United Has Flown Past Merger Disruption: Analysts

CHICAGO (TheStreet) -- Among airlines, United (UAL) probably reported the most disappointing first-quarter results. But some analysts now believe that United's tough merger transition is behind it.

In the first quarter, the world's biggest carrier said it lost $448 million primarily because of costs associated with the integration of reservations and revenue management systems following the merger with Continental. The conversion required 1.7 million hours of training, upgrades to more than 12,000 workstations, migrations of more than 17 million passenger records and reductions in booking levels in order to better manage the transition.

Rival Delta (DAL) and United had nearly identical first-quarter revenue of around $8.5 billion (American (AAMRQ.PK) had $6.5 billion.) yet Delta reported a loss excluding items of $39 million.

Nevertheless, United's July 10 schedule change announcement prompted two veteran analysts to conclude that UA's problems may be behind it.

The changes include new daily service from San Francisco to Taiwan and Paris, as well as expanded service in Chicago and minor growth elsewhere. Earlier, United filed changes that eliminated Houston-Paris service and several other Houston flights.

"We are now seeing concrete evidence that UAL is taking the right steps to generate meaningful efficiencies from the merger," wrote Imperial Capital analyst Bob McAdoo. CRT Capital Group analyst Mike Derchin wrote: "Evidence that the integration is beginning to work comes from UAL's recent announced plans to launch year-round and seasonal service over several new international and domestic routes."

United shares have risen 12% year to date, but they have fallen back in July as oil prices have risen. For the month, shares are down 11% to $21.55. During the same period, the ARCA Airline Index is down 4% while Delta and US Airways (LCC) shares are down 10%.

United will report second-quarter earnings on Thursday. Analysts surveyed by Thomson Reuters are estimating earnings of $1.70 a share, up from $1.49 a year earlier.

McAdoo has an outperform rating and a $36 price target for United. He noted that this fall, United will cut about 1% of its capacity in Houston, currently its largest hub, because "as United continues to integrate United and Continental under one brand, it is clear that some of Continental's traffic that connected over Houston can better be routed over the United hubs in Chicago and Denver."

1 2 3 Next › Last »