United Taps Frequent Flyer Program for $5 Billion Loan as Air Travel Remains Sluggish

June 16, 2020

United Airlines is using its frequent flyer program to borrow $5 billion as passenger travel, which ground to a near-halt during the COVID-19 pandemic, starts to pick up but remains far short of a typical summer travel season.

The loan secured by its loyalty program isn’t expected to change how the program works for passengers, and is being used to provide a financial cushion in case there is a future spike in COVID-19 cases.

The additional funds would leave the airline with $17 billion in available liquidity this fall, United said in a news release Monday. That includes a $4.5 billion loan available to the airline through the $2.2 trillion federal coronavirus relief package. United said it believes it has the collateral necessary to borrow all $4.5 billion but hasn’t yet determined whether to tap those funds.

In addition to lining up funding, United has been working to slash costs while waiting for passenger travel, which plummeted amid concerns about COVID-19 and restrictions on travel earlier this year, to recover. Passenger revenues were down 98% in April compared with the same month last year, United said.

The airline said it’s starting to see signs people are flying again. United expects passenger revenues to grow 50% to 100% between June and July, though that will still be down as much as 88% compared with last July, normally part of the busy summer travel season.

The airline’s domestic flying capacity is expected to be down about 70% in July compared with the same month last year. Still, that’s roughly double the airline’s flying in June. International capacity in July is expected to drop about 80%.

Thousands of employees have volunteered for unpaid leave, reduced work hours or voluntary separation programs since March, including about 1,300 management and administrative employees who took voluntary separation packages. That’s about 10% of the airline’s white-collar workforce, and employees who took the packages will leave this month.

United has also reduced capital expenditures, suspended raises, frozen hiring, reduced executive pay and eliminated base salaries for the CEO and president.

The airline warned in a Monday regulatory filing that “furloughs or other measures” may still be needed to further cut payroll costs this fall. United and other airlines that received financial assistance from the federal government through the coronavirus relief act are required to avoid involuntary layoffs and pay rate cuts through Sept. 30.

The airline declined to comment further but said it would begin notifying employees affected next month.

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