When the man who counts the money says things are bad, you better listen. United Airlines CFO Gerry Laderman says the financial whammy that COVID-19 put on the company was worse than the worst-case-possible scenario that the company had imagined.
“We weren’t even close,” Laderman commented during United Airlines’ earnings call on Thursday. “Before COVID, we modeled our worst-case scenarios based on the financial impact of 9/11, followed by a recession,” Laderman said.
The red ink Laderman said the company recorded over the course of 2020 was a loss of $9.9 billion.
No more “return to normal”
United Airlines CEO Scott J. Kirby said that the company was luckier than other carriers because it was “the first airline to recognize the potential severity of COVID-19.” That gave it a leg up on the competition in being able to manage cash flow further out. Had executives not cut fourth-quarter operating expenses by 42 percent year-over-year, who knows how much further the bottom line would have fallen.
“As we recover from this crisis, we've stopped using the term ‘return to normal’ because it creates an environment where it's just too easy to go back to doing what we were doing before,” Kirby said. “Instead, we want to focus on a return-to-new approach that applies to a wide variety of goals. When this is over, our employees, customers, the general public, and shareholders will see a new United Airlines.”
United is ready if this happens again
If something the size of a pandemic happens again, Laderman says the airline should be ready. “Going forward, we will focus on being ready for sustained destruction of global air travel demand like we are seeing today,” he said.
As company brass watched the company’s 2020 losses mount, “managing liquidity and cash flow became far more important than any other financial metric,” Laderman said, adding that the recovery process could take years. He added that liquidity and debt reduction will be tantamount to success.
Years? Yes. When the pandemic was still in its infancy, the International Air Transport Association (IATA) took a long look at the global airline industry’s post-pandemic life and estimated that things might not return to normal until 2023. United anticipates being ready if something this catastrophic happens again.
“If anything [we have the] confidence that by 2023 at the latest, though possibly earlier depending on the pace of demand recovery, our [gross earnings] margins … will exceed 2019 levels. [But] I’d just say that nobody, including us, has a perfect crystal ball on how soon this really will be over,” Kirby said.