Can UA survive? Opinions on its future

Old Apr 23, 20, 10:16 am
  #1  
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Can UA survive? Opinions on its future

UAL is finished. While not obvious, UAL treatment of high-profit flyers as a classic example of financial canary in the mine:

1) Current situation (next 24 month) will not allow for significant corporate F/Y travel to support profitability - particularly in TPAC.

2) Companies that did focus on this aspect (UAL as primary and dominant US carrier there) will be the most vulnerable.

3) In contrast, carriers that catered to cash-paying F/Y flyers (not those bought in bulk) will have significant elasticity during the next 24 months, and probably longer. Please do note that LAX-NYC flat bed easily fetches $4-5k if not paid in bulk – customers are glad to pay it – I do so about 15 times a year. Do note that this is comparable to bulk-bought SFO-PEK Y seat on UAL.

4) F/Y customers are binned in two categories: the first one is sent to their flat-bed seat by bulk-bought seats (by corporate Travel Office); the second one buys its own ticket and is fiercely loyal.

5) This binning has significant impact on financial performance in current situation: corporate-bought (in bulk) Y seats have evaporated and are not coming back; the second type of customers will prove much more important to the company. These are much more loyal as they earned their status with their own money (GS/1K in UAL) - if they have to fly - they will fly on metal they swore allegiance to.

6) UAL miscalculated - it devalued cash-paying high spenders by freely distributing elite status to Corporate Travel Office. This was financially justified when single company would book more than 20% of Y seats on SFO-PVG or SFO-PEK. It is an extreme weakness now and in foreseeable future. When Apple business customer receives elite status on UAL simply by being bestowed by his own Corporate Travel office, he/she does not have any loyalty to UAL – Apple is not guaranteed to buy in bulk the following year. Worse, Apple is NOT going to buy at all in foreseeable future.

Consequently, DAL and B6 will rebound much faster than UAL - specifically for not following this strategy. To make it even more balanced, please consider the info on just how many Y seats were sold in bulk on TPAC market (>20% on single UAL leg). Admittedly, I am not particularly insightful but have sensed this after noticing that GS service simply failed (volume was pumped up to sweeten the pot on Corporate Bulk buys). This prompted me to do some research and execute subsequent investment: DAL will rebound much quicker. Their F/Y customers will return much sooner before UAL sees anything close to it. UAL financial state is inextricably connected to their F/Y paying base – the rest is simple number extrapolation.

Again, let us see what happens during the next 9 -18 months. My bet is that DAL premium segment will provide an important floor under their financial performance once we return to the sky. The opposite is expected with UAL - corporate TPAC travel is not coming back – the loyal customers were shown the door a while ago by Mr. Kirby. He probably forgot that he is not in America West but in truly global, non-LC carrier. Spend any miles you have now - there will not be much later.
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Old Apr 23, 20, 10:21 am
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If TPAC involves to Australia and New Zealand then that route could open up quickly. Australia and NZ have been minimally impact by COVID and are already talking about opening up flights between the two countries.

https://www.nzherald.co.nz/nz/news/a...ectid=12327123
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Old Apr 23, 20, 11:07 am
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I completely agree with you on NZ and AUS. Unfortunately, the bulk of UAL profit is derived from TPAC bulk sales on Y seats to China - the buyer is Apple and likes to tend to their manufacturing base there. Even if we discount manufacturing repatriation from China (and particularly so if the current administration stays in place in November), there will be no Y bulk business buys to China in the foreseeable future. In other words, UAL profitability engine is shot, at the same time when he alienated other F/Y flyers that walked to DAL for better service.
While I agree that Chapter 11 is probable but not likely, UAL will take much, much longer to recover than DAL. I believe that this is important indicator and have invested accordingly.
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Old Apr 23, 20, 11:13 am
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Originally Posted by FrequentTPAC View Post
I completely agree with you on NZ and AUS. Unfortunately, the bulk of UAL profit is derived from TPAC bulk sales on Y seats to China - the buyer is Apple and likes to tend to their manufacturing base there. Even if we discount manufacturing repatriation from China (and particularly so if the current administration stays in place in November), there will be no Y bulk business buys to China in the foreseeable future. In other words, UAL profitability engine is shot, at the same time when he alienated other F/Y flyers that walked to DAL for better service.
While I agree that Chapter 11 is probable but not likely, UAL will take much, much longer to recover than DAL. I believe that this is important indicator and have invested accordingly.
So what happens to our share if an airline goes Bankrupt? I wasn't direclty invested in airlines before. Do the shares drop drastically in price after the bankruptcy? Do they go to zero?
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Old Apr 23, 20, 11:18 am
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Depends on the form of bankruptcy. I assign only 30% of painful outcome for UAL (total wipeout) - much more likely scenario is vegetative state - any investor making bet now will send its money to die on the long run. Conversely, if one is in the shorting businesses (and I am not - do believe that it is somewhat unethical), there is real money to be made on UAL strategy miss.
Next 9-18 months are critical.
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Old Apr 23, 20, 12:01 pm
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Originally Posted by FrequentTPAC View Post
3) In contrast, carriers that catered to cash-paying F/Y flyers (not those bought in bulk) will have significant elasticity during the next 24 months, and probably longer. Please do note that LAX-NYC flat bed easily fetches $4-5k if not paid in bulk customers are glad to pay it I do so about 15 times a year. Do note that this is comparable to bulk-bought SFO-PEK Y seat on UAL.
$4-5k for bulk-bought SFO-PEK Y? This is not in touch with reality.
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Old Apr 23, 20, 12:43 pm
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I agree. I have seen much lower pricing than that but did not want to be overly negative.
I am GS and did follow UAL since 1989 - both internally and externally. You would be amazed how forthcoming are UAL people when they recognize you as decades long GS customer.
The worst of it that these employees have nothing in common with current leadership (Mr. Kirby) - just as they survived Mr. Smisek, the gentleman from America West (Mr. Kirby) comes and teaches them that F/Y flyers need to be treated "firmly" - as in LC airline.This is the same person who attempted to replace December merit bonus for all employees by instituting internal lottery (Grand Cherokee as main prize) - only to be beaten down by open insurrection.

The time will show how does this strategy works. My bet is on DAL, not UAL, at least until F/Y customers are welcomed again and their money is treated with respect.
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Old Apr 23, 20, 1:04 pm
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replying to TPAC

absolutely none of this is accurate. Buying in "bulk" would mean that Apple or whoever pays up front for tickets. That is not true. Individual customers buy tickets as part of the contract they need. If your whole argument hinges on the notion that United's success depends and will fail because of its relationship with corporate customers, the same exact thing could be said about Delta. Delta has just the same type of arrangements with corporate customers, with just the same amount of people who are forced to use Delta because of their companies' corporate contracts. Your argument is absolutely inaccurate and really nonsensical. Sorry.
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Last edited by jasondc; Apr 23, 20 at 1:05 pm Reason: clarification
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Old Apr 23, 20, 1:07 pm
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Originally Posted by FrequentTPAC View Post
F/Y customers are binned in two categories: the first one is sent to their flat-bed seat by bulk-bought seats (by corporate Travel Office); the second one buys its own ticket and is fiercely loyal.
No. Most business and leisure flyers buy tickets from A to B with 2 main priorities: most direct and least expensive. For folk outside of FT (majority of flying public), status is meaningless. Even those in the corporate world, their travels are restricted to the company travel policy, and most corporate travels are not purchased in bulk.

In other words, most flyers are NOT loyal, and I would argue loyalty has been dead for decades for everyone outside of FT and similar platform.

You start the post with "UAL is finished", and then follow with a bunch of conjectures without any concrete evidence why UA is finished.
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Old Apr 23, 20, 1:09 pm
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not accurate

"Bulk" sales mean sales where an airline sells its tickets at deeply discounted rates to a consolidator who then puts on an upcharge and sells the tickets at a deeply discounted level.
These are usually seats that would go unsold anyway, so airlines let them go just to get some cash, knowing that other higher priced tickets will be sold.
United does not make its profits from the sale of "bulk" seats to China and has been pretty straightforward in its earning releases that that's not the case. Sorry, you're way off base here.

Originally Posted by FrequentTPAC View Post
I completely agree with you on NZ and AUS. Unfortunately, the bulk of UAL profit is derived from TPAC bulk sales on Y seats to China - the buyer is Apple and likes to tend to their manufacturing base there. Even if we discount manufacturing repatriation from China (and particularly so if the current administration stays in place in November), there will be no Y bulk business buys to China in the foreseeable future. In other words, UAL profitability engine is shot, at the same time when he alienated other F/Y flyers that walked to DAL for better service.
While I agree that Chapter 11 is probable but not likely, UAL will take much, much longer to recover than DAL. I believe that this is important indicator and have invested accordingly.
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Old Apr 23, 20, 1:10 pm
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It does not look as if we can come to agreement on this one - it is OK, we can still respect each otehr.
I invested based on the rationale I provided above (UAL profitability critically depends on prenegotiated Y contracts in TPAC with likes of Apple that needs to be in China - DAL does not have this exposure). If I am wrong, I have missed large opportunity (UAL fell to a quarter of its peak value). Worse, I as a flyer, I am walking away from my GS status and will spend all my budget with DAL since I do not believe that UAL will be on par, for foreseeable future.

Let us see what happens.
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Old Apr 23, 20, 1:16 pm
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That is not what United makes its money from - and that's not what companies are buying. Your understanding of how United was making money before all of this is not accurate. If you're going to pin an airline's problems on corporate contracts, well, Delta has the exact same types of arrangements. Should do some more research before you make inaccurate investment decisions.

Originally Posted by FrequentTPAC View Post
It does not look as if we can come to agreement on this one - it is OK, we can still respect each otehr.
I invested based on the rationale I provided above (UAL profitability critically depends on prenegotiated Y contracts in TPAC with likes of Apple that needs to be in China - DAL does not have this exposure). If I am wrong, I have missed large opportunity (UAL fell to a quarter of its peak value). Worse, I as a flyer, I am walking away from my GS status and will spend all my budget with DAL since I do not believe that UAL will be on par, for foreseeable future.

Let us see what happens.
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Old Apr 23, 20, 1:19 pm
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Just a quick observation... I think there might be some confusion between "Y" (generically economy class) and "J" or "C" (generically business class). Sorry to be pedantic.
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Old Apr 23, 20, 1:29 pm
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Originally Posted by EWR764 View Post
Just a quick observation... I think there might be some confusion between "Y" (generically economy class) and "J" or "C" (generically business class). Sorry to be pedantic.
Whenever I see F/Y is used without any other letters, I assume F = premium (including INTL F, DOM F, and international business class) and Y = economy. Correct if I am mistaken.
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Old Apr 23, 20, 1:29 pm
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Originally Posted by FrequentTPAC View Post
....(UAL fell to a quarter of its peak value)....
27% based on today's opening/52 week high, AA 30% and DL 35% -- LUV is about 50% but it does not have the international route issue. All the domestic carriers have taken a hit and have lost 2/3 to 3/4 their market cap; UA has dropped a bit more due to the dilutions from the secondary offering (it was 30% before that).. The others will likely drop if/when they do the same, UA going first may make it hard for the others.

No one is suggesting there are not difficult times ahead and air travel next year will be very different than it was last year.

Last edited by WineCountryUA; Apr 23, 20 at 2:36 pm
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