Southwest Airlines (LUV) has gained 28% this year. Delta Air Lines (DAL) has risen 35%. American Airlines (AAL) has advanced 44%. And United Continental (UAL)? It’s gained just 7.1% in 2014.
Clearly, the market thinks something is wrong with United Continental. Wolfe Research’s Hunter Keay and Jared Shojaian explain what that might be:
We believe [United Continental] has a structural deficiency relative to peers. We believe this deficiency is partly a result of a network that is too large and uses planes that are not optimized for the routes they serve. We believe in order to fix this problem there must be a willingness to forego revenues in order to save costs. We believe bad IT and poor customer service metrics exacerbated the problem, but good IT and better customer service can't completely fix it. We believe planes need to be put down without replacement, we believe the associated headcount must be evaluated, and we believe a hard and honest evaluation of the value of the current network will yield a difficult conclusion: fewer planes, fewer cities served, and less revenue might result in lower costs and higher profits. We believe current [United Continental] management will get there.
Just how big a problem is United Continental’s size? Consider: United Continental flies 1,623 different route combinations, 58% more than Delta Air Lines and 65% more than American Airlines, Keay and Shojaian say. United also serves 471 airports, versus just 340 for American Airlines and 342 for Delta Airlines.
Shares of United Continental have dropped 0.8% to $40.58 at 2:33 p.m., while Southwest Airlines has fallen 0.9% to $24.12, Delta Air Lines gas gained 0.2% to $37.17 and American Airlines has ticked up 0.1% at $36.41.
No comments:
Post a Comment