United Airlines warns of macro risks, says ready to act if economy softens further
FILE PHOTO: A Boeing 767-322ER aircraft of United Airlines takes off during cold winter weather from Zurich Airport near Ruemlang, Switzerland, December 14, 2022. REUTERS/Arnd Wiegmann
By Rajesh Kumar Singh
CHICAGO (Reuters) – United Airlines Holdings (NASDAQ:UAL) Inc on Wednesday said macroeconomic risks have increased following turmoil in the banking industry last month that led to a sharp, brief drop in business travel demand.
CEO Scott Kirby (NYSE:KEX) said while the company “feels good” about its full-year profit outlook, it stands ready to act if the economy softens further.
United expects to return to profit in the second quarter and has forecast a four-fold jump in profit this year.
The Chicago-based carrier said it saw an eight percentage point drop in business travel demand compared to 2019 in the immediate aftermath of Silicon Valley Bank’s failure.
Although the impact lasted just two weeks and bookings have recovered, the company suggested its earnings outlook could be at risk if the economy slips into a deep recession or has a hard landing.
“Our base case, therefore, remains a mild recession or soft landing,” Kirby said on an earnings call. “But we agree that the tail risk is higher than normal.
He said United has a lot of flexibility in managing its capacity. That coupled with improvements in its balance sheet will help it deal with a downturn, Kirby said.
It is also seeking to keep a lid on non-fuel operating costs by minimizing flight cancellations. The company has forecast operating expenses excluding fuel to be flat this year.
“We can’t control what happens at the macro economy, but we can and are doing a great job of controlling our costs,” Kirby said.
Pent-up travel demand as well as constrained airline capacity due to shortages of aircraft, spare parts and labor have, thus far, allowed the airline industry to avoid the fallout from a slowdown in the broader economy.
“The macroeconomic weakness is being offset with the counter trend of consumer spending continuing to rebalance back to services,” Kirby said.