United Airlines Holdings Inc (UAL - Free Report) is planning some dramatic capacity reductions and stringent cost controls as the airline battles against receding air travel demand from the fast-evolving coronavirus outbreak.
In a first by any U.S. airline, the carrier plans to trim domestic capacity by 10%. The Chicago, IL-based airline intends to cut back U.S. and Canadian flights by 10% as well as slash capacity on international schedule by 20% in April. The flight schedule reductions might continue in May as well.
Simultaneously, United Airlines is putting a stop to hiring (except for crucial roles) at least through Jun 30. Also, 2019 merit salary increases for all management and administrative employees is being postponed from April 1 to July 1. This excludes employees falling under the collective bargaining agreements, who will continue to receive timely increments.
The plight of the carrier can be further gauged from the airlines’ decision giving employees the option to apply for unpaid leave of absence voluntarily. In some cases, they can also ask for a reduced work schedule.
With the airline reportedly having greater international exposure among all U.S. airlines, the novel coronavirus outbreak, having already spread to more than 75 countries across the globe infecting more than 95,000 people and claiming over 3,200 lives, is clearly taking a significant toll on its prospects.
Coronavirus-Led Low Demand Weighs on Shares
Earlier in the month, United Airlines cancelled its investor day amid uncertainty surrounding its long-term strategy, considering how unclear the extent and duration of the viral outbreak is. The carrier already withdrew its 2020 outlook.
With a substantial drop in demand, the carrier extended the suspension of its U.S. flights to mainland China and Hong Kong through Apr 30, 2020 from the previous cancellation through Apr 24. Additionally, the airline reduced approximately two thirds of its flights to Seoul, a third of flights to Japan and 40% of flights to Singapore. Moreover, the Chicago, IL-based airline is operating some routes on a smaller aircraft due to slackened demand.
To counteract the waning demand situation and encourage customers to travel without worrying over change in travel plans, United Airlines recently waived change fees on bookings through Mar 31. Customers can cancel tickets (in exchange for another ticket for travel within 12 months from the date of issuance of the ticket) without any change fees.
Amid this turbulence, shares of the company have plunged more than 26% in a month’s time.
Viral Outbreak Rattles Airline Industry
Concerns over the rapidly-spreading virus outbreak has crippled the entire airline industry by significantly lowering travel demand. In response, numerous airlines across the globe, including Delta Air Lines (DAL - Free Report) , American Airlines (AAL - Free Report) , Ryanair Holdings and LATAM Airlines are trimming capacity. JetBlue Airways JBLU also plans to cut capacity by approximately 5% "in the near term to address the fall in demand". The airline is also taking other cost-control measures, such as "delaying or canceling upcoming events and meetings" and "reducing hiring for frontline and support center positions".
United Airlines carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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