- United Airlines continues to take a conservative path to traffic recovery with a goal of reducing the Q4 daily cash burn to $15 million.
- The airline has $19.4 billion in liquidity and a Q3 cash balance of $13.8 billion.
- My normalized ’22 EPS target remains $12+, making United cheap near $35.
- This idea was discussed in more depth with members of my private investing community, Out Fox The Street. Get started today »
United Airlines Holdings (NASDAQ:UAL) continues to muddle along reducing daily cash burn rates as air passenger traffic slowly rebounds. New CEO Scott Kirby appears far too negative on the traffic rebound, but the executive is optimistic about the long-term rebound in demand. My investment thesis remains bullish on the stock as the airline heads towards an ultimate recovery in 2021.
Cash Burn Issue
The current biggest issue for the domestic airlines is how quickly operations can return to cash flow breakeven levels. For Q3, United had an average daily cash burn of $21 million plus $4 million of debt and severance payments.
The amount compares favorably to the $24 million cash burn rate of Delta Air Lines (DAL) during Q3 and only $18 million for September. The numbers for both airlines exclude the CARES Act Payroll Support Program grants intended to cover excess employee costs over the last 6 months.
A prime example of the difference is that United Airlines reduced Q3 operating expenses by 48% while capacity was down 70%. The airline still had a major disconnect between capacity and the employee base, leading to the 13,000 furloughs on October 1.
