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United Still Can't Convince the World That Its Merger Worked

Meanwhile, Cowen analyst Helane Becker has an outperform rating and a price target of $39. Becker wrote late Thursday that the market "punished the stock today for guiding to weaker than expected July passenger revenue per available seat mile." The shares recovered late in the day, she said, "as investors realized there are opportunities for the third quarter PRASM to improve if bookings remain strong." The market also seemed concerned about the projected full-year increase of 5.5% to 6.5% in cost per available seat mile, partially attributed to higher costs for post-merger labor contracts.

On the operational side, United suffered severe disruptions in the summer of 2012, a result of merger mess-ups. Now, the carrier appears on its way to its goal of an 81% on-time performance. In July 2012, just 64% of flights arrived on time.

In May, according to the latest statistics available from the U.S. Department of Transportation, United ranked ninth among 16 airlines, with an on-time percentage of 79.7%, slightly ahead of the industry average of 79.4%. For the 12 months ended in May, United ranked 12th at 76.2%, below the industry average of 78.5%. P/>Reviewing the merger briefly, by 2010, United CEO Glenn Tilton had spent four years desperately searching for a merger partner. He finally managed to talk Continental management into doing something it didn't want to do. Continental at the time was the best U.S. airline, known for its appeal to corporate customers, its amiable employee relations and its overall industry leadership -- the spot occupied by American in the 1990s and now by Delta.

It is easy to forget now that for nine straight years, Continental was the highest ranked U.S. airline on the Fortune magazine list of the world's most admired companies. One former Continental executive has told me that if Continental had a chance to do it over again, it probably wouldn't.

Nevertheless, it is clear that vast synergies resulted from combining Continental's Newark and Houston hubs, considered the first and third most profitable U.S. hubs in terms of profit margin, with what was viewed even without them as the world's best global route network.

Had no merger occurred, would organic growth have kept Continental competitive with bigger competitors? Or would the carrier be struggling to keep up and viewed as having missed the opportunity that consolidation offered?

During Thursday's earnings call, CEO Jeff Smisek declared at one point, "We have clearly turned the corner post-merger." Smisek also responded at length to JPMorgan's Baker's question about whether results met the carrier's goals. Baker asked: "Can you review for us each of the substantive steps you've taken to get results back on track, and will these initiatives actually make up for lost ground, or simply and hopefully drive improvement from here?"

Smisek said operations and financial performance are back on track, customer service has improved and customers now see things differently. "Our conversations with our corporate customers are very different than they were last year," Smisek said. "Last year was a year of apology. This year it's an opportunity for us to sell our services to our important corporate customers."

-- Written by Ted Reed in Charlotte, N.C.

>To contact the writer of this article, click here: Ted Reed
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