Despite Sixth Straight Quarterly Loss United Predicts (Pre-Tax) Profits In Third And Fourth Quarters
To no one’s surprise United Airlines today said it lost $434 million, or $1.34 per share in the second quarter ended June 30th, but signaled that it expects to be profitable, at least on a pre-tax basis, in both the third and fourth quarters ahead.
The second quarter loss was the sixth-straight quarterly loss for the Chicago-based carrier, with all of those resulting form the unprecedented impact on travel demand and revenue of the Covid-19 pandemic. In 2020’s second quarter, the airline lost 1.63 billion. In the first quarter of this year it posted a $1.4 billion loss.
The dramatic improvement in United’s financial results from the first to the second quarter this year is almost entirely because of the sharp jump in travel demand in the second quarter – and especially over the last 45 days of the second quarter – as pent-up demand among leisure travelers exploded as the number of new Covid-19 cases and deaths declined significantly this spring.
But United’s management expectation of pre-tax profitability over the last half of this year would seem to indicate that it is expecting a significant increase in demand this fall among business travelers, who typically buy much higher-priced fares.
Thus far the demand recovery has been driven almost entirely by leisure travel demand. Because leisure travelers typically buy much lower-priced fares United’s revenue in the second quarter was down a whopping 52% from the same period in 2019, before the pandemic, while its capacity was down a little more modest 46% from the second quarter of 2019. Second quarter revenue this year totaled only $5.5 billion, vs. $11.4 billion in 2019’s second quarter. During the worst stretch of time for airlines early in the pandemic, United took in a relatively paltry, $1.5 billion in revenue.
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In the third, current quarter, United said it expects its capacity to be down about 26% from where it was in the third quarter of 2019, but up about 39% from the second quarter just completed.
United CEO Scott Kirby and other senior United executives are to meet via conference call with Wall Street analysts and reporters Wednesday at 10:30 am ET to discuss the second quarter results and their expectations for the remained of the year. Among other questions, they likely will be asked to what degree their newly disclosed expectations for the second half of the year take into consideration any potential diminishment of demand in reaction to recent moderate increases in newly reported cases of Covid-19? That increases appears to be the result of the spread of the so-called Delta variant of the virus.
Investors had sold off big chunks of airline and cruise line stocks over the last five trading days ended Monday in apparent response to the spread of the Delta variant. Investors appears to be assuming that it will drive a reduction in travel demand and a slowing of the travel industry’s recovery. In fact, airline stocks overall have been trending down since at least early April, even as travel demand began rising significantly in late March and continued. But on Tuesday, after taking amore than 5% hit on its stock price on Monday, United shares gained 6.58%, or $2.86 a share to close Tuesday at $46.32. Other airlines saw similar stock price gains on Tuesday.
United did not release its second quarter results until after the market closed. In after-hours trading it’s share price dropped noticeably just after United’s results were released, but quickly bounced back to near the stock’s closing price on the day.
In it’s earnings release, United said he expects demand to continue to recover gradually over the last half of this year and throughout 2022, and to see full demand recovery in 2023.
Another growing concern for United – and all airlines – the rising price of oil and jet fuel. United paid an average price of $1.97 a gallon for yet fuel, up a painful 67% from the second quarter of 2020 (when it didn’t actually fly very much because of the drop in demand caused it to dramatically reduce it flying schedule). The company also forecast that it’s third quarter average price of fuel will be $2.17 a gallon. That would represent a 10.2% further rise in the average price per gallon over what it paid in the second quarter.
Last week rival Delta Airlines reported a $652 million second quarter profit, but when adjusted for $1.5 billion in federal payroll support authorized by Congress, it’s actual result as a $678 million second quarter loss. American, Southwest and Alaska airlines all are set to report their second quarter results on Thursday.