United Airlines Lowers 3Q Revenue Forecast As Travel Demand Fails To Return

United Airlines lowered its third-quarter passenger revenue and capacity forecast as the ailing air carrier continues to see significant impact in demand for air travel as a result of Covid-19.

Shares in United Airlines (UAL) dropped 3.4% on Wednesday after the company said that it does not currently expect the “recovery from Covid-19 to follow a linear path”. As a result, the company’s scheduled capacity for the third quarter of 2020 is now forecast to drop about 70% year-over-year, compared with previous guidance of a decline of 65%. Passenger revenue is expected to be down by about 85% during the same period versus the 83% decrease guided previously.

“The company plans to continue to proactively evaluate and cancel flights on a rolling 60-day basis until it sees signs of a recovery in demand, and expects demand to remain suppressed and plateau at levels of around 50%, relative to 2019 levels, until a widely accepted treatment and/or vaccine for COVID-19 is widely available,” United stated in a SEC filing.

Daily average cash burn during the third quarter of 2020 is forecast to be $25 million. For this purpose, “cash burn” is defined as net cash from operations, less investing and financing activities, the airline said. Total available liquidity, which includes cash and cash equivalents, its revolving credit facility, and CARES Act funds, is expected to be over $18 billion at the end of the third quarter of 2020.

US airlines are collectively burning more than $5 billion in cash a month incurring huge losses as stay-at-home orders tied to the coronavirus pandemic have halted air travel demand. As a result, air carriers have been implementing thorough cost-cutting plans, as well as taking steps to shore up their cash buffers.

Shares in UAL have plunged 59% so far this year, with the $39.43 average price target suggesting 9.4% upside potential lies ahead over the coming year.

Morgan Stanley analyst Ravi Shanker this week initiated the stock with a Sell rating and a $37 price target, saying that investors are still looking for more evidence that UAL is working on cost improvement rather than aggressive growth at the expense of unit revenue.

“We believe [United] has the most challenged network of any airline in our coverage based on our path for a COVID recovery and a leverage balance sheet, which could limit rebound opportunities,” Shanker wrote in a note to investors.

The rest of the Street is cautiously optimistic on the stock with a Moderate Buy analyst consensus. (See United Airlines stock analysis on TipRanks).

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