the travel disruption of COVID-19 --- including multiple Viability / Bankruptcy / Bailout discussions. While inconceivable a few months ago, UA (and all commercial airlines) is facing challenges that are uncharted.

This consolidated thread has been created by merging a number of existing threads that trend to address essentially the same subjects.

Some thread guidelines
-- This thread / forum is for discussing UA and the UA traveler, so please focus on UA in these discussions. Other forums exist to discuss other carriers or the industry in general -- we do just UA here.
-- This thread is for discussion of how UA gets from here to its future state.
-- All the standard FT rules apply. We will have a civil, constructive, collegial discussion -- even in these turbulent times.
-- While much of this will play out in the political arena, this forum is not the place for political / OMNI discussions. Please use threads in appropriate forums for that, such as Covid-19 US tax cuts or fiscal stimulus
-- Similarly, discussions of the evils / greed of corporations or other broad societal issues are out of scope, those are for OMNI -- let's stick to discussing UA, its past and its future here
-- Please do not start new threads on these topics in the UA forum. One reason for this consolidated thread was to minimize the redundant posts in separate threads. There is plenty of room in the scope of this thread to cover all aspects of these topics. (Note things like M&A, restructuring, ... would all be in scope).
-- Please once you have laid out your position, do not repetitively re-state that opinion. It is usually a better discussion if many participate vs a few dominating the thread

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UA's Viability / Financial Future due to the COVID-19 Era [Consolidated]

Old May 14, 2020, 9:54 am
  #841  
 
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Originally Posted by fly18725
United is prepared for zero revenue through 2020 and Iíve yet to see one credible opinion that doubts that. Bankruptcy becomes a real consideration if demand does not pick up in 2021.
Others know way more about this than I do, but a competent management team doesn't simply spend cash down to zero and then declare bankruptcy and liquidate, right? Unless UA sees a reasonable path to profitability, it won't just keep throwing money away to pay rent simply because it can. If we get well into the third quarter and revenue is still, say, 20% of what it was last year or we are looking at a resurgence of COVID-19 with no vaccine on the horizon---both real possibilities---it becomes abundantly clear that the industry can't go on as it is. In that case, there will be a radical shake-up. That, I believe, is what Dave Calhoun meant.

The reason that we have not seen radical moves so far is that there is some hope that there is a light at the end of the tunnel---a vaccine, or a continued drop in COVID-19 cases/deaths that results in a gradual increase in air travel. That's why everyone is trying to draw things out as long as possible... ride it out. If there's real progress, all of the players will hang on as long as they can (and yes, it seems like UA can make it to the end of the year). But as soon as that hope fades---and let's hope we don't get to that point---the industry is going to go through some massive changes.
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Old May 14, 2020, 10:01 am
  #842  
 
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Originally Posted by spin88
Um, like no. Parker got bailed out at America west/US air by pilots who fought and fought and fought and so never to a new contract and were paid far less than they otherwise would get. Then the AA unions stupidly signed on with parker and some financial wheeler dealers to takeout AA's management. None of these "wins" was based upon a better business plan or building a great business.

AA has great assets, and they have under performed with them (sort of like UA) while service levels have suffered badly, meanwhile Parker has loaded up the company with debt and used the money on stock buy backs (paying back those who go him control of the company).

I don't think that Parker is at Smisik level of incompetence/over his head, but the consequences are highly likely to go from "under preforming" to "liquidation"

Thatís like saying the Patriots only win because they cheat and Bellechik doesnít deserve any credit. A win is a win. I realize thereís a personal visceral animosity towards Parker. I really donít have any stake it in either way, Iím just pointing out the fact heís still there.
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Old May 14, 2020, 10:11 am
  #843  
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Originally Posted by spin88
Um, like no. Parker got bailed out at America west/US air by pilots who fought and fought and fought and so never to a new contract and were paid far less than they otherwise would get. Then the AA unions stupidly signed on with parker and some financial wheeler dealers to takeout AA's management. None of these "wins" was based upon a better business plan or building a great business.
This. Parker was Mr. Right Place at the Right Time. The reality is that America West and USAir should have both been allowed to fail and let the industry consolidate that way. He found his way into AA by playing nice with the idiotic AA unions that though the current AA management at the time was as bad as it could get. They have of course now realized their stupidity.

Now, running the largest airline in the world, Parker has managed to underperform both DL and UA significantly despite their smaller size in what was possibly the easiest market for domestic airline profitability in history.
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Old May 14, 2020, 12:56 pm
  #844  
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Originally Posted by txhyattlvr
.... Is the financial side of AA THAT much worse?
One financial measure is the Q2 projected no revenue cash burn rate is $70-75M/ day and UA/DL are will under $50M/day (UA is projected at $40-45M/day and DL at $35-40M/day). With AA's debt load being a key reason for the difference. And AA's cash position is weaker.
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Old May 14, 2020, 12:59 pm
  #845  
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As this is the UA forum, let's primarily focus on UA here. Detailed discuss of AA's financial position (and management) is best done in the AA forum or a forum for general airline discussion. Noting UA's position relative to other airlines is reasonable for this forum, but the detail focus should be UA.

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Old May 14, 2020, 1:24 pm
  #846  
 
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Originally Posted by cjermain
The reason that we have not seen radical moves so far is that there is some hope that there is a light at the end of the tunnel---a vaccine, or a continued drop in COVID-19 cases/deaths that results in a gradual increase in air travel. That's why everyone is trying to draw things out as long as possible... ride it out. If there's real progress, all of the players will hang on as long as they can (and yes, it seems like UA can make it to the end of the year). But as soon as that hope fades---and let's hope we don't get to that point---the industry is going to go through some massive changes.
Well, and because their hands are somewhat tied until October because of the deal they made with the government, and because of Union contracts that are given undue influence over immediate policy as a result of that workforce requirement... I don't think anybody would be choosing to draw this out if they were fully-free to make decisions about it.

That said, UA and the others have a ton of "assets". Government-assigned ones like gates/routes, fixed ones like planes and parts, and human ones like ops specialists, mechanics and everyone else who makes this industry go. UA's assets will never be "valueless" under any scenario except one (impossibly improbable / non-existent one) where COVID means that people never start travelling at 2019 levels ever again. But a lot of that value may or may not exist in a form that can be easily acquired or liquidated by a bankruptcy court. (You can't take an entire corporate workforce and just magically teleport it to other entities without disruption, for example...)

We've all known for years that the airline industry has some structural inefficiencies, legacy baggage, and poor management. Nothing there is new, and nothing is a surprise. But it was always, generally, too big, too important (to lots of sectors of the economy, thus attracting out-weighted government attention and meddling at dozens of levels), and too entrenched to truly disrupt. Will this be the catalyst that opens up true innovation in the airline business?? Who knows... the pessimist in me doubts it. At the end of the day, we're likely going to end up with the same revolving-door of old, questionably-qualified managers, running the same collection of fixed assets and union contracts that we've had for half a century. Only the customer experience will probably change, and not likely for the better.

The question most interesting to me is what happens now, post-consolidation, if one of the "Big 3" does fail, or is forced to permanently abandon a significant portion of those assets?? Does it spur new, innovative "SpaceX-style" competition to snap up some assets that would otherwise be unavailable/unaffordable? Does it entrench the remaining "Huge 2" even deeper as they vulture-up the corpse? Does the rest of the industry pick up regional or specialized pieces, and it rewinds the clock to 1999 with 8 or 10 domestic competitors able to carve out niches and form international (or domestic) alliances? Does it force the government to get involved and re-impose strict regulation? (If 2008 and the PPP fiascos didn't get the government to take the banks out to the woodshed, I doubt this will spur them to take action on the airlines...)

There's opportunity for this to change the face of air travel. There will be winners and losers -- both in terms of companies and job functions. Traveller/Customer behavior will certainly play a role in it -- if we go back to accepting what we've always accepted, then we have no right to complain when nothing ultimately changes. No single voice from the customer end will unilaterally motivate change, but if consumers returning to travel make it clear that airline practices of the last ~decade are no longer going to be tolerated, then structural change will inevitably follow.

Personally, I'd already been debating the utility of 1K for years, given the hassles of dealing with UA. As long as business class fares remain low, for likely the next few years, I fully intend to tell UA where they can shove their recent policies. If I'm the only one, well then, so be it, and I'll decide which game I want to play if/when prices rebound and it's no longer tolerable to just play the field, and vote with my feet.
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Old May 14, 2020, 2:53 pm
  #847  
 
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So much sensationalism in this thread. All the cash burn numbers being thrown around are pre-govt grant -- so the airlines aren't burning those numbers. What is being referred to as $50M in this thread is really $10-$15M today. Regardless, the only burn number that matters is post-Oct 1. The airlines have made it clear by explicitly stating, and strongly implying, they strive to be at zero-burn by end of the year.

The latest confirmation came this morning from Delta. Article by Rick Smith of TMF. CEO Quote:

Bastian cited "the unprecedented drop in travel demand amid the COVID-19 pandemic and global economic slowdown" and the pressing need "to protect Delta's cash, Delta jobs and Delta's future [and] reduce our cash burn to zero by the end of the year" as the reason underlying the decision to retire the 777.

The CEO further noted that this move is intended to help reduce its cash burn from $50 million a month currently, to zero by the end of the year, and also "provide significant cost savings over the next several years."

UA is will take a similar path and do its best to get to zero-burn and try and ride out Covid.
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Old May 14, 2020, 3:13 pm
  #848  
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Originally Posted by Darlox
Personally, I'd already been debating the utility of 1K for years, given the hassles of dealing with UA. As long as business class fares remain low, for likely the next few years, I fully intend to tell UA where they can shove their recent policies. If I'm the only one, well then, so be it, and I'll decide which game I want to play if/when prices rebound and it's no longer tolerable to just play the field, and vote with my feet.
Well, if UA continues with the way it treats and serves CLE, you may, unfortunately, be using said feet for travelling the hard way...

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Old May 14, 2020, 3:47 pm
  #849  
 
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Originally Posted by spartacusmcfly
So much sensationalism in this thread.
No one seems to be saying that UA (or any of its competitors) are on death's door. There's speculation about what is going to happen in the upcoming months... let's face it, the rest of the year could be a tough time for all of the airlines. And it's not like the speculation that one of the majors won't make it through the year is out-of-step with what people in the industry are saying.

Originally Posted by spartacusmcfly
UA is will take a similar path and do its best to get to zero-burn and try and ride out Covid.
That's the goal of every business, to stop losing money. Or maybe even to make a profit! But it's really hard in tough times, especially when your business is flying planes.

I don't understand the ins and outs of UA's aircraft lease deals and ability to cut employment costs---would love to hear from someone who does---but I have got to guess that just getting the burn down to an acceptable level (let alone zero) could be really tough if air travel demand at Christmas is just 20% of what it was last year. I guess one might argue that that's where the sensationalism is---surely demand needs to rebound significantly sometime this year!? But I think there's a non-zero chance things will still be bad enough with COVID-19 that few people will want to fly, even 6-7 months from now. So much uncertainty.

Given this, speculating about the viability of UA going forward doesn't seem crazy.

Last edited by cjermain; May 14, 2020 at 4:18 pm
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Old May 14, 2020, 3:48 pm
  #850  
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Originally Posted by Darlox
because of Union contracts that are given undue influence over immediate policy as a result of that workforce requirement.

We've all known for years that the airline industry has some structural inefficiencies, legacy baggage, and poor management.
Without changes to the RLA, it seems that they'll come right back to where they are.
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Old May 16, 2020, 10:10 am
  #851  
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Interesting chart to share here. Reflecting the reality in the current environment:


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Old May 16, 2020, 1:44 pm
  #852  
 
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Cute. It had dipped a bit recently, but Ryanair was more valuable than Delta, making Southwest and Ryanair two of the most valuable airlines in the world!
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Old May 16, 2020, 6:38 pm
  #853  
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Originally Posted by spartacusmcfly
The CEO further noted that this move is intended to help reduce its cash burn from $50 million a month currently, to zero by the end of the year, and also "provide significant cost savings over the next several years."
$50M/month does not sound too bad!
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Old May 17, 2020, 9:34 am
  #854  
 
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What would happen to tickets we have for future travel if UA were to file for bankruptcy? I have award tix to Namibia for September, on ET and award tix to Papeete on UA metal for January. Would those tickets go away? What would happen to the balance of the miles in our accounts? If UA disappears, which Us carrier would Chase bring in as a transfer partner for UR points? AA is with Citi and DL is with AX. I am sitting on 2Million UR points that I have been transferring to and using on UA awards. metal,
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Old May 17, 2020, 9:51 am
  #855  
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Originally Posted by susiesan
What would happen to tickets we have for future travel if UA were to file for bankruptcy? I have award tix to Namibia for September, on ET and award tix to Papeete on UA metal for January. Would those tickets go away? What would happen to the balance of the miles in our accounts? If UA disappears, which Us carrier would Chase bring in as a transfer partner for UR points? AA is with Citi and DL is with AX. I am sitting on 2Million UR points that I have been transferring to and using on UA awards. metal,
Your tickets will be fine (apart from Covid-related flight schedule changes and cancellations). UA won't be disappearing any time soon. It may file for a re-organizational (Ch. 11) bankruptcy but will keep operating for the foreseeable future. For a major airline is it a long road from filing Ch. 11 to actually shutting down operations.
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