United Air’s vision of long-term rebound fizzles on Wall Street

United Airlines Holdings Inc.’s leaders say they’ve entered “the end of the beginning” of their effort to rebound from the industry’s worst-ever crisis. Wall Street is betting that the recovery is still too distant to gamble on.

Demand for flights is gradually rebounding each month, with booking patterns slowly becoming divorced from news headlines about surges in new coronavirus cases, the carrier said. Air travel is likely to resume “in earnest” in 2022, Chief Executive Officer Scott Kirby told analysts Thursday during a discussion of third-quarter results.

“This is the turning point,” Kirby said on a call in which he invoked World War II-era comments by British Prime Minister Winston Churchill as a comparison to the industry’s travails.

But there’s still a long way back for airlines contending with an unprecedented drop in passengers because of the pandemic. The next 12 to 15 months will be rough for the industry and business travel probably won’t recover until 2024, Kirby acknowledged. United’s seven hubs are all in U.S. markets defined by corporate and international traffic, both of which are seen as laggards in any industry rebound.

“United believes their plan positions them to win the recovery,” Helane Becker, an analyst at Cowen & Co., said in a note to clients. “Given current demand and booking trends, we can’t poke holes in that thesis or strategy, but we note their hub structure appears to put them at a disadvantage without a rebound in international travel.”

The shares fell 3.9% to $34.22 at 2:21 p.m. in New York, the biggest drop on a Standard & Poor’s index of major U.S. airlines. United tumbled 60% this year though Wednesday, also the worst performance on the gauge.

Long Slog

United’s third-quarter results underscored the depth of the crisis, as the company reported an adjusted loss of $8.16 a share. That was worse than the average $7.47 shortfall expected by analysts. Sales plunged 78% to $2.49 billion, in line with estimates. Passenger sales tumbled 84%, while cargo revenue provided one of the few bright spots, with a 50% jump.

Airlines still face a long, slow rebound as the pandemic continues to hold domestic passenger numbers at about a third of last year’s levels—with even deeper declines for international traffic.

Since travel collapsed in March and April, U.S. carriers have slashed payrolls, parked jets, raised billions of dollars through debt deals and received $25 billion in federal payroll support. Negotiations for additional government aid have stalled in Washington.

United pointed to its success on lowering daily cash burn to $25 million in the third quarter from $40 million in the second. With greater cost flexibility, United will benefit when demand returns, Kirby said.

‘Turn the Page’

“Given all the team has accomplished in this crisis, we’re now able to turn the page away from just surviving to squarely focus attention on preparing for the rebound,” he said.

The Chicago-based airline has bolstered its cash stockpile by raising more than $22 billion with debt offerings, stock sales and federal aid since March, giving it $19.4 billion in liquidity as of Sept. 30. That trailed Delta Air Lines Inc.’s $21.6 billion. American Airlines Group Inc., which reports third-quarter results Oct. 22, has raised around $13 billion.

Kirby’s tone represented a departure from the dour warnings United issued earlier in the crisis, given its outsize exposure to international flights.

The company responded with deeper capacity cuts than American, Delta and Southwest Airlines Co., and has warned that sales would remain at only about half of pre-pandemic levels until a vaccine is available and widely distributed.

“We don’t expect the airline to approach break even until summer of 2021, assuming vaccines have begun to quell the pandemic at that point,” said Colin Scarola, an analyst at CFRA Research. “The highly uncertain recovery trajectory for business travel, even after the pandemic, leaves us at hold” as the recommendation for United shares.