Hope for the best, prepare for the worst is a catchphrase United is aggressively embracing in light of continued uncertainty over domestic and international travel.
In a startling keynote address at the J.P. Morgan 2020 Industrials Conference yesterday, incoming United CEO Scott Kirby was blunt and to the point: bookings are way down and United is acting swiftly to counterbalance the sudden and steep drop in demand.
Revenue will take a huge hit as United plans for a “relatively short but deep” coronavirus. United is planning (not projecting) a 70% decline in revenue in April and May, 60% in June, 40% in July and August, 30% in September and October, and 20% in November and December. This, Kirby makes clear, is worst-case scenarios.
United will continue to cut flights each month until its sees “concrete signs of returning demand”.
Why the drastic actions? Kirby, the ultimate number cruncher, talked numbers:
- Net bookings to Asia and Europe are down 100% over the same period last year
- Net bookings are new bookings minus cancellations
- Gross bookings to Asia are down 70%
- Gross booking = new bookings only
- Gross bookings to Europe are down 50%
- The domestic market is better, but still alarming:
- Net bookings are down 70%
- Gross bookings are down 25%
- United expects the domestic market to continue to dip in the weeks ahead
So what is United doing to keep the ship afloat?
- Raise more liquidity – United just raised another $2 billion
- Reducing 2020 capital expenditures by 35% – from $7 billion to $4.5 billion
- Capital expenses “won’t come back for 2-4 years”
- Paused stock buybacks
- Defer aircraft deliveries (unless fully financed)
You can listen to the full presentation here.
The humbling thing for Kirby and United is that despite careful planning, this matter is really beyond his control. Experts broadly predict things will get worse before they get better. The question is how much worse…and is there a will and a way to tackle the issue head-on? United’s new “survival mode” is hardly surprising considering the numbers. What is even more surprising is the numbers themselves and the fact they could get even worse.