'Good riddance to 2020': United says recovery is coming, but not soon

Delta thinks a rebound could come as soon as the second half of the year. United is not as optimistic

United revealed that detail Thursday during its fourth quarter earnings call, where it posted a full-year loss of nearly $10 billion as the pandemic has upended travel.

Delta was first to report last week, with the Atlanta-based carrier focusing on its forecast that corporate travelers will start to return in the second half of 2021. On Thursday, United took a different tack, choosing to focus on what will happen in 2023.

As the airline industry looks to a return to profitability, enabled by vaccines, United expects “the turning point is coming a little bit later than others think,” CEO Scott Kirby said on the carrier’s fourth quarter earnings call.

“We hope it’s earlier; we can cite pretty reasonable scenarios that it’s earlier, but we have confidence about 2023,” Kirby said.

Kirby said that 2023 costs, measured by cost per available seat mile excluding fuel, will be the same as in 2019. “You can take it as a personal commitment from myself,” he said. United will get there by reducing spending by $2 billion annually, he said.

Without mentioning Delta, Kirby implied that the carrier is too optimistic. “We have been more conservative, more realistic than others,” he said, explaining that is “the reason we have said 2023,” but conceding, “I’m not sure of the timing."

“Nobody including us has a perfect crystal ball on how soon this really will be over,” he said. Vaccine efficacy will be the key determinant.

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Kirby's comments were decidedly less rosy than those made by Delta last week.

Delta expects that “sustained recovery will begin in the second half of 2021,” CEO Ed Bastian said during the carrier’s Jan. 14 earning call. “Demand will start to accelerate as vaccinations become more widespread,” Bastian said.

In mid-afternoon trading on Thursday, most airlines were down 1% to 2%, but United was down about 5%.

A distinction between United and Delta is that United’s traffic is more international, which has suffered more than domestic during the pandemic. In the fourth quarter of 2019, international operations accounted for 36% of revenue, compared with 26% at Delta and 24% at American.

United has the top two coastal gateways in Newark (EWR) and San Francisco (SFO), but lacks a domestic hub as powerful as Atlanta (ATL) for Delta or Dallas/Fort Worth (DFW) and Charlotte (CLT) for American.

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“United and Delta may be in the same business, but that doesn’t mean they will have the same timelines for the same challenges," said travel analyst Henry Harteveldt of Atmosphere Research.

“Delta and United have different route networks,” Harteveldt added in comments after United's call on Tuesday. “Except for New York and Los Angeles, they don’t share any other common U.S. hub markets. Their international route networks are also different, with United operating a more extensive trans-Pacific network."

Also, he said, “The two carriers ask their business customers slightly different questions about recovery timelines, and their customer mix may differ enough that those businesses may have different planning horizons for who they expect to resume business travel.”

On the earnings call, Andrew Nocella, United’s chief commercial officer, said United’s international recovery will benefit because “A significant portion of capacity (was) operated by someone across the Atlantic (who) has publicly said they’re are not going to do it anymore”, referring to Norwegian Air.

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Additionally, he noted, various international airlines are retiring some or all of their Airbus A380s and Boeing 747s, leading to capacity reductions. “The world is very different,” he said.

Nocella said that in a second recovery cycle, international will lead domestic, which will benefit United. So far, the coronavirus crisis has severely restricted international travel. In the fourth quarter, Nocella said, United domestic passenger revenue fell 72% (Denver and Houston outperformed) while Atlantic fell 88% and Pacific fell 91%. In the current quarter, he said, “We don’t expect a material improvement over Q4.”

In its earnings release, United said, “The company expects 2021 to be a transition year that's focused on preparing for a recovery.” It said, “The combination of structural cost reduction and timely investments will help set up United to exceed its 2019 adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) margin in 2023.”

Full the full year 2020, United reported a pre-tax loss of $9.9 billion. “By any measure, the size of this loss is stunning,” said Chief Financial Officer Gerry Laderman. “Like most of us, I am happy to say good riddance to 2020.”

Photo by Nicolas Economou/NurPhoto via Getty Images.