Investors betting on United’s turnaround
United Continental Holdings, the longtime laggard of the U.S. airline industry, has passed American Airlines Group in an important yardstick: market value.
Investors betting on United’s turnaround strategy have pushed the carrier’s market capitalization to $22.8 billion, nosing ahead of American’s for the first time since 2014. Fueling the stock gains: a belief that United’s new president, Scott Kirby, will juice revenue. CEO Oscar Munoz brought on Kirby from American, where he had the same title.
“It’s a recognition that Kirby is bringing his playbook over to United and doing some good things,” said Kris Kelley, an analyst at Janus Capital Management, which owns shares in the Chicago-based airline, American and Delta Air Lines. Delta is No. 1 by market value.
United, which has a major hub in Houston, has advanced 53 percent since Aug. 29, the day it announced Kirby’s appointment as president, compared with a 21 percent gain at American, the world’s biggest airline by traffic. United continued closing the gap in midNovember when it outlined a turnaround plan. United also has outpaced a broader Bloomberg index of U.S. airlines, which has climbed 34 percent.
“I really think that is attributable to investors not as much coming off of American, but people getting onto United with Scott Kirby,” Kelley said. Representatives of the airlines didn’t respond to requests for comment.
United still trails American and Delta in average airfare received per mile in the U.S., so its renewed focus on domestic operations provides more room for improvement, Bloomberg Intelligence analyst George Ferguson said.
The carrier’s surge has erased a $4 billion difference in market value with Fort Worth-based American since Kirby was named. Both carriers still lag far behind Delta’s $34.7 billion.
Kirby is part of an overhauled management team assembled by Munoz, who took over in September 2015. The group, which includes a new chief financial officer, has drawn up a blueprint to catch Delta’s profit margin by 2020 through $4.8 billion in revenue and cost-saving initiatives.
Kirby has had a central role in shaping and communicating the plan to investors and employees. He has promised to boost connecting flights at some hubs and improve its outof-date revenue management system, which determines how many seats to make available at which prices.
To be sure, the total value of American far exceeds United’s when accounting for debt as well stock. American’s enterprise value, as the measure is known, was about $41 billion through Wednesday to United’s $29 billion, according to data compiled by Bloomberg.
Nevertheless, some investors see United as less risky than American, Cowen & Co. analyst Helane Becker said. Flights across the Atlantic historically have been moneymakers for airlines, but those profits have come under pressure from a flood of cheap flights from European lowcost airlines. American’s joint venture partner, British Airways, is particularly vulnerable, she said.