The Conspiracy Theory About Why United Airlines Says They Expect To Lose Money

The Conspiracy Theory About Why United Airlines Says They Expect To Lose Money

United Airlines announced a surprise deterioration in its financial performance for the first quarter, prompting Delta to re-state its guidance for profit. American Airlines hasn’t revised downward.

Combined with a broad sense of bank fragility in the face of rising interest rates, alongside a concern that we’re late in the economic cycle and potentially headed into recession, United’s announcement worried some observers that it was a sign that consumer spending was tightening alongside shrinking household balance sheets.

But what changed at United? They cite some booking softness earlier in the year. And they made a decision to accrue costs related to a new pilot contract into the first quarter for their projections. Isn’t that… a little weird since there’s no new pilot contract yet, and the first quarter doesn’t have much time left in which to get to a deal?

The Company has determined that it is appropriate to accrue expense in the first quarter 2023 related to a potential new collective bargaining agreement with employees represented by the Air Line Pilots Association. This accrual represents a shift in the timing of the associated expense from the second quarter 2023 into the first quarter 2023.

Delta Air Lines has a record-setting new pilot contract. American says that they’ll match pay, so that senior captains make up to $590,000 per year though the union responded by calling for a strike authorization vote. They want work rule improvements to match Delta, too.

United had a deal with its union, but that was pulled when the union saw how much other airlines were prepared to pay. There’s since been a changeover in leadership at the United chapter of the Air Line Pilot Association.

Live and Let’s Fly offers the conspiracy theory of United’s earnings projections shift: that it’s a way to bargain down the pilots by suggesting that sure, Delta made a commitment to its pilots as the economy looked strong but now:

  1. United is going to lose money
  2. And the economy is teetering

Thus that author wonders if it “is it really so far-fetched to wonder whether this is all part of a strategy aimed at tempering the new contract?”

I agree that it’s a bit of an odd choice to accrue costs of a pilot contract that doesn’t currently exist into first quarter numbers in guiding the airline’s results. However this is mere days after the Wall Street Journal reported that the SEC is specifically looking at companies that are manipulating their numbers although in that case in the opposite direction, trying to ‘meet their numbers’.

While it’s almost certainly the case that companies do this – there’s almost no way that GE under CEO Jack Welch hit its numbers exactly, quarter after quarter and year after year for instance – surely there are people in the carrier’s finance shop who read the indispensable Matt Levine and therefore know that everything is securities fraud.

I don’t agree that a major earnings announcement, covered broadly in the press and filed with the SEC in the form of an 8-K, is being manipulated in order to gain rhetorical leverage in bargaining with the airline’s pilots.

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