<p>The new corona virus destroyed the travel industry and dropped the demand for air travel to virtually nothing. This has many people wondering if things could get worse for the travel industry and United Airlines (NASDAQ: UAL).
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Well, it seems like the answer to that question is yes, it really could.
United reported its preliminary results for the first quarter this week. And the results were even worse than investors expected.
The preliminary earnings report showed that the company lost more than $ 2 billion in the first quarter alone. This not only led to the UAL share falling by more than 8%, but other airlines also hit.
American Airlines (NASDAQ: AAL), Delta Air Lines (NYSE: DAL), Southwest Airlines (NYSE: LUV) and other major airlines all fell by more than 5%. In total, the UAL share decreases by more than 70% compared with the previous year.
United profits in brief
United Airlines was the first airline to discuss the impact of coronavirus on its financial performance. Overall, the UAL stock decreased by $ 2.1 billion in profit and the company’s revenue during the first quarter decreased by 17% to $ 8 billion.
This is the largest financial loss the company has reported since 2008. Analysts had expected the company’s revenue to reach $ 8.2 billion.
The spread of the coronavirus eliminated approximately 90% of air travel and sent travel stocks that have been disrupted since the pandemic began taking up steam in the United States in March. And last week, company management warned that coronavirus would affect the company’s earnings during the first quarter.
In a letter to employees on April 15, President Scott Kirby and CEO Oscar Munoz described the effect the novel coronavirus has had on the company. Kirby and Munoz wrote that demand for travel “shows no signs of improvement in the short term.”
The company expects some government relief through the wage support program, but this is not enough to address the lasting effects of the coronavirus.
The road to recovery for UAL
United is taking steps to protect the company and its employees during this difficult time. The company secured $ 5 billion in federal government support, and it applied for $ 4.5 billion in additional loans.
United also raised money from BOC Aviation (OTCMKTS: BCVVF) by selling the company 22 aircraft. This is what is called a “sale-and-leaseback”, and this is when an airline sells its aircraft to another company and immediately leases it back. It is a common fundraising strategy for airlines as many airlines own hundreds of flights directly.
And most recently, United announced a public offering to raise more than $ 1 billion. The company is offering 39.25 million shares at $ 26.50 per share in a deal signed by Morgan Stanley and Barclays. This makes it the first airline to sell equity to survive Covid-19‘s economic downturn.
The conclusion for UAL stocks
UAL’s share income for the first quarter was not good, but the result for the second quarter will probably be much worse. The company plans to reduce capacity by 90% in May, saying it expects to fly “fewer people throughout the month of May than we did in a single day in May 2019.”
Some states are beginning to lukewarmly discuss plans to reopen the economy, but it is likely that things will not return to normal for a while. Customers will hesitate to fly for a long time and Wall Street expects the aviation industry to be 30% smaller by the end of 2020.
However, it is worth noting that Wall Street analysts give the company a moderate buy rating. Most expect UAL stocks to recover, but it is unclear how soon that will happen.
Jamie Johnson is a freelance writer for personal finance and has been writing for InvestorPlace since mid-2019. She writes for a number of other well-known financial websites, including Credit Karma, Quicken Loans and Bankrate. At the time of writing, Jamie Johnson had no position in any of the above securities.