This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

What's Wrong With United Airlines? A Little Bit of Everything

Stocks in this article: AAL DAL UAL

Chicago (TheStreet) -- Beleaguered United (UAL) poses the airline industry's biggest question: What's wrong with United? But no one seems able to answer it with certainty.

United has generally disappointed since its 2010 merger with Continental, which former CEO Glenn Tilton chased for eight years, including three in bankruptcy. In the first quarter of 2014, United lost $489 million while rivals American (AAL)and Delta (DAL) reported record results. Earlier, earnings declined for nine consecutive quarters starting in the second quarter of 2011.

Now United is under the microscope, but no one has isolated a single cause of its continuing underperformance. Rather, it seems, a multitude of problems are to blame.

The airline's pilots have been the most vocal critics. In a letter to members in April, leaders of the airlines' Newark pilot domicile called on CEO Jeff Smisek to step down. They blame problems in intra-company communications, bad morale, excessive outsourcing, and chronic information technology issues for driving away premium passengers. "Delta and American get the suits, we get the flip-flops and backpacks," they wrote.

Aviation consultant Bob Mann said he wonders whether executives know what's wrong, whether "they have done something and are waiting for a response," or whether "they don't know and are just struggling."

Aviation consultant Mike Boyd, like other experts questioned for this story, said he doesn't see obvious problems. Boyd said mainline service at United's hub in Denver, where he lives, is good. "The only issue I see is their quarterly report," he said. "They're not doing anything stupid, their market planning seems sound and their fleet plan is solid."

The safest conclusion seems to be that United suffers from a number of problems which, collectively, have caused many constituents -- employees and others -- to lose confidence in management. Many but not all.    

Last week, as part of a Wolfe Research airline investor presentation, analyst Hunter Keay hosted a dinner with United Chief Financial Officer John Rainey and other executives. The meeting "started off with difficult questions from investors," Keay wrote in a report issued Friday. "The tone was generally negative (but) management handled it well."

Keay said he left the dinner "increasingly optimistic that the current management team can turn things around." He has an outperform rating on the shares with a $54 price target.

United closed Friday at $43.57, up 15% year to date. During the same period, American shares have risen 55%, Delta shares rose 43%, Southwest (LUV) shares rose 37%, Alaska (ALK) shares rose 34% and JetBlue (JBLU)shares rose 7%.

Regarding United's first-quarter results, Keay said the carrier expected to lose about $300 million, but bad weather widened the loss by $200 million. United's business is more seasonal than its competitors', which "is part of why 1Q looked so bad," Keay said. "No one wants to go to United hubs like Denver or Chicago in February." Strong Florida traffic benefited Delta more than it benefited United, he added.

Additionally, Keay said, American benefits from labor costs that are $1 billion annually lower than United's labor costs. Since the merger, United has signed joint contracts with most labor groups including the largest, the International Association of Machinists. Also, the carrier said Monday it has reached agreement with the Association of Flight Attendants "to begin a collaborative process of faciitated problem-solving" in an effort to reach a joint contract.

1 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,778.15 +421.28 2.43%
S&P 500 2,061.23 +48.34 2.40%
NASDAQ 4,748.3960 +104.0840 2.24%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs