United Airlines (UAL) appears to be among the airlines best positioned to survive the COVID-19 crisis for many reasons.
While every airline in the world got into a survival mode, United was the first airline to instigate strong proactive measures and solutions to the coronavirus crisis from the very onset of the dire situation.
United’s foresight and implementation of aggressive and proactive measures could be the perfect recipe to ensure successfully rising from the ashes after the post-COVID dust clears.
What action did United immediately take?
Led by one of the strongest management in business, as soon as the airline recognized the approaching hurricane it immediately went to work to best prepare for the devastating impact to come. With proactive and intelligent steps the airline implemented instant cost-savings steps.
- United became the first airline to implement a huge cut in domestic and international flights. The airline essentially cut runaway expenses before other airlines thought of the same. United acted on the need to “cut the fat” immediately.
- Hundreds of airplanes were parked temporarily while assessing the situation.
- The airline permanently parked less fuel-efficient airplanes such as the B757 early on and discontinued LAX airport as a widebody pilot base, the airlines’ least profitable hub. Of course, this is always subject to change. Should demand require the need for more airplanes the B757 can easily be put back into service again. The LAX widebody pilot base can also easily be reinstated if needed.
- Painful to the company and employees alike, a reduction in force has to take place. The reduction will start on October 1, when the CARES Act employee protection money injection expires.
Cost-saving employee cuts
Subject to change, United may be furloughing up to 4,000 of its almost 13,000 pilots on October 1st. Only about 1,400 pilots are currently flying. In June the airline will only need 3,000 of its 25,000 flight attendants. 3,400 management and administrative jobs will also be cut. United has a total of about 96,000 employees.
Kate Gebo, United Executive VP of Human Resources and Labor Relations said that United employees slated for layoffs will be notified in July about the October 1 job cuts.
United communicates well with employees
United has been very upfront and honest about keeping its employees informed on what’s going on. While other airlines tend to keep their employees in the dark United believes in open employee communication.
United’s strategy of “no surprises” helps to maintain employee morale and loyalty. United is also one of the heaviest unionized airlines in the world, where the company has traditionally worked well with its unions.
The understanding of the need for cutting the employee force (and cost) appears clear among United employees.
What will happen to UAL stock in October?
United’s stock (UAL) could go either way when employees are being laid off in October. Cutting expenses sometimes sends a positive signal to Wall Street and could be good for UAL. Then, depending on the coronavirus outlook and how it still affects the airlines at the time, its stock value could fall further.
Worst Case Scenario
United first came up with its worst-case coronavirus financial & operational plan of action in March. However, the plan has been revised several times since, as typically needed in a fluid situation, which will further help United Airlines survive the COVID-19 situation.
Connections and Star-Alliance
Together with United’s Star-Alliance network plus other worldwide and regional partners, the airline will be able to maintain its global flight dominance once the crisis is over. The airline can do that by working together with other Star-Alliance partners to maintain its route network.
Wait and see attitude
Everything is subject to change. By observing and analyzing the difficult situation on a day-to-day basis, the airline should avoid the brunt of the force.
United’s Aircraft orders
The airline chose to continue its planned deliveries of new Boeing 777X and Boeing 787 airplanes.
The thought behind this could be that the new airplanes can be sold to the (most likely) Chinese, turning into cash for United. Then, the same planes can be leased back to United from (most likely) Chinese airplane leasing companies.
The 737 MAX
United, like other airlines, is still stuck with the 737 MAX problem. When the airplane gets certified to fly again it would add fuel-efficiency and inventory to the fleet.
But, getting passengers to fly on this “iffy” airplane may be another challenge, even after the COVID-19 problems have been solved.
United only has 14 737-900 MAX airplanes. (The -900 is not the same model as the ill-fated 737-800 that crashed twice). Airlines, such as Southwest Airlines has 34 800-models. American Airlines has 24 of the 800-models.
The 2019 Assets of United Airlines
United 2019 financials
- Net Income: $3.009 Billion.
- Total Assets: $52,611 Billion.
- Total Equity: $11,531 Billion.
United Airlines 1st Quarter Results from 2020
United reported a $1.7 Billion loss in the first quarter of 2020 after the virus began devastating the airlines’ bottom lines. In comparison, the first quarter of 2019 resulted in earnings of $292 Million just a year ago.
During its most recent virtual Shareholder annual meeting in April, UAL stated,
“The company expects daily cash burn to average between $40 Million and $45 Million during the second quarter of 2020.”
Also in April of 2020 United received approval for $5 Billion in U.S. Government aid through the CARES Act. The Payroll Support Program portion of the act was provided to airlines to protect the payroll of its employees until October 1. United will continue to employ 100 percent of its employees until October 1, as required by the CARES Act.
On April 15, a memo to employees from United CEO Oscar Munoz and President Scott Kirby said that demand for airline seats was essentially at zero.
No sign of notable improvement near term
Not even United Airlines will be able to claim they have successfully survived COVID-19 until the crisis is truly over.
What does it take to return to normal?
Although air travel is experiencing a trickle uptick in flights and paying passengers we won’t return to normal until the following happens:
- A working COVID-19 vaccine program is in place and heard immunity goes into effect.
- The economy returns to where people are back at work, making the money necessary to be able to afford airline tickets and leisure travel.
- Convincing business travelers that flying to meetings is still as necessary as before, in lieu of Zoom-meetings, which have exploded into popularity during the pandemic.
- If secondary or third waves of mass-coronavirus clusters don’t recur the airlines may continue on a positive recovery trend. However, should widespread recurrences flare up we could see further airline recovery interruptions as well?
There is more to come
Before the crisis is over we may even see some airlines liquidating, other airlines may merge, and we may see bankruptcies. Furthermore, many more markets and routes will end before this is over.
The future of our airlines depends on how long the coronavirus crisis lasts. Many airline analysts estimate there will three to four years before air traffic gets back to 2019 levels.
After 9-11 it took the airline industry four years to get back to pre 9-11 levels of activity. However, 9-11 was different from COVID-19. This time the world’s health experts are fighting an invisible enemy that affects every corner of the world.
However, with United Airline’s proactive approach to solutions, they should eventually survive COVID-19 and emerge as a world airline leader once again.
Comments or questions? You can contact the reporter, Jimmy Smith, here.
Featured Image: United B777. Photo: Pexels.
Disclaimer: The content of this article strictly represents the opinion of the author, applying his independent opinion, expertise, and inputs of the airline industry after years as a full-time U.S. major airline pilot.