Ok, time for me to sit down with the numbers and craft a coherent response to some of the misconceptions being spread around here.
There is only ONE important number in this game and that is the bottom line. Unfortunately, UAL is so far under water that breaking even with the surface is not even in sight. I have tremendous respect for the strong OPERATIONAL performance that United staff have put up, but its kinda like setting a new world record for running 100 meters in the wrong direction.
The bottom line remains that UAL's net worth deteriorated by $1.3 billion in Q1'03. The company was already BANKRUPT. That means that the sum value of liabilities was already greater than the sum value of assets (this doesn't even consider the practical point that asset values significantly deteriorate when liquidated on involuntary terms). The $1.3 billion is just more debt being accumulated, thus creating a deeper hole to climb out of. Alas, no amount of on-time flights, customer satisfaction surveys or properly handled checked bags will change the reality.
UAL loves to talk about a quantity called EBITDAR (Earnings Before Interest, Taxes, Depreciation, Amortization and Rent). In layman's terms, EBITDAR can be likened to a guy who claims he has thousands of dollars in disposable income because he doesn't pay taxes, lives in his parents basement and has credit cards with high limits that he doesn't ever pay off. He may think he's cool, but most sensible people think he's a walking recipe for disaster.
UAL is facing an uphill climb right now. Passenger revenues have plunged 7.6% over Q1'02 despite an increase in ASMs offered. At the same time, expenses have remained essentially constant despite all the restructuring work allegedly being performed. A large component of this has been the fuel price spike, but when you consider that fuel prices were below average during Q1'02, that excuse carries a lot less weight. Nonetheless, an airline can't operate without fuel and this is a risk of the game. If UAL hadn't messed up their house so badly over the last few years, they would have had enough liquidity on hand to fuel hedge and spare themselves this problem.
More importantly, loads are flat at 72% while breakeven is up to 96%. Yields have plunged by 9% year-on-year, while CASM has only been controlled by less than 2% excluding fuel component and is actually UP
by 0.5% on an absolute basis.
I'm skeptical about the dollar value placed on the labor concessions, but even taking that at face value and assuming no further deterioration in the ratios above UAL will still lose about $3 million per day in Q2
. Note that this does not equate to $3 million cash burn, because all losses are not neccessarily cash losses. That is a very important distinction to make in Chapter 11 because it permits the airline to maintain a more flexible cash balance (allowing continued operations) despite the inability of the operation to become a viable entity outside of protection.
However, "less loss" is not the solution to this problem. UAL is in a free fall that has not shown any sign of slowing yet (although it may do so in Q2
'03 comparitive to Q1'03 simply based on stronger traffic forecasts). Nonetheless, the downward plunge continues. And unless there is a radical change of direction, which we HAVE NOT seen, they will run out of space and eventually splat on the pavement.
"The A340-300 may boast a long range, but the A340 is underpowered" -- Robert Milton, CEO - Air Canada