UPDATE – Although forward bookings are strong and the outlook is positive, United Airlines seems to have slightly reduced its expectations for 2022. In its FY21 results press release, the carrier says that Omicron hasn’t changed its confidence in its 2023 cost structures, but it no longer speaks of being ‘solidly on track for 2022’ as it did last October. United’s 2022 might be less solid than expected.
Like Delta Airlines last week, United is expecting Omicron to cause only ‘near term volatility’, with a full recovery from the second and third quarter. But the new variant has resulted in the scale-back of schedules and reduced capacity, which this quarter will be down by 16-18 percent compared to 2019. Operating revenues will be down in Q1 by 20-25 percent. Available seat miles (ASM) will be below 2019 levels this year, even after the re-introduction of the 52 Boeing 777-200s with Pratt & Whitney engines that were grounded after a catastrophic engine failure in early 2021.
January bookings have been low, but look strong for February and March, notably for leisure travel. While significant with a spike in cancelations at the end of December and the start of January, the Omicron effect will be restricted to the first two months of the year. Even if new variants present themselves, United is confident that their impact will be reduced. In HY2, the carrier counts on a recovery to pre-Omicron levels but still expects to fly less both international and domestic. The market that is lagging behind the most is Asia, so aircraft have been redeployed from the Pacific to other markets.
Despite lower ASMs, United’s total operating expenses excluding fuel (so-called CASM-ex) will, after initially increasing in HY1, decline significantly over 2022 although remain higher than in 2019. This trend is expected to continue into 2023 and beyond. Knowing that the carrier will benefit from efficiency and cost reductions from its United Next strategy, it is confident financial results from 2023 will be strong and will meet its 2026 targets.
Pilot shortages at regionals confirm Next strategy
As outlined in its United Next presentation last June, the carrier plans to increase gauge by some thirty percent and reduce CASM-ex by some eight percent in 2026. Part of the strategy is an optimized fleet, a $2.2 billion cost reduction improved product and service, and unlocking the full potential of its global network. As part of the plan, United will retire some 200 regional jets by 2026 and replace them with 270 Boeing MAX 10s and Airbus A321neo’s to allow premium seat growth and better gauge.
However, the Mitsubishi CRJ550s are still part of the Next strategy. At the same time, CEO Scott Kirby acknowledged that United too is faced with pilot shortages that restrict its regional operations. The effect is that some communities will be underserved this year. Kirby sees this development as a confirmation that the Next strategy to shift from regional jets to narrowbody capacity is the right one. The airline is having no trouble at all in hiring pilots for its mainline operations. It will hire some 1.200 cockpit crew this year and train new pilots at its flight academy.
Adjusted capital expenditures for this year will be around $4.2 billion, plus the $1.7 billion from 2021 as new aircraft deliveries were delayed. They include some Boeing 787s, which are likely to be delivered after the summer. Also scheduled for the second half of the year are deliveries of 53 Boeing MAX.
Adjusted net loss $4.4 billion
Looking back on 2021, United reported an Adjusted net loss of $4.389 billion compared to $-8.975 billion in 2020. The net loss was $1.964 billion compared to $-7.069 billion in 2020. The operating loss was $1.022 billion versus $-6.359 billion. Total operating revenues improved to $24.6 billion from $15.4 billion, of which $20.2 billion from passenger revenues. United carried 104 million passengers in 2021, up from 58 million in 2020. Cargo revenues doubled to $2.3 billion.
Whereas the third quarter produced a $473 million net profit, United’s fourth quarter ended with a $646 million net loss. This compares to $-1,897 billion in 2020. The operating loss was $408 million, an improvement over $2.135 billion in the previous year. Total revenues ended at $8.2 billion, up from $3.4 billion the previous year. Most passenger revenues came on United’s domestic network ($4.971 billion). Of its international network, the transatlantic performed best at $937 million in revenues, ahead of Latin America at $788 million. The Pacific is lagging behind at $182 million. With a price of $2.41 per gallon, fuel costs were $1.3 billion higher compared to 2020, at $1.962 billion.
