United Airlines’ (NASDQ: UAL) cargo revenue grew 77% in the last three months of 2020, the third consecutive quarter of outsized gains for a division that normally represents just 2.5% of total revenue.
The Chicago-based carrier reported after Wednesday’s market close an adjusted net loss of $2.1 billion during the fourth quarter and a 69% drop in operating revenue to $3.4 billion, including $560 million in cargo revenue. Officials expressed confidence they had stabilized finances and created a path for exceeding pre-tax margins by 2023, possibly sooner, after targeting $2 billion in cost savings. The short-term outlook, however, calls for 65% to 70% less first-quarter revenue and a 51% drop in capacity compared to the baseline 2019 level.
Adjusted earnings per share of $7 slightly exceeded consensus estimates among analysts.
Delta Air Lines (NYSE: DAL), which offered slightly better revenue guidance of minus 60% to minus 65%, also recorded a $2.1 billion adjusted pre-tax loss last week. Cowen analyst Helane Becker said slightly better performance for Delta is expected given United’s greater dependence on international travel, and the fact that its hubs — San Francisco, Chicago and Newark, New Jersey — are more impacted by travel restrictions.
“Aggressively managing the challenges of 2020 depended on our innovation and fast-paced decision making. But, the truth is that COVID-19 has changed United Airlines forever,” said CEO Scott Kirby.
The company called 2021 a transition year and said it has resumed heavy maintenance and engine overhauls to prepare aircraft for when demand returns.
United took advantage of international routes and extensive use of passenger aircraft repurposed for dedicated cargo shipments to grow cargo revenue by three-quarters, following 36% and 50% increases in the second and third quarters, respectively, compared to 2019. It has operated more than 10,000 cargo-only flights since March.
Over 12 months, United Cargo generated $1.65 billion in revenue, up nearly 40% from 2019. Once again, cargo growth proved to be a function of extremely high yields associated with the ability to charge premium rates due to a dearth of passenger aircraft as airlines scaled back operations to save money. Actual demand, as measured in cargo-ton-miles, fell 6.1% and 18.6%, respectively, for the quarter and full year.
Cargo revenue as a share of total revenue decreased to 16.5% in the fourth quarter — down from the 27.3% contribution in the second quarter — because United’s passenger business has improved since hitting the pandemic bottom in the early summer.
But improvement in airline terms is relative. U.S. airlines were booked solid on major routes for the Thanksgiving and Christmas holidays, but overall have seen reservations go down and cancellations increase since the nationwide resurgence of COVID-19 in October.
Data from the International Air Transport Association last week shows forward bookings for the first quarter worsening by several points compared to the fourth quarter of 2020. Airlines will continue to drain cash reserves until vaccines are widely available and governments shift to testing instead of quarantines to manage potential spread of COVID, industry officials and analysts say.
United said it has slowed its cash burn and ended 2020 with $19.7 billion in liquid assets. It closed the year with $33 million per day in average daily cash burn, including $10 million for debt principal payments and severance payments. The airline was spending $50 million per day from reserves in March and $40 million at the end of June.
At Delta, cargo revenue grew in the fourth quarter for the first time, at 10%, but was 36% less than United’s cargo revenue. Delta’s full-year cargo revenue was $608 million — less than half United’s total and down 19% compared to 2019.