United we fall
UAL execs’ cluelessness makes shares’ motto...
In the span of a one-hour conference call, Wall Street’s confidence in the leadership of United Airlines plummeted.
Analysts pressed CEO Oscar Munoz and President Scott Kirby on how they planned to deal with rising costs and falling pricing power. Would they rein in growth in the face of fare weakness? Provide more detail on revenue initiatives? Revisit financial goals outlined last year?
Munoz asked for “a little bit more patience.” The exchanges turned testy. And what began Thursday morning as a moderate stock slide after a disappointing earnings report turned into the biggest tumble for United’s stock in eight years.
By the end of the day, United’s shares had fallen 12 percent, to $59.78. On Friday, they barely moved, rising just 12 cents, to $59.90.
Analysts said they were fielding questions from investors on Thursday about whether United needed a management change. That’s adding to pressure on Munoz, who has been under fire this year for fighting a fare war with discounters, bobbling the rollout of a new no-frills product and mishandling the furor when a passenger was dragged off a plane in April.
Before the call, “we had heard rumblings from the investment community about another potential management change at United Continental,” Helane Becker, an analyst at Cowen & Co., said in a note to clients. After the call, “they aren’t rumblings, but full-fledged screams.”
United Continental Holdings declined to comment on analysts’ discussions of any management changes. On the call, Munoz said the current managers need more time af- ter inheriting an industry laggard from previous leaders.
“We have dug ourselves in a hole from a competitive perspective, and the team that we’ve gathered to get out of here is about regaining that competitive advantage,” he told analysts.
Munoz, 58, took over two years ago but quickly had to deal with serious health problems.
He was out for a long stretch of 2015 before returning to work in 2016. Still, that year United’s shares gained 27 percent, the most among major US carriers.
But the winning streak petered out. United suffered a public-relations fiasco from the dragging incident. Analysts faulted it for endangering its profit goals by implementing a no-frills “basic economy” offering too widely. Aggressive growth and a price war with discounters this summer battered its fares.
Now investors are ques- tioning the strategy — and whether Munoz and Kirby are able to carry it out.
“Is this a catalyst for management change?” Stifel Financial analyst Joe DeNardi said in a research note Thursday after the call. “That’s the No. 1 question we’ve received today.”
It’s hard to see how United’s current strategies will close the profit gap with Delta, DeNardi said in a follow-up interview. United’s cost per seat-mile should be falling as it ramps up the supply of seats and flights, he said. Instead, costs are rising.
“We’re going through all of that, and we’re just not ready to give detailed commentary on 2018 for costs,” said CFO Andrew Levy.
United’s leaders have about six months to show improvement or face a shake-up, Bloomberg Intelligence’s George Ferguson said. At a minimum, the next time they address investors, they need to do a better job.