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UA Announces Q2 2020 Financial Results 21 July / Conference Call 22 July

UA Announces Q2 2020 Financial Results 21 July / Conference Call 22 July

Old Jul 22, 2020, 9:48 am
  #16  
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Coronavirus: vaccine, testing and travel

Coronavirus / COVID-19 : general fact-based reporting

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Old Jul 22, 2020, 10:00 am
  #17  
 
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Other takeaways I see from the summary posted on BBG:

-UA will not take any Boeing deliveries in 2022 (any idea if they are taking any more this year and in 2021?)
-management seems bullish on business travel coming back, but until then, they do not think they get beyond 50% of pre-COVID flying until there is a vaccine, which it sounds like they are not anticipating being widely available until late 2021
-they are going to expand wearing of masks beyond just on the plane to the terminals as well
-UA has about $9bn worth of assets they could borrow against if needed
-increases in capacity will be titled towards leisure / visiting family/relatives destinations (not sure how the latter is identified). Personally, if I were UA, given the better state of the Northeast, I would look into exploring unorthodox routes if they are profitable - boost routes from EWR to elsewhere in the Northeast until early/middle fall, maybe even look at flying some increased routes out of smaller airports (e.g. HPN), and maybe even do some ex-BOS flying if it makes sense. Rental car prices are really high ATM (especially ex-NYC), so if UA could make money selling cheaper routes, maybe it makes sense?
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Old Jul 22, 2020, 10:19 am
  #18  
 
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Originally Posted by PsiFighter37
....
-increases in capacity will be titled towards leisure / visiting family/relatives destinations (not sure how the latter is identified). Personally, if I were UA, given the better state of the Northeast, I would look into exploring unorthodox routes if they are profitable - boost routes from EWR to elsewhere in the Northeast until early/middle fall, maybe even look at flying some increased routes out of smaller airports (e.g. HPN), and maybe even do some ex-BOS flying if it makes sense. Rental car prices are really high ATM (especially ex-NYC), so if UA could make money selling cheaper routes, maybe it makes sense?
I have been astounded by the price of rental cars. I would have thought there would be a glut and proced accordingly. I then compared to the price of flying where I needed to go and the flight was expensive.

I have been driving (personal vehicle) rather than flying for some recent trips. These trips are where I would have traditionally flown but the price was significantly higher than previous flights so drove. Also driving that behavior (driving) was that my recent Inited flights were so crowded and other pax not wearing their facemasks during the flight I decided that driving was optimal.

Interested to see what United says in the call. Tje way they have been pushing in-flight products (email nearly every day) had me thinking they were hurting but it may be the way they think they can make some money.
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Old Jul 22, 2020, 12:20 pm
  #19  
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Related Links for UA Q2 2020 earnings announcement

Q2 results (8K) PDF
Q2 call presentation -- appears no powerpoint was used, verbal only, same as Q1
Q2 call transcript link (3rd party -- not provided by UA and in the past errors have occurred, check against the UA provided audio)
Q2 webcast recording link requires registration Audio only - UA provided
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Old Jul 22, 2020, 12:53 pm
  #20  
 
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Originally Posted by WineCountryUA
Related Links for UA Q2 2020 earnings announcement

Q2 results (8K) PDF...
The 8K SEC filing tells us what we need to know:

1. $18B in cash on September 30, 2020
2. $5B in debt payments due in the next 12 months
3. No new aircraft cash outlays till 2022. (doesn't mean they won't take new aircraft, just means they've already negotiated the sale/leaseback on those birds)

So UAs in great shape for the next two years. If there's a vaccine, UA will thrive.
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Old Jul 22, 2020, 1:47 pm
  #21  
 
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My takeaways from the Q&A portion of the call:

- 26K took temporary leave, 6K took permanent leave, working on other union deals that will materially increase those numbers
- Big picture; currently down 83%, flying will plateau at 50% till there is a vaccine, flat line at 50% till vaccine, then "rapid" recovery post vaccine
- Will be at zero total (not operating) cash burn when demand gets to 50% (currently at 27%)
- Not sure how long it will take to get to 50%
- UAs internal plan is vaccine will be widely distributed late in '21, but hoping timing is better
- Recovery will be quick once vaccine widely available
- Question: 196 wide bodies in fleet at end of '19, will you have more or less than 100 (not typo) in fleet by end of '23. {Dumb question} Answer: "more"
- New business: 2/3 new cash and 1/3 ETCs (total advanced bookings is shy of $5B)
- Routes, slots, gates will be collateral for treasury loan if they take it -- this collateral worth $9B
- Other collateral could be United brand and domestic route network -- other airlines have successfully used these for collateral
- Question: Who's flying, loyal flyers or one-offs? Answer: currently non-members are higher % of flyers than typical, but member % increasing rapidly
- Cargo strong because: (1) cargo wants to go to UA hubs (NY, Chicago, West Coast) and (2) other airlines are flying fewer wide bodies
- Hesitant to make any fleet retirement decisions ("years to decide") as they are constantly pulling out stored aircraft to optimize maintenance cycles
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Old Jul 22, 2020, 6:33 pm
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Not surprising re: who is flying. As I noted in another thread, I was one of the only / couple GS/1K flying on EWR-LAX RT...it is crazy how much premier demand and flying has cratered at this time. Suppose that supports UA's heavy reliance on business travel, as well as its premier flying population.

I do wish that there was more creativity on route bookings. It costs $2k a week to rent a car via Hertz from NYC, and likely not much lower from other companies in NYC. I bought a RT first-class ticket for EWR-PWM for $325 PER PERSON - rented a car from PWM for $1k for 2 weeks...that will save me $2k+ for vacation. Surely $325 RT is less than UA would usually book on NE summer trips, but at the same time, it has to be much better from a cost perspective, flying that on an E170/175, than it may have been otherwise (when EWR-PWM, except for the late departure ex-EWR, was always an E145).
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Old Jul 22, 2020, 10:20 pm
  #23  
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Originally Posted by spartacusmcfly
....
- Question: Who's flying, loyal flyers or one-offs? Answer: currently non-members are higher % of flyers than typical, but member % increasing rapidly....
The factors underlying this answer might be several. 1) Business travel is way down. 2) UAs frequent fliers had to fly other airlines because UA seems to have slashed their capacity more than others - me, for example.
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Old Jul 23, 2020, 12:04 am
  #24  
 
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Originally Posted by IAH-OIL-TRASH
The factors underlying this answer might be several. 1) Business travel is way down. 2) UAs frequent fliers had to fly other airlines because UA seems to have slashed their capacity more than others - me, for example.
But yet, despite the slashing, they matched Delta revenue with $200M less losses.
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Old Jul 23, 2020, 12:16 am
  #25  
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Originally Posted by HNLbasedFlyer
But yet, despite the slashing, they matched Delta revenue with $200M less losses.
I wonder how much of that revenue was from tickets sold for subsequently cancelled flights that saved UA $200MM in OPEX vs DL (having slashed far more flights)? UA might be holding $200MM of ETC credits more than DL as a liability

Like my million in UAs pocket right now. Only kidding, just a small fraction of that.

The good news for UA is that Im flying them tonight for the first time in 4 months. The bad news is I paid only $466 R.t. for OGG via HNL/LAX to LAS and Im sitting in 3L on a 788 HNL-LAX. Im pretty sure they would have preferred to realize a bit more for the seat/trip.

Last edited by IAH-OIL-TRASH; Jul 23, 2020 at 12:38 am
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Old Jul 23, 2020, 5:15 am
  #26  
 
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Originally Posted by IAH-OIL-TRASH
I wonder how much of that revenue was from tickets sold for subsequently cancelled flights that saved UA $200MM in OPEX vs DL (having slashed far more flights)? UA might be holding $200MM of ETC credits more than DL as a liability
If its actually revenue, then the answer would be none. UA doesnt get to recognize the revenue until they have delivered the service. Otherwise, its a cash asset offset by an ETC liability, but no revenue actually occurs.
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Old Jul 23, 2020, 8:11 am
  #27  
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Originally Posted by rmadisonwi
If it’s actually revenue, then the answer would be none. UA doesn’t get to recognize the revenue until they have delivered the service. Otherwise, it’s a cash asset offset by an ETC liability, but no revenue actually occurs.
Are you sure about that? If you’re saying it’s an asset, doesn’t that mean it’s sitting in a bank somewhere? A plane secured by a loan is an asset. I’m sitting at a window seat at the LAX UC and I can see a UA asset in the form of a 739. Where is the money secured by ETCs? I think it’s sitting in the pockets of vendors, Boeing, employees, etc.

I’m not saying you’re wrong (I’m not an accountant), but it’s interesting to me UA is holding a bunch of money to offset ETCs.

Last edited by IAH-OIL-TRASH; Jul 23, 2020 at 8:19 am
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Old Jul 23, 2020, 9:44 am
  #28  
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Originally Posted by IAH-OIL-TRASH
The factors underlying this answer might be several. 1) Business travel is way down. 2) UAs frequent fliers had to fly other airlines because UA seems to have slashed their capacity more than others - me, for example.
3) US based fliers are cutoff from most INTL destinations - me, for example.
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Old Jul 23, 2020, 10:24 am
  #29  
 
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Originally Posted by IAH-OIL-TRASH
Are you sure about that? If you’re saying it’s an asset, doesn’t that mean it’s sitting in a bank somewhere? A plane secured by a loan is an asset. I’m sitting at a window seat at the LAX UC and I can see a UA asset in the form of a 739. Where is the money secured by ETCs? I think it’s sitting in the pockets of vendors, Boeing, employees, etc.

I’m not saying you’re wrong (I’m not an accountant), but it’s interesting to me UA is holding a bunch of money to offset ETCs.
They're not holding cash to offset ETCs (that I know of), they just carry a liability on the books that offsets the revenue so the net contribution to the bottom line for future bookings is close to $0. Anyone holding an ETC or an open ticket is an unsecured creditor to United. That liability goes away once the service is delivered (or the ETC expires), at which point they recognize that as revenue. (GAAP may allow them to recognize SOME of that revenue up front based on breakage, but it's likely minimal.)

(And just for the avoidance of doubt, none of this is saying that future bookings aren't important--they're critically important--but they're not significantly contributing to that $200M in the way you suggest.)
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Old Jul 23, 2020, 12:24 pm
  #30  
 
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Originally Posted by rmadisonwi
If its actually revenue, then the answer would be none. UA doesnt get to recognize the revenue until they have delivered the service. Otherwise, its a cash asset offset by an ETC liability, but no revenue actually occurs.
Originally Posted by IAH-OIL-TRASH
Are you sure about that? If youre saying its an asset, doesnt that mean its sitting in a bank somewhere? A plane secured by a loan is an asset. Im sitting at a window seat at the LAX UC and I can see a UA asset in the form of a 739. Where is the money secured by ETCs? I think its sitting in the pockets of vendors, Boeing, employees, etc.

Im not saying youre wrong (Im not an accountant), but its interesting to me UA is holding a bunch of money to offset ETCs.
Originally Posted by Sykes
They're not holding cash to offset ETCs (that I know of), they just carry a liability on the books that offsets the revenue so the net contribution to the bottom line for future bookings is close to $0. Anyone holding an ETC or an open ticket is an unsecured creditor to United. That liability goes away once the service is delivered (or the ETC expires), at which point they recognize that as revenue. (GAAP may allow them to recognize SOME of that revenue up front based on breakage, but it's likely minimal.)

(And just for the avoidance of doubt, none of this is saying that future bookings aren't important--they're critically important--but they're not significantly contributing to that $200M in the way you suggest.)
I am a CPA and would be happy to explain the debits and credits. Quick summary, the ETCs along with the prepaid fares for flights yet to be taken sit as a liability on the balance sheet as Unearned Revenue (as a Liability they are not an Asset).

Now I am not an expert on US GAAP for the airline industry, but the usual rule we accountants adopt is that for book (financial reporting purposes) we do not recognize revenue until the good or service has been provided and there is no right for refunds of those amounts. We accountants are very wary of recognizing revenue too early.

With that said if the ETCs expire I think this would go into an Other Revenue category as the revenue did not arise from the main activity of the business (revenue from flying people/cargo).

US GAAP has some bizarre rules for different industries (give me IFRS any day of the week over US GAAP) but if there are no special rules for the airline industry then the above is how it works.

So all those unused ETCs, and revenue for future flights are sitting as a liability on the balance sheet and is not on the income statement/P&L.
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