How United Will Break Even With Demand Down 50%

United Airlines is focused on raising capital while the aviation industry continues to be rocked by the global…

How United Will Break Even With Demand Down 50%

United Airlines is focused on raising capital while the aviation industry continues to be rocked by the global health crisis. During a virtual conference call on Thursday, newly-appointed United CEO Scott Kirby spoke about his company’s plan to break even while demand is low.

There could be plenty of changes at United this year. Photo: Getty Images

A flexible approach

While the Chicago-based carrier does not know when demand will bounce back, its priority right now is to get its cash burn down enough to break even and be in an environment where demand is around 50 percent of what it was previously. Therefore it has a plan to reduce the amount of money it’s losing this year. Kirby says the key to achieving this is flexibility

He said the below during the conference call, which was attended by Simple Flying.

“And what we’ve been working on is building an unprecedented level of flexibility into our cost structure so that if demand is down 70 percent, we can get our cost base down close to 70 — certainly our variable costs down 70 percent. If it’s down 50 percent, then we can get our cost down 50 percent, if it’s down 30 percent, down 30 percent. And so we’re focused much more on building that flexibility.”

United LAX
It has been a challenging period for airlines across the globe. Photo: Getty Images

Three-point plan

Kirby shared that his firm has three pillars to raise capital to give it as much runway as possible to get through the crisis. He said that this process had been started early and there should be more to come. United previously estimated that it would be burning $40 million a day during this year’s second quarter. However, the executive is already confident that his staff is doing a great job of reducing this burn rate.

The businessman said that the estimated $20 million per day fourth-quarter cash burn is predicated on no improvement in demand from what was being seen in April. However, there has already been progressing. Therefore, passenger numbers are expected to get somewhat better by then.

During the conference call, Kirby shared the below about the three pillars:

“Obviously, we have the government loan, that’s still a possibility, and we’ll see more to come on that front. Second is get the cash burn down at the lowest ever possible. And again, we think we can get that to $20 million even without a recovery in demand. And then third is then to variabilize the cost structure at this point about, don’t try to pretend we know what demand is going to be, let the actual data tell us what it’s going to be and adjust the size the airline to what the demand really is.”

United Airlines Livery
United has not played down the potential consequences of the pandemic. Photo: United Airlines

Optimization is key

Kirby continued to state that in order to optimize this flexibility, United is going to need changes in some of its labor, vendor, and regional partner contracts. However, some of the agreements, such as the regional ones, give enough flexibility for the firm to adjust. However, to fully optimize, United will need revised agreements with others.

None of its contracts were designed for a world where demand might be down 50 percent or 70 percent. They were intended for a recession where the market is down 5 percent. Therefore, some added flexibility is needed.

UAL SFO
Most of the airline’s aircraft remain on the ground. Photo: Getty Images

Everything is up for review

Additionally, Kirby said that anything is on the table, even its loyalty program. This asset is not only incredibly valuable, it’s one of the best pieces of collateral that United has. Ultimately, it spins-off a steady stream of cash.

Nonetheless, Kirby takes the responsibility of being CEO very seriously. The professional said that it is the first thing he thinks about when he sits down to work in the morning, and it’s the last thing he thinks about when he switches off the lights to his office at night.

To live up to that responsibility, he is determined to do what he can to position United to bounce back quickly when demand does start to return. He is also seeking to mitigate United’s long-term risk and protect jobs where possible.

Altogether, it’s not going to be easy, but United is showing its determination to limit the damage during this crisis. The second half of 2020 will be a long one for the airline, but by the time this year is over, it should be in much better shape. 

What are your thoughts on United’s plans to reduce its cash burn this year? How do you see the airline adjusting over the next few months? Let us know what you think about the situation in the comment section.

Source : Simple Flying More   

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Crashed PIA Airbus A320 Was Insured For $19.7 Million

In the recent developments regarding the crash of PK 8303, it has been revealed that the aircraft was…

Crashed PIA Airbus A320 Was Insured For $19.7 Million

In the recent developments regarding the crash of PK 8303, it has been revealed that the aircraft was insured for $19.7 million. The Airbus A320 with the registration AP-BLD was under hull insurance since it was leased. The full sum of money will go to the leasing company from which Pakistan International Airlines (PIA) had acquired the aircraft.

Pakistan International Airlines operates a part of its fleet on lease. Photo: Getty Images

In aviation, ‘hull insurance’ provides coverage for the physical damage of an aircraft. The damage can occur on the ground or at the time of flying. However, the malfunctioning part of the plane is not insured. In this case, had the aircraft made a safe landing, all physical damage, but the engines would have been covered under insurance.

How does it help?

National Insurance Company Limited (NICL) is a Pakistani government-owned company that provides insurance to state-owned vehicles. Since Dec 30, 2019, NICL has insured the entire fleet of aircraft owned or operated by PIA. However, insurance is provided to the owner, who is not necessarily the operator of the vehicle.

In the case of PK 8303, the aircraft was owned by the Celestial Aviation Trading 34 Limited, Ireland. The Irish company would hence get the insurance amount, not PIA.

PIA crash Karachi
The A320 crashed in Karachi after both of its engines failed. Photo: Getty Images

In the unfortunate crash that happened last week, 97 passengers and crew members perished. Only two passengers were lucky enough to escape miraculously. The positive news for the family of the deceased is that NICL has allotted insurance amount for every passenger on board.

The family of each victim will be provided with Rs 1 million (US$ 6119) for making arrangements for the burial. Moreover, the heirs of the victim will be given Rs 5 million (US$ 30595) in insurance after legal formalities are completed.

A PIA spokesperson has said that the processing of claims will be done as quickly as possible. Last time a PIA aircraft crashed in 2016, it took five-six months to process the insurance amount.

Crash probe continues

The investigation into the crash is underway after the black box of the aircraft was recovered yesterday. An 11-member team of experts belonging to Airbus had already arrived in Karachi on May 26. They will be assisting Pakistani investigators in the investigation process and will take the aircraft’s flight data recorder and cockpit voice recorder back to France to decode them.

FRANCE-AIRBUS-A330NEO-AVIATION Getty
An A330 from Toulouse carried an investigation team of Airbus. Photo: Getty Images

Aircraft Accident and Investigation Board (AAIB) is also present at the site of the crash where the debris and wreckage of the plane are being lifted. The recovered parts will then be shifted to an empty hangar at Karachi airport, where the aircraft will be reassembled for investigation.

Altogether, out of the 97 people killed, only 44 bodies have been identified. DNA matching process is going on at a Karachi University laboratory to identify the remaining bodies. President of Pakistan, Dr. Arif Alvi has said that the crash was a great tragedy that has shocked the entire nation.

Share your thoughts on this topic in the comments section.

Source : Simple Flying More   

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