United Finds Unfriendly Skies, but Holly Sees a Silver Lining

The company was upfront about the negative news -- and is a good buy compared with its peers.
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Stop the press.

United Airlines

, owned by

UAL

(UAL) - Get Report

, is not going to meet current analyst

expectations for the year 2000.

Reasons? Higher labor costs associated with the airline's employee stock ownership plan wind-down and an estimated 25% increase in fuel prices.

Watch the stock drop as shares are thrown overboard from the sinking ship -- 6%, 8%, 10%.

Should this news come as a surprise to anyone?

Well, you know what, airline fans? It shouldn't. In fact, at 64 and change, long term, I'd be a buyer. Yes I would.

You know how I hate to agree with analysts. Makes me nervous. But I agree wholeheartedly with Brian Harris, analyst at

Salomon Smith Barney

, who said in his note on the United news this afternoon, "We believe the stock is dirt cheap on valuation; trading at 6.5 times 2000 earnings vs. 8.7 times for the sector." Harris' firm, which has done no underwriting for United, rates the airline's stock a buy.

Thank you.

I just gave the thumbs up to United last week in our own newsletter as being one of the majors that I liked in 2000. However, the only concern was costs the airline was facing in connection with unwinding its ESOP. This process will be expensive, and was the only negative news of note where the full financial impact was unclear.

Fuel costs? You know, if someone is serious about investing in this industry and doesn't understand that fuel costs are going to be going up in 2000, then they really should go back to trading shares of

Qualcomm

(QCOM) - Get Report

.

So, my take on United's news today?

First, my congratulations to the airline for being so

open

in its

announcement. A full script of CEO Jim Goodwin's morning comments to analysts was made available publicly ahead of time. In addition, I like the way the airline stepped up and got all the bad news out of the way. Take the lumps and go on.

Granted, United execs had to know that the Street would react exactly as it did. I mean, that is what the Street does. "The sky is falling -- quick, sell that stock!"

All too often, airlines are not forthcoming about bad news. Instead, they either don't disclose negative information until long after the fact, or they dribble it out -- in an attempt to keep the stock price propped up.

Can we say ... Rakesh, how come you didn't tell the Street how bad things were at

US Airways

(U) - Get Report

sooner? (This was an actual question asked of the US Airways' CEO at the recent

Salomon Smith Barney Transportation Conference

.)

United took the other route. Let the chips fall and take the short-term hit. Long term, it is the better thing to do.

I also like the fact that the airline is creating a separate e-commerce unit. While somewhat lost in the flap over all the negative news, this is a great idea. Recycled airline managers from the prehistoric ages don't need to be reassigned to the "new" Internet division of an airline. It truly is a function that deserves specific attention.

Kudos to United for being upfront about the e-commerce move. Note that Susan Donofrio at

Deutsche Bank Alex Brown

Wednesday initiated coverage of

America West

(AWA)

with a buy rating. In her research note, Donofrio talked about the new e-commerce unit of America West that is on tap. Huh? Would be nice if America West had told the public, instead of letting us find out about it from an analyst's research note.

Holly Hegeman, based in Barrington, R.I., pilots the Wing Tips column for TheStreet.com. At time of publication, Hegeman held no positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. You can usually find Hegeman, publisher of PlaneBusiness Banter, buzzing around her airline industry Web site at

www.planebusiness.com. While she cannot provide investment advice or recommendations, she welcomes your feedback at

hhegeman@planebusiness.com.