United Airlines Posts Heavy Q3 Loss As Covid Crushes Demand

United Airlines posted worse-than-anticipated results for the third quarter as the pandemic ruined travel demand. The carrier posted 3Q adjusted loss per share of $8.16 compared to EPS of $4.07 in the third quarter of 2019. It lagged analysts’ estimate of a loss per share of $7.53.

However, United Airlines (UAL) shares rose 0.81% in the after-market trading session on Wednesday perhaps because the company reduced its cash burn in 3Q. The carrier’s average daily cash burn was $25 million (including debt principal payments and severance payments per day) in 3Q down from $40 million in 2Q. United Airlines reduced its operating costs by 59% in the quarter to minimize cash burn.

On a reported basis, the company’s net loss was $1.8 billion compared to a net income of $1 billion in the third quarter last year. Revenue plunged 78.1% Y/Y to $2.49 billion, slightly missing analysts’ estimate of $2.50 billion. The top-line was hurt by a 70% Y/Y capacity cut as COVID-19 related restrictions impacted travel. Passenger revenue fell 84.3% to $1.65 billion, while Cargo revenue rose about 50% to $422 million.

Rival Delta Air Lines (DAL) reported a 3Q loss of $5.4 billion on Tuesday and a revenue decline of 76%.

United Airlines CEO Scott Kirby stated, “Having successfully executed our initial crisis strategy, we’re ready to turn the page on seven months that have been dedicated to developing and implementing extraordinary and often painful measures, like furloughing 13,000 team members, to survive the worst financial crisis in aviation history.”

“Even though the negative impact of COVID-19 will persist in the near term, we are now focused on positioning the airline for a strong recovery that will allow United to bring our furloughed employees back to work and emerge as the global leader in aviation.”

The company ended 3Q with $19.4 billion in liquidity. It raised $6.8 billion in debt backed by its MileagePlus frequent flyer program to maintain financial flexibility amid the current crisis. United Airlines also has the facility to borrow $5.2 billion under the CARES Act loan program through March 2021 and expects to have the ability to increase the borrowing capacity up to $7.5 billion, subject to government approval. (See UAL stock analysis on TipRanks)

On Oct, 12, Barclays analyst Brandon Oglenski downgraded United Airlines to Hold from Buy but kept the price target unchanged at $40. The analyst sees a “slow path to recovery” for the airlines sector with US revenue down about 70% heading into 4Q. Oglenski feels that domestic leisure demand should remain the largest source of revenue opportunity for airlines as business travel might not recover before mid-2021 and international health restrictions persist.

With a preference for domestic and leisure exposure, the analyst downgraded United because of its higher international exposure within his US airline coverage.

United Airlines stock is down 59.6% year-to-date. The average analyst price target of $43.29 indicates a possible upside of 21.6% in the coming months. The Street has a Moderate Buy consensus for United based on 5 Buys, 5 Holds and 1 Sell.

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