United swoons as plan sparks new face-off
UNITED Continental Holdings Inc.’s plan to grow its way to better profits led to another rocky encounter with Wall Street.
At a presentation in New York, President Scott Kirby said an accelerated expansion would pay off in the long term by boosting market share at United’s major hubs in Chicago, Houston and Denver.
He and Chief Executive Officer Oscar Munoz are doubling down on a strategy of adding flights and using bigger jets on some routes to win back customers and, eventually, increase profit.
But investors, wary of the potential for reviving a fare war, signaled they aren’t willing to endure another year of weak earnings as United tries to catch up to rivals.
Analysts pressed Munoz and Kirby to explain when they would follow through on a vow to expand profit margins, after more than a year since United adopted its aggressive approach.
“2017 was supposed to be the transition year,” Jamie Baker, an analyst at JPMorgan Chase, told the executives.
The company’s 2018 outlook “implies another year of margin contraction.” The exchange at the investor meeting Tuesday evoked an even testier standoff in October, when Munoz and Kirby failed to reassure investors that they would firm up pricing power and rein in costs.
That time, United plunged 12 per cent, the most in eight years. Last Wednesday, the shares tumbled 7.1 per cent to US$ 72.40 ( RM ahead of regular trading in New York.
That threatened to derail the airline’s recent rally, the biggest among major carriers since the October swoon. American Airlines Group Inc. and Delta Air Lines Inc. also dropped sharply after United’s growth forecast on Tuesday.
United opened the unusual late-afternoon presentation on an upbeat note, announcing fourthquarter earnings of US$ 1.40 a share, which beat the US$ 1.34 average of analyst estimates compiled by Bloomberg. Revenue rose 4.3 per cent to US$ 9.44 billion, in line with expectations.