United Airlines Results Impress Wall Street; Pilots Are Doubtful

Chicago (TheStreet) -- Wall Street analysts cheered United's (UAL) second-quarter results. Investors too reacted favorably, pushing shares up 10% on the day results were announced. But United pilots remain deeply skeptical.

United reported that second-quarter net income rose 51%, and the carrier beat analyst estimates. United shares started the week of July 23 at $44.25. After the earnings report on July 24, shares opened at $48.93. They have fallen back since then, closing Monday at $46.55, up 23% year-to-date.

In a recent report, Wolfe Research analyst Hunter Keay echoed an increasingly common thought, saying, "We feel United has turned the quarter." Keay called the earnings call "the best we've heard since the merger" with Continental in 2010. Meanwhile, Stifel Nicolaus analyst Joseph DiNardi wrote that United's "solid quarter illustrates progress being made." He has a buy rating and a $60 price target.

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United pilot leaders see things differently. In an e-mail, officers of the Chicago chapter of the Air Line Pilots Association reminded members that United profits are "still lagging well behind Delta (DAL) and American (AAL)." Although revenues for the three carriers are similar, United's year-to-date net income of $430 million compares unfavorably to $1.5 billion and $1.8 billion, respectively, at the competitors, the pilot leaders said.

In the first quarter of 2014, United lost $489 million while Delta and American reported record results. Earlier, United earnings declined for nine consecutive quarters starting in the second quarter of 2011.

"There is nothing wrong with being third, but a distant third that continues to lag further and further behind our two largest competitors places us in a very precarious position," wrote Chicago ALPA chapter chairman Eric Popper, vice-chairman Carlos Rodriguez and secretary/treasurer John Briggs. A copy of their e-mail was obtained by TheStreet.

Pilots have been particularly critical of CEO Jeff Smisek. In a letter to pilots on May 9, following a closed-door meeting of United pilot leaders, Jay Hepner, chairman of the United ALPA chapter, said pilots have "developed a strategic plan to make our airline better." The plan included "making ALPA part of the collective solution in developing the infrastructure and processes (and) resolving the major shortcomings that are bleeding this company," Hepner wrote.

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On the second-quarter call, a reporter asked Smisek to discuss his relationship with pilots and whether consultation with pilots had contributed to the improvement.

"I think we have a good relationship with ALPA," Smisek said. "We are in close consultations with our pilots on many matters.... We want to make sure that we have the right culture with everybody at this company, including our pilots, and I think we're making good progress."

Smisek attributed some issues with pilot scheduling to "moving everyone to a single crew management system," part of the merger integration process, early this year, and to Federal Aviation Administration pilot scheduling requirements that took effect in January. "We had some hiccups in some of those implementations, which adversely affected some of our pilots," Smisek said.

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