United bullish on pent-up demand for international leisure travel

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United bullish on pent-up demand for international leisure travel

Transatlantic leisure travel is recovering quickly to countries that open borders, United executives said Tuesday.Speaking during United's March quart

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Transatlantic leisure travel is recovering quickly to countries that open borders, United executives said Tuesday.

Speaking during United’s March quarter earnings call, chief commercial officer Andrew Nocella said that leisure travel interest returns to 2019 levels as soon as a country announces that vaccinated individuals can enter.

His remarks came one day after United announced three new summer routes to destinations that have reopened — one each to Athens; Reykjavik, Iceland; and Dubrovnik, Croatia. Reykjavik, Nocella said, is United’s most booked transatlantic destination this summer and Athens is second on that list. 

Related: United Airlines bets on international bounce

United took more than 3,000 bookings on the three new routes after they were announced Monday, CEO Scott Kirby added. 

Nocella also said that demand for travel to most of the Latin American countries that have opened to U.S. visitors is higher now than it was in 2019. In May and June, United is scheduled to fly approximately the same number of seats to Mexico as it did in 2019, Cirium flight data shows.

The executives made their comments as United announced a net loss of $1.36 billion for the first quarter. The figure was an improvement from the $1.9 billion net loss United recorded during the fourth quarter of 2020 as daily core cash burn — which doesn’t include items such as debt principal, severance payments and investments in recovery —  dropped from $19 million per day to $9 million per day. In March, United turned core cash burn positive. 

Still, United stock plunged overnight and in trading Tuesday as the carrier failed to hit revenue expectations. United’s revenue of $3.22 billion in the March quarter was down 66% from 2019, missing the consensus analyst forecast by $30 million, according to the investment website Seeking Alpha. United stock was down 9.5% in early afternoon trading. 

Looking forward, the carrier expects to fly 55% of its June quarter 2019 capacity during the second quarter of this year. United expects a -20% margin in its earnings before interest, taxes, depreciation and amortization (EBIDTA) for the second quarter, a large improvement from the March quarter’s -65% margin, Nocella said. The carrier expects to go Ebitda-positive before year’s end. 

Addressing the sharp drop in United’s stock price, Kirby explained that the carrier has provided more conservative guidance than its competitors throughout the pandemic. During each of the previous four quarters, he said, United has been right. 

“We have used facts, data and logic to guide our approach,” Kirby said. 

But he also emphasized that he is bullish over the longer term and expects a full recovery of business travel as well as international travel. 

Pre-pandemic, United’s revenue was split roughly in thirds between domestic leisure travel, international travel and domestic business travel, Kirby said, giving the airline more international and business exposure than competitors. Currently, those two segments remain more than 80% off 2019 levels. 

United says it can reach positive Ebitda even with business and long-haul international demand at 70% below 2019. The carrier can reach positive net income when those segments reach 35% below 2019, Kirby said. 

Nocella predicted that business travel demand will ramp up in the fall and again after the new year as offices reopen and corporations have an opportunity to put travel into 2022 budgets. 

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