United Airlines Expects Massive Cash Burn Increase Over Slowing Demand

United Airlines has updated its fourth-quarter average daily cash burn. Coupled with a slowdown in travel demand, United has revised its estimated fourth-quarter cash burn estimate upwards to be north of $24 million. This comes as public health experts warn the winter could get much darker, which would spell bad news for United heading into January and December. It is, however, excited for summer 2021.

United’s revises cash burn estimates upwards

In a mid-November update, United Airlines expected average daily cash burn during the fourth quarter to be approximately $15 million to $20 million, plus $10 million of average debt principal payments and severance payments per day.

Now, United has revised it upwards to be between $24 million to $26 million, plus $10 million in average debt principal payments and severance payments.

United attributed a few different reasons for the increasing cash burn. This includes a continued deceleration in bookings and a change in working capital due to a shift in certain payments and receipts between quarters.

Overall, United expects fourth-quarter total revenue to be down close to 70% in the fourth quarter compared to the fourth quarter of 2019.

The revised cash burn estimate for 2020 puts United in line with other airlines, like American Airlines, in a higher cash burn amid a slowdown in demand. The slowdown comes as case counts across the country continue to increase, and local jurisdictions increase travel restrictions. Heading into 2021, United has already decreased its schedule for international flights through the start of the year.

A recovery is on the horizon

United Airlines sees a recovery on the horizon. While the carrier does not expect it to follow a linear path, which is very much clear thus far. One of the most interesting things, however, is where United sees some bookings.

The airline is currently seeing bookings for the third quarter of 2021 to be down approximately 40%. Meanwhile, bookings for December 2020 and January 2021 are down a whopping 70%. This means that there is some resiliency and expectation that people will be able to do some travel in the third quarter of 2021.

United’s team has consistently pinned their hopes of a recovery on a vaccine. With more encouraging news coming out in the last few weeks about a vaccine, United Airlines states it has confidence in a strong recovery and trajectory of the rebound in 2021 and beyond.

The third quarter of 2021

The third quarter of 2021 will run from July through September, and it is typically one of the stronger quarters for airlines. It is also one of the busiest transatlantic travel quarters of the year.

This year’s third quarter was blunted in part due to heavy travel restrictions at home and abroad coupled with uncertainty over travel itself. Come 2021. United is hoping that many of these restrictions will be lessened amid the release and distribution of a vaccine. However, that will take time. Until it comes to market and becomes more widespread, United will have to go through a tough winter.

Source https://simpleflying.com/united-cash-burn-increase/

Comments for this post are closed.