Cargo, new passenger demand brighten United Airlines’ outlook

Date: Tuesday, April 20th, 2021
Source: Freight Waves

United Airlines (NASDAQ: UAL) increased cargo revenue by 74% in the first quarter compared to the same period in 2019, and officials expressed optimism about a near-term return to profitability despite an adjusted net loss of $2.4 billion as vaccinated customers rush to travel again after a year of isolation.

Cargo continues to be one of United’s bright spots during the pandemic. The airline’s prolific use of passenger aircraft as mini-freighters helped it pull in $497 million in the first quarter, with demand up 10% from a year ago as measured in cargo-ton miles, according to results released after Monday’s market close. It operated more than 11,200 dedicated cargo flights in the past year, the fourth most among global airlines, according to American Shipper research.

Cargo represented 15.5% of total revenue, down a point from the fourth quarter, but still high by historical standards for a major passenger airline that doesn’t operate all-cargo aircraft. United Cargo last year generated $1.65 billion in revenue, up nearly 40% from 2019.

Delta Air Lines (NYSE: DAL), which reported last week, had $215 million in cargo revenue – 57% less than United. It came closer to United in its adjusted loss ($2.3 billion), but burned more cash, $11 million, per day.

United’s $2.4 billion adjusted loss does not include nearly $1 billion in relief from the U.S. government under the Payroll Support Program.

The adjusted loss of minus $7.50 per share fell considerably below expectations, but the Chicago-based carrier said it anticipates adjusted pretax earnings becoming positive later this year even if corporate and long-haul international demand remain as much as 70% below 2019 levels. Airlines are basing their positive outlook on strong domestic bookings for the summer months and the pace of COVID vaccinations. United said core cash flow turned positive in March for the first time in 12 months and that it cut its average daily cash burn in half since the end of 2020 to $9 million per day. The company continues to believe it will exceed 2019 EBITDA margins in 2023 at the latest.

Net profits and restoring the balance sheet will take longer because the company added a large amount of debt in the past year to help it stay afloat.

“We’ve shifted our focus to the next milestone on the horizon and now see a clear path to profitability. We’re encouraged by the strong evidence of pent-up demand for air travel and our continued ability to nimbly match it, which is why we’re as confident as ever that we’ll hit our goal to exceed 2019 adjusted EBITDA margins in 2023, if not sooner,” CEO Scott Kelly said.

Passenger capacity on United was down 54% from 2019 and is expected to improve to negative 45% in the second quarter, with unit revenue down 20%, the carrier estimated.

United is adding incremental capacity to its international offerings to countries where vaccinated travelers are welcome. United announced separately it will soon launch new flights to Croatia, Greece and Iceland. It plans to fly roughly 52% of its full schedule in May 2021 compared to May 2019.


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