Continued Losses

[uafa21]

UAL Reports November Results
December 21, 2004 100 PM ET


Reports Operating Loss of $188 Million

CHICAGO, Dec. 21 /PRNewswire-FirstCall/ -- UAL Corporation (OTC Bulletin Board: UALAQ), the holding company whose primary subsidiary is United Airlines, today filed its November Monthly Operating Report with the United States Bankruptcy Court. The company reported an operating loss of $188 million for November 2004. Mainline passenger unit revenue decreased 1% year-over-year. Unit costs were up 9% over last year. Excluding fuel, unit costs were flat year-over-year. The company reported a net loss of $87 million, including a $158 million gain from the sale of Orbitz shares and $20 million of reorganization expenses.

United continued to deliver strong operational results in November, with an on-time :14 arrival performance rate of 83.2% and a load factor of 76.1%. Employees also exceeded the company's goals for November for customer satisfaction, as measured by definite intent to repurchase.

"Due to harsh industry conditions, we must urgently implement additional cost reduction initiatives so that the durable, long-lasting savings required are in place by mid-January," said Jake Brace, executive vice president and chief financial officer. "We have reached a tentative agreement with the Air Line Pilots Association (ALPA), and we look forward to productive negotiations with our other unions. While United continues to face some very difficult challenges, once these savings are in place, no other network carrier is better positioned to be profitable and competitive for the long term."

UAL ended November with a cash balance of about $2.4 billion, which included $843 million in restricted cash (filing entities only). The cash balance increased approximately $97 million during the month of November, driven by $185 million in cash proceeds from the sale of Orbitz shares. Because of the gain from the sale of Orbitz shares, the company met its November EBITDAR covenant.

 

[WorldTraveler]

Please don't see it as bashing UA or its employees but these losses are simply unsustainable. After billions of dollars in cost cuts and even if fuel is assumed to have accounted for half of the operating loss (which would translate into about $1B annually) , the operating loss still amounts to $1B annually. Revenues are shrinking while costs cannot be pulled out fast enough to keep up.

More significantly, the cost cuts being sought from employees just barely cover this loss even if seasonality and decreased revenues in October are considered.

 

[Bear96]

Please don't see it as bashing UA or its employees but these losses are simply unsustainable.

[post="230494"][/post]​

No sh!t, Sherlock.

Gee, took you 40 whole minutes to add in your doom and gloom. A little slower than you usually are to comment on more UA bad news...

Can't wait to hear your spin on how great things are at DL when they report their next set of stellar numbers.

 

[ualdriver]

Please don't see it as bashing UA or its employees but these losses are simply unsustainable. After billions of dollars in cost cuts and even if fuel is assumed to have accounted for half of the operating loss (which would translate into about $1B annually) , the operating loss still amounts to $1B annually. Revenues are shrinking while costs cannot be pulled out fast enough to keep up.

More significantly, the cost cuts being sought from employees just barely cover this loss even if seasonality and decreased revenues in October are considered.

[post="230494"][/post]​

Ummm....operating loss of 1B annually? Well, from Jan-Sep '04, according to our Statement of Consolidated Operations, we've had an operating loss of 284M. I suspect that we won't have an operating loss of 716M in the last 3 months of the year to reach that 1B, but I guess I could be wrong. I'll wait for the full last quarter statement before I jump to that conclusion.

Now we've had a net loss so far of around 980M for the last 9 quarters. Is that what you're talking about? In that case, doing some rough "back of the envelope" calculations since we don't have our full year's losses yet, I disagree with your pessimistic assessment, even though I am a pessimist by nature.

However, let's take the last 9 months of '04 and linerally extrapolate them out for the year. Remember, back of the envelope numbers here. That would be about a 1.3B net loss for the year. Using that extrapolation method again from that same Statement of Consolidated Operations, 519M of that would be reorganization items, which I assume will be gone once we're done "reorganizing" in bankruptcy (this number will probably spike up a bit as we get close to exiting). So now we're down to having to cut around 781M in order to have a net "break even." Well, 725M of that will come from labor cuts. Now we're down to 56M to have a net "break even." Well, in '04 we will have paid an extra $750M in fuel compared to '03? Think fuel prices will hit $55/barrel again next year? Perhaps. If they don't, we're making money. If fuel prices for next year cost us 56M less for '05, we'll be at least break even.

And we're not even done cutting costs yet. Regional airline contracts are going to be rebid. Some of our capacity is being shifted out of domestic and into international markets. Pensions are going to be cancelled unfortunately. Preferrential bidding will be starting next year. We're expecting to save 50M per year in fuel costs by changing the way our aircraft carry fuel. Aircraft leases are still being renegotiated. There's much more going on as the above is just off the top of my head. And maybe, just maybe, revenue (the top line) will increase just a little bit next year. Remember, people are still booking away from us simply because we're in bankruptcy. But we still had a 11.4% revenue increase for the last 9 months of '04 vs '03. So for these reasons, I disagree with your assessment.

 

[Fly]

That's the way he is UALdriver, but ask him about Delta and you'll get a rosy picture of their $646 million 3rd quarter loss.

 

[TJoe]

This is what CBS Market watch just said.



Analysts also weighed in with earnings revisions at United Airlines parent UAL and Independence Air parent FLYi.

Goldman Sachs analyst Glenn Engel said losses at UAL are "running larger than expected." He widened his fourth-quarter loss to $10.55 a share, up from $9.33.

"Even excluding fuel, losses are slightly ahead of last year," Engel added in a research note.

UAL (UALAQ, Trade) on Thursday reported a net loss of $87 million in November, which includes a $158 million gain from selling its stake in Orbitz. That sale helped the company meet its November loan covenant provision, according to a statement.

 

[WorldTraveler]

My secret's out. I write advance copy for Glenn Engel. <_<

Fly, let's not forget that DL has not implemented any wage cuts since 9/11 but UA is on its second round already and still reporting losses on the magnitude of what DL reported without any wage cuts. I don't expect DL's 4th quarter numbers to be anything commendable since the first set of cost cuts w/ the pilots just took effect a couple weeks ago.

driver,
your calcuations are admirable but they don't account for the continued decreases in revenue that are plaguing the network industry and will only get worse during the winter for a carrier like United which has relatively little Florida or Caribbean service and considering that several other airlines are adding Hawaii service. The problem will only get worse as UA pulls domestic capacity down since the only way the carriers that have kept their heads above water financially has been by flying more domestic ASMs to counter the falling yields. UA's strategy of increasing international flights will certainly deliver more money but cannot be enough to counter the fall in yields on the domestic system. No airline has ever shrunk itself to profitability. As long as UA is a domestic carrier, they have to fight rather than retreat. Take a look at US and see what retreating from the domestic marketplace by moving capacity overshore has gotten them.

I recognize UA is still at work and I commend you and your coworkers in your willingness to keep at it. Net losses are not exactly a fair comparison for a company in bankruptcy which is why analysts use measurements like EBITDAR to compare performance between carriers in the same industry with very different financial structures. Absent those calculations (which you are welcome to do if you'd like), operating income is a more accurate comparison than net income since none of the legacy carriers have a signficant cost advantage in any one expense category (but that will change if UA succeeds at terminating its pensions).

I realize this is your livelihood but I would hope that by posting on a board like this you are capable of rationally discussing events in the industry. I hope you have hope that things will work out until as long as you work for United. For that I commend you, ualdriver.

 

[firstamendment]

My secret's out. I write advance copy for Glenn Engel. <_<

Fly, let's not forget that DL has not implemented any wage cuts since 9/11 but UA is on its second round already and still reporting losses on the magnitude of what DL reported without any wage cuts. I don't expect DL's 4th quarter numbers to be anything commendable since the first set of cost cuts w/ the pilots just took effect a couple weeks ago.

[post="230655"][/post]​

I try to stay informed of the industry. I have observed alot of denial from Delta management since 9/11. Also, you have to consider that it took a loooong time to settle with the ALPA pilots. Perhaps the management group at DAL realized that their morale would plummet with the other work groups (all nonunion) had they been forced to take a cut while the pilots didn't. Also, my observation of this industry showed me that all the "healthier" legacies were praying one or two airlines would go under and "save" the industry. Some things never change. While UAL's situation was and is more critical, Delta is in no means out of the woods. They continue to bleed money like the others. Time is running out for the wedge as well.

 

[Cosmo]

Please don't see it as bashing UA or its employees ...

But that's how it comes across since your comments are at odds with the facts (see below).

Revenues are shrinking while costs cannot be pulled out fast enough to keep up.

Not true at all! In November 2003, United had total operating revenues of $1.29 billion (see the carrier's SEC Form 8K dated December 23, 2003), while in November 2004, United's total operating revenues were $1.42 billion (see the carrier's SEC Form 8K dated December 21, 2004), an increase of 10.3%. The problem was that United's total operating costs grew from $1.34 billion in November 2003 to $1.61 billion in November 2004. But from yesterday's press release, United stated that its November CASM excluding fuel was "flat" or unchanged. So after adding about $39 million to United's November 2003 costs to reflect the carrier's November 2004 ASM increase of 2.9% (see United's November 2004 traffic press release), United's fuel-cost-neutral total operating costs in November 2004 should have been roughly $1.37 billion. This would have been $238.7 million less than the carrier's actual November 2004 total operating cost of $1.61 billion, indicating that United would have seen an operating profit of over $50 million in November 2004 if its fuel costs had remained unchanged from November 2003. This is an admittedly long-winded way of proving that increased fuel costs weren't part of the reason for United's operating loses last month, they were the ENTIRE reason for those loses.

More significantly, the cost cuts being sought from employees just barely cover this loss even if seasonality and decreased revenues in October are considered.

That's why United's is seeking to reduce its expenses by another $700+ million annually above the proposed employee wage cuts and pension terminations. This means if oil stays at its current elevated price, United will be modestly profitable. Conversely, even if the price of oil falls only halfway back to its levels of one year ago, United will be wildly profitable. Clearly, United is headed in the right direction in terms of its projected revenue and expense levels (which I believe explains the continued acquiescence of the creditors to United still having the sole ability to file a reorganization plan), but implementation is the key issue now.

 

[uafa21]

worldtraveler- A great reply. Ua cannot and should not reteat in the domestic markey. if they can't make it here, they will not make it in international either. Margins have shrunk, the summer of 2000 insured that the lcc's will survive. Companies found out that there is a less exspensive way to travel. It wasn't just the summer of 2000 it was recession, cutbacks and the summer of 2000 just to name a few.

Once you lose market share it's hard to replace. Profitability will return when ua decides to fly the right mix of planes. When they decide that they pay too much for airport rents to keep other carriers away. When they learn how to use crews efficiently. When they decide make a business plan that is written by comprisal of business dicission managers that are highly educated and knowlegeable about the airline industry and have the insight to know that you have to reduce costs while increasing market share. You can't use managers that still have the regulated industry mentallity.

Ua has a corporate responsibility, something they have not considered recently, something they need to get back to.

 

[ualdriver]

"your calcuations are admirable but they don't account for the continued decreases in revenue that are plaguing the network industry and will only get worse..........."

Well, actually they do. I pulled them right off the company's filing and they increased from 2003 from the 9 months ending Sept '04. If you thing revenue is going to continue to decline for UAL, I'd love to hear the numbers and the source. How much in 2005? 5% decrease? 10%? So far we haven't seen declining revenues year over year for '04.......

"No airline has ever shrunk itself to profitability."

That's one of my favorite "cliche" statements. Almost every airline in the industry has shrunk since the glory days of the late 90's. Some airlines will die, and some will survive. By using that logic, you're saying that every airline that has gotten smaller is going to die because they'll never make a profit again. I don't buy it. And it looks like we'll be shrinking ourselves to profitability if we get out of this mess next year. I guess time will tell.

"Net losses are not exactly a fair comparison for a company in bankruptcy which is why analysts use measurements like EBITDAR to compare performance between carriers in the same industry with very different financial structures."

That's great World and I don't disagree. I didn't say our EBITDAR numbers were wonderful........yet. You said that revenue was declining faster than we could reduce our costs and I showed you using real numbers why I disagree. No one is arguing that UAL's EBITDAR numbers are rosy. Anyway, it really doesn't matter what you or I think they're good or bad. They only have to be projected to be good enough to keep the banks happy so that they'll finance our exit.

World, you made some statements that weren't true. You said that we had an operating loss of 1B which isn't true, and you said that our revenues were declining, which they are not from the numbers I have seen so far when making the comparison between '03 and '04. I'm sure they've declined from our "glory days" but year over year from '03 to '04 so far they haven't. In fact, they've gone up. You also said costs aren't being pulled up fast enough to cover declining revenue. Perhaps so far that is the case, but as I mentioned in the previous post, all of those items will pull up our costs so that costs are less than revenue, barring any major event occuring like a terrorist attack, job action, or plane crash for examples. Fuel could even stay high and we still might be profitable.

uafa21, another clueless post. Thanks. I love hearing how the summer of 2000 created yet another problem for UAL besides all the ones previously mentioned over and over. Now the summer of 2000 ensured that the LCC's would survive. Becaue everyone knows that had the summer of 2000 not happened, JetBlue, Southwest, Airtran, etc., would all be out of business. The other stuff- just brilliant.

 

[mrfish3726]

NO LIGHT AT THE END OF THAT TUNNEL B)

Yeah, if I was the head of a financial institution looking to have a tax shelter, I'd throw good money after bad!!!! Lost of lose there to write off!!!! Keep up the GOOD work TILTON, McDONALD, and BRACE!!!!

 

[whatkindoffreshhell]

The spin doctors of UA are simply the best! Magnificent! Surely Jake Brace will lead you out of the woods! He said so!

Why would any financier put $2bil into UA, nevermind the unresolved pension issue? Because Jake said so!

Did it ever occur to anybody at UA that maybe Brace's continued presence at WHQ is the obstacle to attracting new financing? If his credibility is so great with Wall Street then why are you still in Ch11?

 

[WorldTraveler]

Let’s try another approach. I’ll use the same pretty pictures and words that UA used in its filing with the SEC and the bankruptcy court on 12/15. … you know the one in which they asked to terminate the employee defined benefit pension plans and the contracts if they don’t get what they want? Try pages 25-35 where UA talks about the revenue environment.

View attachment UA_revenue.doc

Now I’m no rocket scientist but I just don’t think the curves at the far right of the chart have reached bottom. If that’s the case, all of the legacy carriers are in trouble but the ones like UA and US that are fighting for their lives could well be sunk.

Yes, UA is doing a lot to cut costs but the reality is that UA has a DOMESTIC REVENUE PROBLEM and there are plenty of signs that it will get worse, not better. Continuing to cut costs won’t do a thing to turn UA around if they can’t get the revenue picture stabilized. AA, DL, and NW particularly are all expanding domestic revenues through increased flying to counteract the decrease in yields. UA and US are cutting domestic services. History says that the AA/DL/NW approach is what has worked to turn airlines around – whether in bankruptcy or not.

 

[737nCH11]

Hell,

Were you ever married to Jake Brace? You seem to have some wierd infatuation with him. :huh: