United Airlines: No Plan For Bankruptcy, Will Use MileagePlus To Raise Cash

United Airlines CEO Scott Kirby spoke at the Bernstein Strategic Decisions Conference and spoke confidently about shedding costs and preparing for a rebound in air travel. He offered that bankruptcy isn’t a strategic option, that airlines are foolish to retire fleets too quickly, and that MileagePlus is going to be a great source of cash – whether by selling a ton of miles or borrowing against the program.

Overall (9) claims Kirby made seemed both new, compared to previous statements, and struck me as noteworthy.

  • Can break even with half of a recovery. Kirby believes United will break even again once “50% of demand returns.” One simple and rough way to track this would be to look at when TSA starts screening over a million passengers a day again. That doesn’t mean load factors in the 40s, it means half the passengers will squeeze onto far fewer flights than before.

  • No bankruptcy plan. It’s been clear that, after the federal government handed airlines a bailout worth 25% of annual revenue, no major U.S. airline will be forced into bankruptcy this year but that if demand doesn’t recover next year that path may change. I’ve had some commenters counter that an airline wouldn’t drop down to, say, $2 billion in cash which their debt covenants require them to keep before filing because it could be strategic to restructure that way.

    Kirby offered that there is “zero percent” chance, bankruptcy “is not even remotely in the plans at United Airlines” and is worse for all stakeholders. He “can’t understand the logic” of those who say it’s a strategic play.

  • Expect MileagePlus To Lever Up. Though they failed in a recent $2.2 billion debt raise, he argues they have plenty of assets left to raise capital against and that’s especially true of MileagePlus. He offered,

    ]M]ore to come, anything is on the table for us, the reality is our loyalty program is not only incredibly valuable it’s one of the best pieces of collateral we have at united airlines.

    ..United is oging to have a valuable loyalty program that spins off a steady stream of cash, there is significant capacity to raise capital against that. The form and structure to be announced…I’m confident we can find ways to do it.

  • Passenger Preferences Will Permanently Change From Covid and “safety, cleanliness, hygiene” will be “a permanent change” even with a vaccine. The enhanced cleaning of planes is something that will stick around even after the crisis.

  • People don’t need social distancing on planes while repeating all the reasons why air travel is safe, Kirby offered that “airplanes don’t have social distancing.” United hasn’t been willing to promise not to sell middle seats, the way some competitors have. Instead they let people know they can change their plans to avoid full flights. However “only about 1% of people” are taking United up on making a free change when the flight might be 70% full.

  • Don’t expect product investment for a long time This isn’t entirely new, but worth repeating, cash flow “will be devoted to improving the balance sheet first.” They’re borrowing a lot of money and they’re going to need to pay off debt before investing in the airline.

  • It’s foolish to retire airplane types too quickly. Kirby sees no benefit from retiring fleets now versus parking them. On various trajectories of demand or in the competitive environment they have an expectation of what will happen to the fleet – but don’t know which will be the path forward through the crisis yet. As a result “there’s no upside to doing it today” versus waiting for more data to make a decision months down the line.

  • United’s international flying is performing better than domestic. Yesterday United flew 48 widebody international cargo operations. When there’s no passenger demand there’s much higher cargo demand. International is likely better economics right now than domestic.

  • We could see changes to United’s hub structure. Kirby has previously said there are ‘no sacred cows.’ Here he offered that “[i]f it’s a U-shaped recovery that takes a little longer there might be some changes” to hubs. “United is always going to be more international than its peers by nature of where its hubs are” noting San Francisco, Newark and Washington Dulles gateways.

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 InsideFlyer.com, 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. Does no product investment mean Polaris retrofits are paused indefinitely? Or has that money already been spent? Their status tracker online says they have some 777-200ERs, 787-8/9 currently in retrofit, but maybe that’s not accurate anymore…

  2. @ Gary — Well, I guess that means more devaluation so they can write the liabilities down on their balance sheet. It is already incredibly pathetic — there are basically ZERO first class awards and ZERO advance-confirmable upgrades for anything that goes over flyover country. Wanna use Avianca miles to redeem for J on UA? Dream on. Wanna confirm an upgrade in advance as a 1K? No chance in hell.

    By comparison, American has been quite aggressive in selling fairly priced business class seats to the west coast, while Delta wants ALL of your miles for said flight. I am left scratching my head at the massive price differences (in miles). For example, for J ATL-LAX in October/November, AA charges just 40,000 r/t on some days, while DL and UA charge 110,000 – 150,000 r/t. Guess who I will be flying?

  3. I am waiting for United to sell miles at 1 cent a piece. Then I might buy. Current offers have been underwhelming.

  4. *Was* excellent collateral. Not anymore, I’d say. I’m never signing up for another one of their cards, nor Chase’s UR family.

  5. You do not want United to sell miles at 1 cent a piece because then they will surely devalue and become worthless.

  6. @ Paul
    It would certainly seem that way.
    I would not consider buying UA miles now unless they guarantee not to devalue their award chart for at least three years.

  7. With the (negative) changes to Mileage Plus over the last 5 years I value Mileage Plus a lot less than Kirby does. To me he sounds like an over-entitled CEO.

    Moved much of my spend to other carriers internationally and domestically I could care less who I fly. On a short 2 hour ride it can be Spirit for all I care. Doubt I’ll be doing much traveling in the next year till Covid19 has died down in the US and across most of the world.

  8. “United hasn’t been willing to promise not to sell middle seats, the way some competitors have.”
    Now that Delta has back-pedalled on this, is there anyone left besides JetBlue?

  9. @Tom: Silliness. Houston has over 7m people and was supporting ~500 flights/day pre-Covid while serving as UA’s backbone hub in the South and Latin America. If any hubs are at risk of a longer-term drawdown, it’s LAX (too much competition and SFO redundant for Asia) and IAD (redundant to EWR for European flights).

  10. I’d like to know what’s going on with International Flights. I booked Polaris to Greece in February, before Covid. Is UA keeping Polaris or not decided yet? You’d think they could keep us up to date on Summer International Flights!

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