United Airlines will return to positive core cash burn for the month of March. That doesn’t mean profit, but it’s a huge milestone and step in the right direction.
United Airlines Predicts Positive Cash Burn
In January, United disclosed that its daily cash burn had dropped to $19 million. Today, United CEO Scott Kirby announced at the 2021 J.P. Morgan Industrials Conference that United expects its core cash burn to be positive in March and going forward, as long as new bookings hold up.
What is core cash burn? Put simply, it is cash flow (it’s a bit more complicated than that – United defines it as “net cash from operations, less investing and financing activities”). United expects to take in more money than it spends in March. That doesn’t mean profitability is back (just yet), but it is an important metric in gauging whether an airline like United is turning the corner.
Revenue is up because people are finally feeling comfortable enough to book future trips. As the first network carrier to return to positive cash burn, United can pat itself on the back. Indeed, United’s route network, heavily reliant upon longhaul international travel, made it particularly vulnerable to a global pandemic. Furthermore, United’s costal hubs were impacted most by COVID-19 and a drop in business travel. Thus, United’s feat of returning cashflow is particularly remarkable.
Kirby noted that United has not retired widebody aircraft while its competitors have. Indeed, United has more widebody aircraft today than when the pandemic started. Furthermore, United has placed a huge order for 737 MAX aircraft, which will grow the reach of the short- and mid-haul fleet.
This, notes Kirby, will uniquely position United to come roaring back when business and international travel inevitably pick up once again.
Kirby also underscored the importance of service, a familiar theme, but something that is much more difficult in practice than in theory.
CONCLUSION
United Airlines is taking a victory lap today. While there is much work ahead, this is yet another sign that the long pandemic winter is thawing and that there is light at the end of the tunnel.
image: United
@ Matthew — If you add back the billions of government handouts, their cashflows have never been negative. What a joke of a risk-taking system we have. Take risk and succeed, keep the profit for your self. Take risk and fail, the Fed will cover it. It is Communism for Corporations.
Agreed, Gene. I was against all three bailouts.
I can’t help but be skeptical that this isn’t basically some accounting gimmick, bailouts aside. Out of the big 4 it doesn’t make sense that UA would be first to come back to positive cash flow, at least in my mind.
I would have thought Delta myself, but then again its middle seat blocking has to constitute a drain on revenue. Domestic United (and especially American Airlines) flights have been much fuller lately.
@Matthew
Normally I would be 100% against bailouts. However, with the travel bans, an argument can be made that this is compensation from the government due to the actions of the government. More of a make whole provision to the airlines
I guess I’m not so opposed to bailouts in general (in all cases for all times), just the specifics of these bailouts. But one of my businesses failed and I got nothing…
Not sure first to ‘announce’ net positive cash-flow in this environment is that big of a deal, but a good sign for the industry forecast overall. Can definitely see the pent-up demand based on the daily TSA travel stats compared to where they were just last month, but also accounting for start of spring break travel weeks.
Accounting gimmick or no, anecdotally, I sense that domestic US travel is starting to come back. Definitely true in my case, though none of it is business travel.