United warns about COVID-19 surge as U.S. airlines move toward federal loans

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(C) Reuters. Delta Air Lines passenger planes parked in Birmingham

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By Tracy Rucinski

CHICAGO (Reuters) – The largest U.S. air carriers have all signed letters of intent on federal loans to help them weather the novel coronavirus, with United Airlines warning employees on Tuesday that a surge in outbreaks was hitting bookings, threatening a travel rebound and jobs.

United employees should expect to receive as soon as this week notices about potential furloughs effective Oct. 1, the airline said in a regulatory filing. It expects travel demand to remain depressed until a widely accepted COVID-19 treatment or vaccine is found, with no straight line to an industry recovery.

U.S. airline shares closed 5% lower on Tuesday, with United down 7.6%.

While travel had picked up in some areas over the past two months from pandemic-driven lows in April, United has seen reservations for travel within the coming month slide after New York, New Jersey and Connecticut said they would require people arriving from hot-spot states to quarantine for 14 days.

The slump was most pronounced at United’s Newark hub, where near-term net bookings were just about 16% of year-ago levels as of July 1. Raymond James analyst Savanthi Syth said the bookings trend was likely much broader than the New York area.

Andrew Nocella, United’s chief commercial officer, told employees at a virtual town hall meeting on Tuesday that its network would be slightly more impacted than other U.S. domestic airlines, sources said after the meeting.

It is among U.S. airlines encouraging employees to accept voluntary departure packages to help prevent tens of thousands of job losses in the fall but said not enough workers have signed up ahead of a July 15 deadline to apply.

U.S. airlines have drastically reduced their flight capacity and rushed to shore up capital while warning that tens of thousands of jobs could be at risk as the industry braces for a slow recovery.

United sees domestic load factors at around 50% in July versus around 80% normally, with international loads around 30%, and will continue to adjust its capacity based on demand.

Delta Air Lines (NYSE:DAL) said last week it may scale back the number of flights it had planned for August.

United and Delta were among U.S. carriers – along with Alaska Airlines, JetBlue Airways (NASDAQ:JBLU) and Southwest Airlines (NYSE:LUV) – that the U.S. Treasury Department said on Tuesday had signed letters regarding the terms of a $25 billion loan package under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

Last week, the department said it had agreed on the terms for government loans under the CARES Act with five other airlines including American Airlines (NASDAQ:AAL).

U.S. airlines have already received $25 billion in payroll aid under the CARES Act to protect jobs through September and have until Sept. 30 to decide whether to take the loan, which would include the issue of warrants and restrictions on executive compensation and share buybacks.

U.S. unions representing aviation workers have separately asked lawmakers to extend the payroll aid package through March as Congress considers a new round of spending to address coronavirus-related issues and jobs.