United Airlines To Keep A Larger Leisure Footprint Post-Crisis

United Airlines faced a very difficult 2020. As the most exposed long-haul international US carrier, the airline’s presence…

United Airlines To Keep A Larger Leisure Footprint Post-Crisis

United Airlines faced a very difficult 2020. As the most exposed long-haul international US carrier, the airline’s presence in Asia, Oceania, and Europe seemed as if it could be a significant burden with the steep drop-off and lack of visibility on the return of international travel. The airline retrenched and decided to turn to a heavier leisure footprint in the United States. Moving forward, the carrier now plans to keep a larger leisure footprint than it had pre-crisis.

United Airlines is planning to keep a heavier leisure footprint. Photo: Vincenzo Pace | Simple Flying

United Airlines wants to keep a larger leisure footprint

Throughout the pandemic, leisure travelers came back first. With the rise of remote work and no corporate restrictions on travel – though restrictions did vary by state – airlines started to pivot their route networks to cater to the increase in demand to key geographies. For example, in summer 2020, leisure travelers flocked to the Florida beaches, the mountains in the Western US, and national parks across the country. United Airlines responded in kind with increased frequencies to leisure-oriented destinations, and now it wants to keep that positioning in its post-crisis network.

Speaking on the carrier’s second-quarter earnings call, Chief Commercial Officer Andrew Nocella stated the following on the carrier’s leisure positioning during the crisis:

“We did, as I would say, tilt our capacity toward more leisure-oriented markets during the crisis, and we continue to do so – and will do so – for at least the rest of this year. And the tilting of those ASMs [available seat miles] toward more leisure-oriented markets, I think, has helped us during this recovery.”

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United has also increased gauge on some flights to Florida, allowing for more travelers to book flights on United to the state. Photo: Vincenzo Pace | Simple Flying

Moving forward, he discussed where he wants to see United’s network adapt toward leisure:

“We do intend to keep a bigger footprint in these leisure markets going forward, in particular Florida, where United was undersized, and that undersizing had led to Q1 results for United that could seasonally trail others. We’re hopeful that, on the other side of this crisis, as we rebuild the airline and we rebuild the network, we’re going to build it better and we’re going to be a bigger player in these leisure oriented markets in the Q1 time period than we have historically been.”

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Expect United to add leisure flying out of its hubs mostly. Photo: Vincenzo Pace | Simple Flying

A key winter and spring destination

The first quarter encompasses January, February, and March. While there will be a good chunk of bookings for travel in this quarter that is ticketed in December, travel for spring break, and February usually is booked in the first quarter, plus the close-in bookings in January.

The generally popular destinations during this time of year are in Florida. Home to beaches, theme parks, and more, winter-weary travelers from the northern United States tend to get out and travel to beaches during January and February. College students and families flock to Florida to enjoy the spring break season, which usually rolls around in March.

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United will also have plenty of growth opportunities in the future. Photo: Vincenzo Pace | Simple Flying

In fact, for 2020, the real boost in the recovery and passenger demand growth happened in March. Spring break was the real impetus for families and young adults getting out after experiencing a year of severely reduced travel due to the pandemic.

United certainly has room to grow in this market, and it is certainly starting to make amends in this market. During the crisis, it added a host of point-to-point leisure routes to Florida – its largest point-to-point expansion in recent memory.

Moving forward, the plan will be to keep a healthier footprint in these markets, but it will tend to connect those cities to its hubs. This includes Newark, Denver, Chicago, Washington D.C., Houston, and San Francisco. Cleveland, a former United hub, also is a city that should maintain nonstop frequencies to Florida.

Are you glad to see that United plans to keep a heavier leisure footprint post-crisis? Let us know in the comments!

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American Airlines Has Started Paying Down Its Debt

With the crisis subsiding and American Airlines steaming toward profitability, the carrier has started to repair its balance…

American Airlines Has Started Paying Down Its Debt

With the crisis subsiding and American Airlines steaming toward profitability, the carrier has started to repair its balance sheet. One of the big endeavors the airline is taking over the next few years is paying down its debt. Paying off a $950 million term loan just last week, the airline is making plans to pay down approximately $15 billion in debt by the end of 2025.

American Airlines is making strides in paying down its debt. Photo: Vincenzo Pace | Simple Flying

American Airlines has begun to pay down its debt

On Thursday, American Airlines reported its second-quarter 2021 financial results. Reporting a very small net profit, the carrier is also sitting on an enhanced liquidity position of over $21 billion. Expecting to continue generating cash on its own, the airline has looked at ways to use that cash efficiently and smartly.

On Thursday, the airline announced a prepayment of a $950 million spare parts term loan. This was scheduled to mature in April 2023, but American found it beneficial to pay it off ahead of time and start deleveraging its balance sheet.

The $950 million prepayment comes on top of the $985 million of debt amortization and prepayments made during the second quarter.

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American Airlines prepaid a $950 million loan. Photo: Vincenzo Pace | Simple Flying

Further plans to free up assets and paying down more debt

American Airlines has plans to free up 20 Boeing 777 aircraft in the third quarter. As Chief Financial Officer Derek Kerr stated on the airline’s second-quarter earnings call:

“During the third quarter, we will also free up 20 Boeing 777 aircraft that will be released out of the 2013-2 and 2013-1 EETC transactions, further improving our unencumbered asset base. The deleveraging of American’s balance sheet has begun, and we are committed to significant, steady and continuous debt reduction over the years ahead.”

Enhanced equipment trust certificates (EETCs) are a way for airlines to finance fleet acquisitions. The aircraft serve as collateral, and it is just one way carriers can finance new fleet acquisitions or use the cash for other pressing financial needs.

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American Airlines is looking to free up more aircraft assets. Photo: Vincenzo Pace | Simple Flying

Heading into the crisis, there was a lot of speculation about what would happen concerning American Airlines’ debt position. The carrier entered 2020 with total long-term debt of over $23 billion or under $21 billion net of current maturities.

At the end of 2020, American Airlines had total long-term debt in the amount of $32.8 billion. It did make a few more debt-related transactions, including a large series of financing backed by the AAdvantage loyalty program to the tune of $10 billion in 2021. This pushed American’s total long-term debt as of June 30th to $39.9 billion. Note that this number includes current maturities and the spare parts term loan that was not paid down until after the second quarter ended. Factoring that, American has around $36 billion worth of long-term debt.

The plan is to continue paying down the debt. Mr. Kerr further discussed the carrier’s plan to pay down the debt:

“We now forecast reducing our debt levels by more than $15 billion by the end of 2025 by using excess cash and free cash flow to pay down prepayable debt, even though most of it is efficiently priced and by not adding to our debt levels by potentially using cash instead of debt for some future aircraft deliveries.”

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AA took on some more debt in the last decade to finance new aircraft orders. Photo: Vincenzo Pace | Simple Flying

Previously, American Airlines had planned to pay down $8 to $10 billion worth of debt by the end of 2025. The plan to accelerate the reduction of debt came as a result of American’s need to take on more debt during the crisis, but it still wants to deleverage the balance sheet as much as possible.

Why paying down debt is important

American Airlines spent much of the last decade investing in its future. A large portion of the carrier’s debt was to help pay for new and fuel-efficient aircraft to accelerate the modernization of the fleet. Taking on debt to pay for the aircraft helps reduce the carrier’s cash commitments in the near term, giving more flexibility to the carrier and making it easier to take on new jets.

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The paying down of debt will help free up more of American’s assets. Photo: Getty Images

Paying down debt has a lot of benefits. First and foremost, with more cash available on hand that it will not need to pay off interest or meet loan payment obligations, it can turn to own more aircraft outright, whether it be by paying cash for new aircraft deliveries or buying planes off lease. This increases its available pool of unencumbered assets that it can use later on, say during another crisis, to raise much-needed liquidity.

A deleveraged balance sheet will also help American Airlines improve its credit ratings and financial standing. So, when it does decide to order more jets, or if it needs to make investments in its fleet, or modernize its infrastructure, or whatever other large cash needs it may have, it can be in a better financial position to be able to raise debt to finance those kinds of investments.

Are you glad to see American Airlines start to pay down its debt again? Let us know in the comments!

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