The Conspiracy Theory About Why United Airlines Says They Expect To Lose Money

United Airlines announced a surprise deterioration in its financial performance for the first quarter, prompting Delta to re-state its guidance for profit. American Airlines hasn’t revised downward.

Combined with a broad sense of bank fragility in the face of rising interest rates, alongside a concern that we’re late in the economic cycle and potentially headed into recession, United’s announcement worried some observers that it was a sign that consumer spending was tightening alongside shrinking household balance sheets.

But what changed at United? They cite some booking softness earlier in the year. And they made a decision to accrue costs related to a new pilot contract into the first quarter for their projections. Isn’t that… a little weird since there’s no new pilot contract yet, and the first quarter doesn’t have much time left in which to get to a deal?

The Company has determined that it is appropriate to accrue expense in the first quarter 2023 related to a potential new collective bargaining agreement with employees represented by the Air Line Pilots Association. This accrual represents a shift in the timing of the associated expense from the second quarter 2023 into the first quarter 2023.

Delta Air Lines has a record-setting new pilot contract. American says that they’ll match pay, so that senior captains make up to $590,000 per year though the union responded by calling for a strike authorization vote. They want work rule improvements to match Delta, too.

United had a deal with its union, but that was pulled when the union saw how much other airlines were prepared to pay. There’s since been a changeover in leadership at the United chapter of the Air Line Pilot Association.

Live and Let’s Fly offers the conspiracy theory of United’s earnings projections shift: that it’s a way to bargain down the pilots by suggesting that sure, Delta made a commitment to its pilots as the economy looked strong but now:

  1. United is going to lose money
  2. And the economy is teetering

Thus that author wonders if it “is it really so far-fetched to wonder whether this is all part of a strategy aimed at tempering the new contract?”

I agree that it’s a bit of an odd choice to accrue costs of a pilot contract that doesn’t currently exist into first quarter numbers in guiding the airline’s results. However this is mere days after the Wall Street Journal reported that the SEC is specifically looking at companies that are manipulating their numbers although in that case in the opposite direction, trying to ‘meet their numbers’.

While it’s almost certainly the case that companies do this – there’s almost no way that GE under CEO Jack Welch hit its numbers exactly, quarter after quarter and year after year for instance – surely there are people in the carrier’s finance shop who read the indispensable Matt Levine and therefore know that everything is securities fraud.

I don’t agree that a major earnings announcement, covered broadly in the press and filed with the SEC in the form of an 8-K, is being manipulated in order to gain rhetorical leverage in bargaining with the airline’s pilots.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. Honestly I get that it’s more compared than this but there is no fucking way United is going to lose money or even have decreased profits with how expensive their fares are. I’m paying obscene amounts to fly for work all the time and their flights are consistently the most expensive.

  2. Doesn’t the Delta pilot contract (and thus, the UA contract when it’s agreed to) increase pay retroactively. It could be UA budgeting for that expected outcome.

  3. I don’t see the “conspiracy” theory. It’s a hypothesis about a negotiating strategy.

  4. Daniel,

    Yes. All airline contracts, which are covered by the Railway Labor Act, don’t expire. They simply become “amendable”. So unless the pilots agree to a scheme where they don’t have their pay rates agreed to in 2023 be the “new” rate at the time the contract became amendable, which was, I believe, in 2019, the company will have to pay humongous “retro pay” for pilots who were flying in 2019 and still are on the payroll. And retro pay in sacred.

    While hours were cut back in 2020 and 2022, flight hours came back with a vengeance in 2022 and in 2023. There were fewer flight hours flown in total because there were fewer pilots, but those that were on the payroll have been flying a lot.

    All told, that’s a lot of retro pay.

  5. It’s in no way a conspiracy theory to posit that a company manipulates earnings in advance of labor negotiations.

    First, both sides of any important negotiation try to present evidence in a favorable way. If you are selling your house you are going to present things favorably to raise the price, and a buyer may want to point out problems that lower the price. With all due respect (and I really like your blog) calling such framing a conspiracy theory sounds naive about real negotiations.

    Second, voluminous accounting and finance research indicates that accounting statements are manipulated all the time for strategic reasons. This is not an assertion of fraud; there is simply a lot of legal discretion for how and when things are reported for a large company. Far from conspiracy, I would be shocked if an airline did not try to shade down earnings projections in advance of an important labor negotiation, and at the same time, I would expect the union on the other side to shade up their projections.

  6. United is a public company and their financials are audited. Once you’re sure you have a liability (like retro pay) and can quantify it, you need to record it on your Balance Sheet (which comes from a hit to earnings). No conspiracy here…just GAAP accounting.

  7. With respect to retro pay being “sacred”.

    All airline pilot unions talk about retro pay but it never really occurs.

    Delta is paying it’s pilots some bonus money but the only retro pay on the table was pay retroactive to 01-01-2023 IF the pilots ratified prior to March. (Which they did)

    Though Delta’s contract did become amenable in 2019 the pilots will not be paid retroactively back to 2019 for the increased pay rates.

    To the best of my knowledge no pilot union has ever actually gotten retro pay back to the amenable date. They just feel somewhat justified in pushing for it as a way to get management to actually negotiate a contract.

    Since it’s almost impossible to terminate the negotiation steeple chase with a strike, a retro pay is used as a cudgel to try and stop management from dragging negotiations out too many years.

    In United and American’s case the amenable date is four years in the rear view mirror and the only urgency United and American management feel is that now they don’t want to be the last airline to conclude a deal as that could be more expensive than settling now.

  8. IIRC, the big three airlines follows the same financial calendar (Jan 1 thru Dec 31).
    Therefore, did AA or DL post a similar accrual, or is this unique to UA??

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