Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

The Death Spiral

Is United Airlines (UAL) Dead?

United Airlines (UAL) is barely surviving. Incredibly, United (UAL) is still in business and planning some new flights.

However, data shows coronavirus was almost fatal for United Airlines Holdings Inc. (NASDAQ: UAL). For example, the number of flights United scheduled for October 2020 is 40% less than in October 2019, The Points Guy estimates.

Frighteningly, The Points Guy claims United’s October 2020 flights will grow 34% from September. Moreover, United’s October 2020 domestic flight schedule will be 33% of what it flew in October 2019.

Additionally, United’s October 2020 domestic flight schedule will be less than half the size of its October 2019 domestic American flight schedule. United will fly 46% of its October 2019 domestic flight schedule next month.

The Incredibly Shrinking United Airlines (UAL)

On the positive side, United (NASDAQ: UAL) has cut the layoffs it planned for October 2020 in half. On the negative side, United will cut 16,730 jobs on 1 October 2020, Axios estimates. United had planned to eliminate 36,000 jobs on 1 October 2020.

The job cuts are in addition to 7,400 voluntary departures of United employees. Overall, NPR estimates United is eliminating 25% of its workforce.

United is trying to further reduce its labor force by offering some employees a 12 month leave at 25% pay plus health benefits, Axios claims. However, United Airlines can call those employees back with 14 days’ notice. In addition, United flight attendants can take an eight or 13-month leave with health benefits but pickup occasional flights.

Disturbingly, United Airlines’ management admits the only thing that can prevent further job loss is more federal aid. “An extension [of the CARES Act] would be the one thing that would prevent involuntary furloughs on October 1 and hopefully delay any potential impact on employees until early 2021,” a United press release states.

To elaborate, the Coronavirus Aid Relief and Economic Security (CARES) Act is the $2.2 trillion bailout package Congress passed in March. CARES will soon expire and I do not expect Congress to pass another package until after the 8 November 2020 elections.

Can United Airlines Survive?

United Airlines (UAL) is gambling that some people still want to travel. United is scheduling more flights to Hawaii, Cancun, and Puerto Vallarta, the Points Guy claims.

United’s hope is that Americans are so tired of being cooped up at home they are desperate to reach the beach, The Points Guy speculates. Moreover, I think United is betting that home workers will realize they can work from the beach as easily as they can work from the living room. Consequently, I predict many home workers will migrate to warmer climates as winter approaches.

The Traditional Vacation Schedule is dead

Hence, United Airlines is gambling that the traditional vacation schedule is dead. People will travel when they want because they no longer need to go to the office.

There is data to justify United’s gamble. Stanford economist Nicholas Bloom estimates 42% of Americans were working from home in June 2020. Moreover, most of those workers could never return to the office.

The Partnership for New York City estimates only 8% of the New Yorkers working from home because of coronavirus had returned to the office in August 2020. Work from home is the new normal in corporate America, news reports indicate.

For instance, Pinterest (NYSE: PINS) will pay $89.5 million to end the lease on its unfinished San Francisco high-rise office space, SF Gate reports. Pinterest (PINS) is canceling the lease because most of its people are working from home, the social media company’s Chief Financial Officer Todd Morgenfield told reporters. Similarly, Twitter (NYSE: TWTR) CEO Todd Dorsey will let his employees stay home permanently.

Thus, there is a way United Airlines (UAL) can cash in on work from home and coronavirus. United can make money by flying all the workers who don’t want to spend the winter stuck in their homes to warmer climates in October and November.

Business Travel is dead

However, I think the amount of travel such migrate generates will be a small fraction of business travel. To explain, I suspect for every home worker flying to the beach there will be several businesspeople attending Zoom (NASDAQ: ZM) meetings.

Last year, many of those businesspeople flew to meetings. Now professionals take meetings digitally. Notably, the number of Zoom (ZM) users rose from 10 million in December 2019 to over 300 million in April 2020, Business of Apps claims.

Office-dwelling road warriors — a primary profit center for the travel industry — are now homebound Zoomers, resulting in a bloodbath for airlines and hotels,” Steve LeVine writes at Medium’s Marker. LeVine estimates that white collar business travelers made up 60% to 70% of all airline passengers last year. Now the only trip those travelers make is to their home offices.

Is United Airlines (UAL) is Losing Money?

United Airlines’ (UAL) quarterly revenues fell from $11.402 billion on 30 June 2019 to $1.475 billion on 30 June 2020.

In 2020, United’s Quarterly revenues fell from $10.888 billion on 31 December 2019 to $7.979 billion on 31 March 2020 to $1.475 billion on 30 June 2020. Consequently, Stockrow estimates United’s revenue growth shrank by -87.06%  in the quarter ending on 30 June 2020.

As a result, United Airlines reported a -$1.637 billion quarterly operating loss on 30 June 2020. That quarterly operating loss grew from -$972 million on 31 March 2020. In contrast, United reported a quarterly operating income of $1.472 billion on 30 June 2019.

Additionally, United Airlines reported a quarterly common net loss of -$1.627 billion on 30 June 2020. Conversely, United reported a quarterly common net income of $1.052 billion on 30 June 2019. However, the quarterly common net loss shrank from -$1.704 billion on 31 March 2020.

Incredibly, Stockrow estimates United’s quarterly net profit shrank by 110.31% between June 2019 and June 2020. In detail, United reported a quarterly gross profit of $7.881 billion on 30 June 2019. That number shrank to $737 million on 30 June 2020.

How Much Money is United Airlines (UAL) losing?

United Airlines reported a negative quarterly operating cash flow of -$130 million on 30 June 2020. A year earlier on 30 June 2019 United reported a quarterly operating cash flow of $2.71 billion.

Interestingly, United’s quarterly ending cash flow grew from $1.375 billion on 30 June 2019 to $3.064 billion on 30 June 2020. Unfortunately, that quarterly ending cash flow only grew because United borrows enormous amounts of money.

For instance, United reported a quarterly financing cash flow of $2.189 billion on 31 March 2020, that number grew to $2.382 billion on 30 June 2020. I think those numbers show United borrowed $4.571 billion in the last two quarters.

However, United’s cash and short-term investments grew from $5.44 billion from $7.463 between June 2019 and June 2020. In addition, United’s total assets grew from $52.15 billion to $54.901 billion in the same period. Thus, United has gained a little value as its business shrinks.

Mr. Market is right about United Airlines

 I conclude that the financial numbers show Mr. Market is correct about United Airlines (NASDAQ: UAL).

For instance, UAL’s share price fell from $89.74 on 2 January 2020 to $38.21 on 4 September 2020. Thus, United has lost over half its share value in eight months. Furthermore, United Airlines’ Market Capitalization fell from $22.30 billion on 2 January 2020 to $10.5 billion on 4 September 2020.

Thus, I think Mr. Market is pricing United Airlines somewhat accurately. Conversely, I believe Mr. Market could underestimate UAL’s risks and overvalues.

Investors need to avoid United Airlines

I think investors need to avoid United Airlines (NASDAQ: UAL) because it is a company on the verge of collapse. I think United shareholders will lose money unless coronavirus vanishes completely in October, something I consider impossible.

Thus, United Airlines has no margin of safety. I believe investors need to avoid United until the Coronavirus Pandemic ends. Currently, UAL offers investors nothing but risk and no growth potential.