United's New, Basic Fare Sends Shares Upward

Investors in United Continental Holdings (UAL)  saw a 5% boost on Tuesday following the company's announcement on its "investors day" that it would be rolling out a new "Basic Economy" fare class in early 2017 to compete with a growing cadre of low-cost economy air carriers.

These carriers, which include Allegiant, Frontier Airlines and Spirit Airlines, offer bare-minimum services. A traveler's ticket price includes a spot on the plane and a small carry-on bag; everything else, from a seat reservation to larger baggage allowance, to even a cup of water, must be purchased extra. The low-cost fares are popular with cost-conscious Millennials, who now make up the largest part of the U.S. population.

United's Basic Economy tickets will include snacks and basic beverages, according to the company, but users will be allowed to neither reserve seats nor alter their flight schedules. And full-size carry-on luggage will not be allowed for the basic price.

"The new offering provides the added benefit for customers and employees of simplifying the boarding process, as fewer customers will bring overhead bags on board," United explained.

United is joining a growing list of major airlines that have begun rolling out cost-saving fares, including Delta Air Lines and American Airlines. Delta is already slated to start rolling out a special economy-grade cabin for international flights with just a bit more legroom.

It's unknown whether United will go so far in embracing economy class, but Tuesday's announcement does highlight that the company is adjusting its business to a more competitive market.

That's good news for United and its investors, who have been enjoying some more-than-decent gains in the second half of the year. Better-than-expected revenue and sales have helped the stock edge up by nearly 75% since the end of June.

Big-time investors are taking note, as well. On Tuesday, an extra push was given to United's stock whenBerkshire Hathaway, the holding company led by super investor Warren Buffett, reportedly took stakes in United, along with Delta, American, and Southwest Airlines.

Until now, Buffett had been notoriously shy of investing in airlines. But with the four biggest players in the space in his portfolio, this bodes well for the airline industry, United included.

If you're keen on airline stocks, particularly ahead of the busy holiday travel season, United presents a solid opportunity for gains.

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The author is an independent contributor who at the time of publication owned none of the stocks mentioned.

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