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United Airlines Sees Drop in Demand As Coronavirus Cases Surge

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United Airlines Holdings, Inc. (UAL - Free Report) is witnessing reduced demand to some domestic destinations following a surge in COVID-19 cases as well as new quarantine requirements.

At a Town Hall on Jul 6, management informed that the company’s June consolidated capacity was down approximately 88% year over year, while the July schedule is expected to decline roughly 75%. Meanwhile, the August schedule is anticipated to be down approximately 65% year over year. This indicates a decline from the company’s earlier expectation to fly about 40% of the August 2019 schedule. The anticipated reduction in August capacity is a result of reduced demand following the announcement of new quarantine rules in New York, New Jersey and Connecticut last month.

Prior to the quarantine mandates, the airline was seeing steady uptick in passenger demand (compared with the lows witnessed in April), as a result of which it planned to add nearly 25,000 flights in August, triple the size of its June schedule.

Management stated that the company will continue to evaluate and cancel flights on a rolling 60-day basis until there are signs of recovery in demand. Anticipating demand to remain suppressed until the virus concerns fade, the company assumes consolidated capacity for the rest of 2020 to be commensurate with August 2020 schedule.

Given this uncertain demand scenario, United Airlines, carrying a Zacks Rank #3 (Hold), plans to send Worker Adjustment and Retraining Notifications (“WARN”) to its employees soon, regarding potential furloughs starting Oct 1. Notably, U.S. airlines getting financial assistance under the CARES Act are barred from laying off employees until Sep 30. The uncertain demand recovery is affecting all airlines alike. Last month, Delta Air Lines (DAL - Free Report) , carrying a Zacks Rank #3, revealed that it was sending WARN notices to its employees.

Key Picks

Some better-ranked stocks in the broader Transportation sector are Martin Midstream Partners LP (MMLP - Free Report) and StealthGas Inc (GASS - Free Report) , both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

While Martin Midstream Partners surpassed the zacks Consensus estimate for earnings in three of the preceding four quarters, StealthGas beat estimates in each of the trailing four quarters.

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